After becoming IT hub for the West, India is now dominating IT operations of East Asian firms

In the last few years, the focus of Indian Information Technology (IT) companies has been shifting to the domestic market and Asia-Pacific as the opportunities of growth in traditional large markets like the United States and Europe saturate. Riding on the growth opportunities in the United States and Europe, the Indian IT companies posted double-digit growth in the last three decades. However, in the last few years, these markets have saturated, and therefore, the companies are looking for new avenues of growth.

East Asian countries, which constitute some of the largest economies of the world, have significant avenues for growth as these markets are still in the process of digitization. Moreover, these countries have a dearth of IT talent due to low English proficiency- the major language of computer coding. So, the companies in East Asia are hiring Indian IT engineers to provide tech solutions to their companies as well as the large Indian companies are eyeing hefty contracts for providing IT solutions to East Asian businesses.

The growth rate of revenue for IT companies in developed markets is around 2-3 per cent while that of Asia-Pacific has the potential to grow at 30-40 per cent. “Other emerging markets in Asia-Pacific like Japan, China and India, which currently contribute barely 5% to revenues of IT services players, have a potential to grow by 30-40% per annum as well,” said Sid Pai, partner at a research and consulting group.

Rakuten, a Japanese e-commerce giant, which already has 1,000 IT engineers in India, plans to double its workforce in the country in the next two years. As per a report by Nikkei, Japan’s premier financial newspaper, the algorithm that supports 37 billion dollars businesses for the company, is written by Indian software engineers.

As the business of the company expands amid pandemic, it is facing a shortage of engineers, therefore, plans to double the workforce in India where it set up a unit for developers in 2014 and recently hired 1000th employee. “It was getting difficult to recruit talent that meets our expectations in Japan, which prompted us to turn to India,” Yasufumi Hirai, Rakuten’s chief information officer and chief information security officer told Nikkei.

Japan, whose total IT workforce is 1 million, is facing a massive shortage of skilled software engineers while in India, more than a million IT engineers graduate every year. Therefore, the companies from Japan, South Korea, and the United States are setting up research and development units in Indian cities.

“What will happen once we reach 2,000 people? Since the competition for recruiting talent is tough, I think it would be difficult to expand to 3,000 in Bangalore alone,” Hirai said. “We should think about setting up operations in a second city.”

Sony, the Japanese electronics giant, set up an Artificial Intelligence research unit in Bengaluru and Mumbai in July this year. Not just Japanese, but the companies from South Korea, China as well as American tech giants are also setting up research and development centres in India. Samsung and Huawei, the tech giants from South Korea and China respectively, hire thousands of engineers from India for research and development purposes.

Recently Microsoft announced that it will set up a third development centre in Noida and hire thousands of engineers. Apple, which set up a centre in Hyderabad in 2016, is set to build another in Bengaluru. Google already has offices in four Indian cities.

The Indian government is aggressively promoting medium and small IT companies in non-English speaking regions like Africa, Latin America, China and Southeast Asia because knowledge of English is essential for coding at the commercial level and therefore these countries cannot train software engineers in large numbers.

Asia-Pacific region “will remain the fastest-growing emerging market, especially Association of Southeast Asian Nations (Asean) and China, which offers a lot of sophistication in terms of varied deals” said Sanchit Vir Gogia, chief analyst and chief executive of Greyhound Research.

The pandemic has accelerated the adoption of Information and Communication Technology (ICT) by businesses across the world. Given India is already a dominant player in the sector with a 200 billion dollars industry (more than half of which comes from exports), the adoption of ICT would bring a massive revenue boom for Indian IT companies, and this time source will be Asia-Pacific and domestic market.