I attended NASSCOM Engineering Summit in Bengaluru last week. After three years, I had a chance to meet the larger engineering community physically at an event. (Last physical NASSCOM Engineering Summit was in 2019 before the pandemic started).
Like in most physical events, while sessions were good and engaging, the most interesting conversations happened outside at coffee. I met many friends in the engineering community, both business leaders and frontline warriors, and many have interesting tales, war stories, success, and concerns to share. Capturing a few common themes I observed.
- Strong possibility of changing the slope of engineering services growth this decade but so far not evident in financial results. Everyone I met agreed that the pandemic has removed the constraints and assumptions many enterprises had that work can’t be outsourced and offshored. So, if work can be performed anywhere, India is the best place for talent at scale and attractive price points. There is increased interest among enterprises in more engineering outsourcing to India, but so far, interest has not materialized in strong deal flow. But some of us are optimists.
- Digital engineering has the mindshare, but still, a large chunk of engineering is traditional engineering. There are interesting talks about business models and strategies to capture more traditional engineering spend also.
- Recession fears are there but so is optimism about large cost-take-out deals. If enterprises start feeling the adverse impact of the recession on their cash flow, there is a good chance that large cost-take-out deals will materialize. Already hearing from a few stakeholders that initial conversations have been started. Most of the conversations were around these possibilities.
- Margin pressure is evident. The physical attendance at the event was much less than at earlier NASSCOM engineering summits. There was more participation from the Bengaluru-based community while less participation from other cities. Some regular faces I was expecting, and they didn’t come. On inquiring came to know they didn’t get permission to travel because of margin pressure. Another point of discussion about margin with frontline sales warriors is that they are under pressure to request price raises wherever possible and look for new deals at high margin only, sometimes even above 50% GM, considering the impact of supply-side challenges, including high salary rise, attrition, contractor costs, etc.
Bottom Line: In my last eight years of coverage of this engineering services market as an analyst, never seen the engineering community so optimist and also so cautious at the same time. Optimism for higher growth possibilities in the medium and long term while caution is because of current supply and demand condition and their impact on margin and growth expectations. I think engineering service providers can do with more aggression and less caution, even during the recession. Fortune favors the brave!