Tech Services Industry To Sustain Growth Despite Economic Slowdown

The pandemic brought a new world order that forced businesses to adapt and innovate at an unprecedented pace. In this world, technology has played a pivotal role in helping businesses remain operational and grow. As we emerge from the pandemic, the technology services industry is set to sustain its growth despite an economic slowdown, according to a recent report by NASSCOM. 

The Indian technology services industry has undergone a significant transformation and growth over the past two years, owing to the COVID-19 pandemic. According to the recent report by NASSCOM titled Future of Technology Services 2.0 – Reassessing the Outlook, many of the trends that were noted at the start of 2021 have seen an accelerated trajectory. 

In this article, we will examine the report's findings in detail and explore the shifting trends and drivers that are shaping the industry.

Key Findings By NASSCOM

The report suggests that the industry has experienced unprecedented growth and transformation over the past two years. Between 2020-2022, the tech service industry has tracked along the outlook presented in Future of Technology Services 1.0 (FTS 1.0), with cloud and digital spend growing at a higher-than-expected CAGR of 20% and alliances and partnerships being crucial to growth. However, the report also highlights the intensification of the war for talent due to higher than anticipated wage inflation and higher attrition.

Despite this, the report suggests that the consensus analyst estimates indicate that Indian HQ providers will clock an 8-10% growth rate in 2023, driven by accelerated spend in cloud and digital. The spend priorities for CIOs indicate a focus on strengthening the core, with transformation partners becoming more strategic. The report suggests that nearly 30 resilient hotspots are likely to see a 20%+ growth, and buyers would invest heavily in three value pools around 5G/Edge/IoT, sustainability, and the metaverse.

Accelerated Trajectory of Trends

Furthermore, the report highlights the growth in tech intensity which averaged at 4% in 2022, on track to reach 5% by 2030. This indicates that companies are investing more in technology, which is expected to accelerate growth in the future. Additionally, the report identifies the return of spend priorities for CIOs to the pre-pandemic levels, with a focus on strengthening the core and partnering with transformation partners to become more strategic. As a result, 75% of CIOs plan to increase spend in cloud and digital, and more than half plan to switch or consolidate service providers in at least one service line. With the industry set to continue to grow, it is crucial for companies to adapt and innovate to remain competitive in an ever-evolving and volatile landscape.

Anticipating a Slowdown in Tech Services Growth

Although the tech services industry has experienced unprecedented growth and transformation since the onset of the COVID-19 pandemic, the NASSCOM report suggests that a slowdown is on the horizon. The report indicates that the growth rate is expected to return to pre-pandemic levels, with a projected 3-4 percentage point decrease. This anticipated slowdown is mirrored in the expectations of 70% of CIOs who foresee an economic slowdown in the next 18 months. Furthermore, 80% of these CIOs expect a -15% discretionary spend, indicating a conservative approach to investment. However, despite these cautious projections, the report predicts that Indian HQ providers will still achieve a healthy 8-10% growth rate in 2023, fueled by continued investment in cloud and digital technologies.

Overall, the NASSCOM report emphasizes the need for providers to be agile and responsive to the evolving needs of their clients in order to remain competitive in a challenging economic environment.

Prioritizing Transformation Partnerships

The report highlights the importance of transformation partnerships for CIOs, with a focus on strengthening their core operations. According to the report, 75% of CIOs plan to increase their spending in cloud and digital, indicating the growing importance of these technologies. Furthermore, more than half of the CIOs plan to switch or consolidate service providers in at least one service line, indicating the need for more strategic partnerships. The report also notes that IT buyers are increasingly seeking transformation partners rather than just technology vendors, indicating a shift in the way businesses are approaching their digital transformation efforts.

This shift in focus towards transformation partnerships can be attributed to the increasing complexity of the digital landscape, as well as the need for a more integrated approach to technology adoption. As businesses increasingly rely on technology to drive growth and competitive advantage, they require partners that can offer a broader range of services, including consulting, implementation, and ongoing support. By consolidating their service providers and working with partners that can offer end-to-end solutions, CIOs can better manage their digital transformation efforts and achieve their business objectives more effectively. This trend is likely to continue in the coming years, with more businesses seeking transformation partners that can help them navigate the complexities of the digital landscape and drive sustainable growth.

Future of the Industry

As the industry moves towards the future, there is a clear focus on more resilient and integrated technology use cases, operating model changes, and sustainability. According to the report, there are nearly 30 resilient hotspots that are likely to experience 20%+ growth, indicating the direction for investment. Additionally, the report highlights that buyers are expected to invest heavily in three value pools, which are 5G/Edge/IoT, sustainability, and the metaverse. These value pools will provide significant opportunities for providers who are ready to adapt and innovate to meet changing demands.

Source: NASSCOM