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Many Indian IT service providers (ITSPs) today will not be around in the next decade, at least not in the same shape and form, and industry consolidation is a distinct possibility in that time frame.

While this is a stark assessment, it is not alarmist. Many of them are facing significant challenges with their service models:

Dependence on labor arbitrage: This helped grow what was a small offshoring industry for Indian IT skills and labor into a $150 billion outsourcing industry today. But the headwinds are strong, and only the foolhardy would meet them straight on. For example, Indian business process outsourcers are feeling the impact of the contraction of US H-1B visas. In addition, the rate of local hires is still moving slowly, while changes in the employment visa regime are picking up pace, threatening to increase operational costs and shrink the margins for many of these providers.

Organizational culture as a key roadblock to digital transformation: Becoming a digital business is not about digitizing tools; it is about becoming a truly digital organization, with a concomitant shift in mindset. For some Indian ITSPs, the results tend to fall short: one-off initiatives in siloed units won’t have a big enterprise-wide impact. Senior management often lacks a complete view of how to set the right ambition, build the right elements for the transformation, and systematically embark on the transformation journey.


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