Indian Service Industry: Facing a Disruption

Rajat gupta’s comments on Indian IT industry in ET that they should rightly panic, because they haven’t invested in upcoming technologies comes at an appropriate time. Technology, anti-globalization movement, Donald Trump……recession and a combination of various other factors puts the entire gamut of Indian service industry at a great risk. IT was initially powered by the Y2K and outsourcing wave since mid 90s. The entire business model of IT industry: – based on cheap and talented manpower today stands at risk, due to AI and Cloud and other technologies and anti-globalization movements in US. Technology is already disrupting the financial services sector and companies like PayTm are threatening conventional banks. The entire BPO and KPO industry today stands at a Strategic Inflection Point, as protests against outsourcing are rising and new technologies are threatening to make the business model of this industry unviable – inform of automation using AI and cloud. The business model of IT/ITES industry was based on cheap manpower. If overseas clients of these industries can replace manpower using technology – it follows Prof. Clayton Christensen’s classic theory of disruptive innovation:- technology destroying older industries and giving rise to newer industries.
Indian politicians and planners never took pains to develop the two fundamental sectors of the economy:- Agriculture and manufacturing. They never took pains to develop the necessary infrastructure and repeal outdated laws that has held back manufacturing for decades. Today India doesn’t have a single world class manufacturing and engineering giant in the Fortune 500 list, the few ones that are there are monopoly PSUs. The farmer suicides keep popping up in the TV news with unerring regularity.
We are going to pay a heavy price for this. On one hand we don’t have a vibrant agri sector, on the other hand the manufacturing sector still gets bogged down on a daily basis by the inspector Raj – another poisonous legacy of the socialist era and manufacturing struggles with power, road shortages and outdated labor laws. The economy was mainly powered by the educated middle class, who did a MBA/CA and joined the services sector for last twenty years, the PARTY IS NOW OVER. The entire business model of B-schools today stands threatened. As the biggest recruiters of B-schools: – Financial services and Consulting are recruiting no more, they are losing business.
Every company in Indian service industry today (Banking/FS/IT/ITES) needs to have a thorough re-look into their business model and STRATEGY. The British Economist Peter Dickens, once described Technology as the GREAT GROWLING ENGINE OF CHANGE. When Edison invented the electric bulb, it destroyed the gas lamps industry. The Smart phone of today is in the process of destroying many old industries and much before smart phones came in, the QWERTY phones already destroyed the alarm clock industry (Do you recall seeing alarm clocks today in watch showrooms? Also: how many of you buy watches anymore?). The Automobiles in 1900s destroyed the horse drawn carriage industry.
History repeats itself and THOSE WHO FORGET HISTORY ARE CONDEMNED TO REPEAT IT.
In another ten years, more than half of Indian service industry will be destroyed by technology, unless they re-look at their business models and invest in technology. That brings us back to the two primary sectors: manufacturing and Agriculture. Historically every successful nation was powered by manufacturing. Germany, Japan, US, Britain… the list is long. Let’s not talk about the Chinese here – there are other factors that powered Chinese manufacturing, which can’t be talked about in a public forum.
Ignoring and suppressing manufacturing with outdated laws may turn out to be the greatest historical blunder, that Indian planners may have made.

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