Outsourcing budget in digital, cloud to increase in 12-18 months: Nasscom

Outsourcing budget, especially in digital and cloud, is expected to increase in the next 12-18 months as enterprises look to re-balance their technology priorities, according to a Nasscom report titled ‘Future of Technology Services’ released on Thursday.

As enterprises have transformed, there has been a dramatic increase in technology-centric business models with more than 70% of the CIOs prioritizing digital spend and moving from capital expenditure CapEx to operating expenditure OpEx.

IT service providers must reprioritize their offerings to play in covid-19 resilient areas which are in high demand as enterprises are embracing digital. This would require massive shifts in their operating model across sales, delivery and people supply chain which would have to be done keeping margins intact.

“Large deals could further give an impetus to margins. Lastly, providers can maintain an active look-out for inorganic opportunities at attractive valuations which could help drive growth in the next 3-5 years,” the report said.

“We are at an inflection point. While the pandemic has had an impacted on the lives and livelihood, it has also acted as a catalyst for change…Covid will only help in accelerating the technology trends we are seeing today…The industry has seen good growth in Q1 and Q2 and we believe in the next 12-18 months, the opportunity in front of us is huge,” said U.B. Pravin Rao, Nasscom chairman & chief operating officer of Infosys Ltd.

The report conducted in association with McKinsey & Company highlighted that tech natives and digital re-inventors with revenues of over $3 billion have driven 65% of the $6-trillion growth in market capitalization between January to July 2020, indicating that technology is now core to future business recovery.

Covid-19 has accelerated digital adoption across industries as a result of which technology service providers are witnessing a sharp growth in digital deals. Digital transformation deals have seen a 30% jump, while spending in cloud and customer experience have risen 80% and 15% respectively since the pandemic.

“Over the years, Indian technology services sector has had an unparalleled impact on the economy through a multiplier effect on job creation, balancing import bill through sustainable exports, powering startups and driving substantial contribution to GDP growth,” said Debjani Ghosh, president, Nasscom.

“The next 10 years will be fundamentally different from the past and require all stakeholders to develop strategies and insights to identify new opportunities and mitigate the risks. To ensure faster recovery, companies need to develop a two-part response to the evolving landscape: near term plan of action and long-term strategic rethinking,” said Ghosh.

In 2021, analysts are “cautiously optimistic”, especially in the area of enterprise software which is expected to take the biggest leap on the back of remote working and other virtual services. Certain micro-verticals like travel, hospitality, and heavy engineering which have been massively affected by the pandemic will also take longer to recover. Livemint