sortiwa
[ad_1]
Indian IT services providers had to wage a two-front battle in March.They had to ensure that most employees worked from home and simultaneously achieve deliverables on projects for clients across geographies. As the new financial year starts however, they will be faced with a third and more uphill task.This will involve devising strategies to deal with project cancellations and delayed payments as clients take a hit due to the Covid-19 virus outbreak across Europe and North America. It is no small matter. India’s $137 billion software and services export industry earns more than 85% of its revenues from these two regions.“Almost all large deals have been put on hold or cancelled,” said Peter BendorSamuel, the chief executive of US-based IT advisory and research firm Everest Group. “This is across the board and no management team has the capacity to push through new complex deals,” he added.74920611
Globally, businesses have become more concerned about the health of their employees amid the rampaging spread of the disease, which has claimed more than 30,000 lives so far across the world. The first signs of the business impact are evident. Countries have cancelled flights, locked down cities and enforced social distancing to keep their people safe from the pandemic.For instance, Bengalurubased Sonata Software told analysts that the outbreak will negatively impact business in the first two quarters as one of its key clients, TUI Travel, a UK-based tour operator, has suspended operations. Not only will smaller IT companies be affected, but also the top six Indian IT services firms including USbased Cognizant. These six companies together account for an annual revenue of $70 billion and employ more nearly 1.3 million people.“All the large tech services companies will see a fall in revenue as they will scramble to get incremental business from existing businesses,” Madhu Babu, senior IT analyst at brokerage firm Centrum, said. “Forget fresh deals,” he added.The impact is for real.74920615
“Now, we are doing just support and keeping our fingers crossed,” said an executive at a large tech services firm. “No one is sure how this will pan out. Some of our clients are likely to delay payments for the work we have already done.”Indian firms will see large deals dry up over the next quarter as companies focus on business continuity for the next few months.In fact, midcap and small tech services providers, which depend on two or three key clients, are going to be “hit hard”.These companies can also expect contracts to be renegotiated as the existing businesses or business models of clients change in a postpandemic world. “We estimate the impact of the virus will continue until mid-May but it (business) may pick up by the end of the first quarter,” said Ray Wang, chief analyst at Constellation Research. Companies that aggressively chase the next large project will have to wait, he added, as businesses get back on their feet.“Any large contract that was scheduled to expire will be extended for six to nine months to give everyone time to get through this crisis,” Wang said.While large companies will tide over the crisis given their operational strengths and distribution of clients across varied industry sectors, midsize and small companies will struggle to deal with a double-whammy of business loss and onsite employee cost, said Babu of Centrum.“It is even more challenging for a small company,” said Babu. Midcap companies may also face a bigger impact than larger firms in case their clients decide to consolidate their IT service vendors to cut costs, in the coming months.“Any scope of vendor consolidation will put midcaps on the losing front as large cap IT players are better placed with considerable exposure to a Fortune 500 client base,” wrote Devang Bhatt and Deepti Tayal of ICICI Securities, in a recent note.Some analysts, however, believe large IT firms have the necessary staying power to deal with such a crisis. These companies “will navigate through the near-term economic shocks,” said Apurva Prasad, IT analyst at HDFC Securities, in a report last week.Leading IT services exporters have shown some promising signs amid the gloom, such as moderate acceleration in deal pipeline, 5-20% increase in annual contract value of digital deals, growth in digital driven deals largely by existing customers and limited impact on service delivery from the pandemic, Prasad said.However, concerns abound over conversion of new deals, primarily due to the outbreak. In the short term, the overall competitiveness of the market is likely to decline, said Steve Hall, President – ISG EMEA and Partner, Digital Advisory Services.“There’s still a lot of great capability out there, a lot of service providers with outstanding offerings, but the sense that they could go competitive or renegotiate right now in the middle of this would be difficult… With the current situation of work from home, to talk about how their offerings are different than somebody else’s would be difficult,” Hall said.IT services providers should hang on to clients, rather than hunting for new ones or taking advantage of fallouts that rivals may have with their clients, industry experts said.There could also be steep competition as new deals dry up. “The good news — many deals have been multi-year. This softens the blow. However, we do see a higher competitive posture for new business and renewals,” said Wang of Constellation Research.
[ad_2]
Source link
