Pandemics have been a part of the world throughout history and have had a negative impact on businesses across all levels. The influenza pandemic of 1918, also known as the Spanish flu, had a devastating effect on businesses from over the world. Even though the total amount of loss incurred remains unknown, scientists estimated that the businesses in the U.S. suffered an overall economic loss in billions. The sectors that faced the maximum downturn were service providers and entertainment. Now, the coronavirus outbreak has brought about a similar stir in the global economy, where researchers estimated the overall loss to be USD 1 trillion.
In India and across the world, the outbreak has not just affected a few sectors but all stakeholders of the economy. For example, the venture capital industry in India is facing a downturn as self-isolation and social-distancing are affecting investor meetings. At the same time, a negative impact is apparent across both the blue-collar and the white-collar sector.
With the number of COVID-19 positive cases rising and building fear among the public, it would not be pessimistic to say that the world is yet to see the worst. In any case, it is just as crucial to take stock of the scenario right now.
Is the Global Technology Sector Falling?
During the 2008 recession, some businesses were impacted more than others. And surprisingly enough, the IT sector did not witness a severe decline as expected. Now, the question remains whether the technology industry will see a similar backlash.
The overall IT spending is now expected to decline 2.7 percent in constant currency terms by the end of this year, as coronavirus impacts the global economy and forces the majority of companies around the world to respond with contingency planning and salary cuts in the short term. In comparison to the previous recessions, the IT expenditure on software, IT services, and hardware is likely to fall down by more than real GDP overall, since consumers and commercial IT vendors have implemented rapid cuts to capital spending in line with the shrinking revenues, market valuations, employee headcounts, and overall profit.
Businesses across the world that are the most impacted during the first half of the year will respond by reducing the number of purchases and projects. Moreover, the lack of visibility with regards to medical factors will make sure that many companies take an extremely wary approach when it comes to budget contingency planning in the coming months.
Some of the sectors that are affected because of the outbreak are mobile phones, PCs, laptops, tablets, and peripherals, with overall devices spending to shrink by 8.8 percent in contact currency terms. The total spending on server/storage and network hardware will significantly shrink overall despite robust demand for cloud services as enterprise customers postpone purchases during the initial response stage of the pandemic. The overall spending on infrastructure (including cloud) will witness an increase by 5.3 percent; however, all of this growth will come from enterprise spending on IaaS and cloud provider spending on servers. On the other hand, the overall expenditure on server/storage hardware will decline by 3.3 percent, and the spending on enterprise network equipment will be down by 1.7 percent.
How Will the Global IT Industry Slowdown Amid COVID-19 Impact India?
The coronavirus pandemic has taken the entire world by storm. In a matter of weeks, this deadly disease has officially pegged the world to be in a recession, which is expected to be much worse than the 2008 financial crisis. The severity and duration of the decline will be dependent on several factors, such as the behavior of the virus itself, measures undertaken by healthcare institutions, and economic interventions.
The global IT services industry is going to see a decline in overall revenues by approximately 3 to 4 percent, as the extraordinary nature of the slowdown of businesses induced by the COVID-19 pandemic throttles the entire world. Readings in April suggested that the impact of the pandemic on the overall IT sectors of the world will surge as the year unfolds. By that time, the exact extent of how much the pandemic has impacted India will also be evident. Taking into consideration how important the IT sector is for India, the decline in the overall IT revenues across the world may cost India billions of dollars.
While the slowdown will hugely impact hardware businesses, studies suggest that the trickle-down effect will also affect the IT services industry across the world. As indicated by the India Brand Equity Foundation, the BPM (business process management) and IT sectors of India was valued at USD 177 billion in the fiscal year 2019, of which overseas projects or exports accounted for USD 137 billion. While it is difficult to conclude how the IT sector in India may develop or decline in overall volume in 2020, this figure itself is worrisome to a great extent.
As India plays a significant role in the global IT services, a downturn by nearly 3 to 4 percent in the worldwide IT expenditure is bound to have a severe impact on India as well. At the estimated rate of decline, if the overall IT services export is taken into consideration, India stands to lose more than USD 5 billion. This, in itself, can be a crucial factor to consider, as a global economic slowdown has officially pushed the world into a brick of a recession, with many executives and employers undertaking salary cuts and thousands becoming jobless across the globe and through industries. While the majority of the Indian population are being engaged in IT services with multinational giants, this can be a crucial cause for concern.
While the actual impact of the outbreak on the Indian subcontinent will be evident by mid-2020, experts predict a decline in terms of contract renewals, IT expenditure, and new deals and agreement getting signed as industries amend by cost structure in coming months. Besides, IT vendors will have to forcibly rework on their growth targets through 2020 as the impact will become evident in the coming few months.
With upsetting projections showing what it may cost to the global IT sector and other industries in the long run, it is up to the tech giants such as Google, Accenture, IBM, and other stakeholders in the industry on how they will innovate and readjust to the new economic parameters to survive the blow. With the overall technology sector taking a major hit, the blast on IT services is expected to be heavier than preliminary estimates.
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