The EconomistJuly 25th 2020 Business 512 technologically adept, they quickly shifted
their employees to home-working. Within
days, 95% or more of their staff were toiling
remotely—quite a feat in a country with
patchy broadband and countless bureau-
cratic obstacles to sudden changes in work-
place practices. The impact of having fewer
Indians in foreign offices will be mitigated
by greater acceptance of videoconferenc-
ing and longstanding efforts to recruit
workers directly in their foreign markets;
Infosys has 17,500 employees in Europe
and 22,200 in America.
However, covid-19 hit at a time when
growth was already sputtering. The indus-
try’s revenues rose by 6% in 2019, around a
quarter of the historic rate. The Indian
model has been widely aped by global con-
sulting firms such as Accenture, ibm, De-
loitte and ey, all of which now run vast fa-
cilities in India and have dispatched
employees to work directly with global cli-
ents around the world.
For all their tech nous, the Indian giants
have also been unable to keep pace with
technological change. Corporate software
is becoming easier to use, reducing de-
mand for their services. The lucrative lega-
cy business of running mainframes is
evaporating. Helping clients shift to the
cloud makes money but not nearly as
much. Despite some interesting pilot pro-
jects—such as Tech Mahindra’s use of arti-
ficial intelligence to tell apart 1,645 Indian
languages or Infosys’s covid-19 contact-
tracing in Rhode Island—the consultancies
have not come up with a killer app, let
alone powerful platforms like those of
America’s big tech firms.
Worse still, multinationals are increas-
ingly reluctant to outsource their it. Rather
than hire the consultants, many are creat-
ing subsidiaries in India to do the job in-
house—sucking away both custom and
workers from the consultancies. Before the
pandemic India hosted more than 1,400 of
these so-called “captive centres”, employ-
ing a total of more than 1m people, accord-
ing to an analysis by the Ken, an Indian
news website; around 70% of them were
owned by big American firms. Walmart
Labs India, owned by the American super-
market chain, is reportedly on course to
double its staff numbers to 7,000 in the
next year or two.
The popularity of such in-house opera-
tions has to do with the changing econom-
ics of technology. This once required ar-
mies of people, so spreading costs among
many clients made sense. With falling
prices of hardware and software, and more
skilled workers around, a captive centre
can pay for itself with just 50 employees,
says Peter Bendor Samuel of the Everest
Group, a research firm. Firms in industries
from energy to entertainment are discover-
ing the value of developing their own tech-nology. Their pace of spending with the
consultants has slowed (see chart 2).
The Indian it consultancies are not go-
ing away. They retain the ability to solve
common problems at a modest cost. This
month Infosys signed a new ten-year deal,
the biggest in its history, to help Vanguard,
a huge American asset manager, keep re-
cords and run its website. A new genera-
tion of bosses may shake things up. On July
17th hcl’s founder became the last of the
industry’s grandees to step aside, leaving
his daughter in charge. In May Wipro
named Thierry Delaporte, a former execu-
tive at Capgemini, a smaller French consul-
tancy, as its ceo. The new guard have their
work cut out if the Indian champions, hav-
ing helped engineer one profound change
in the nature of the modern corporation,
are not to be left behind by another. 7Systems crash
Indian information-technology services providers
Revenues, % increase* on a year earlierSource:EverestGroup *Constant-currencyterms220151050
2015 2019181716Energy,resources
&utilitiesHealthcare&
lifesciences Technology, media
& telecomsManufacturing ,
distribution & retailBanking , financial
services & insuranceU
nited airlinesbledcashata rateof
$40m a day from April to June. That
is the good news. Delta, a rival, clocked
$43m a day. It was, United said, “the most
difficult financial quarter in its 94-year
history”, as lockdowns and travel re-
strictions led to an 87% fall in revenues.
The travel industry has been eviscerated
by covid-19. But it is not alone.
As America Inc begins to report its
latest quarterly earnings—the first to
capture the full extent of the economic
coma induced to combat covid-19—
companies across all sectors are dis-
closing hits to the bottom line. On July
21st Coca-Cola said its operating income
fell by 34% year on year, as fewer restau-
rants bought its soft drinks and snacks.
Not even big tech was spared. The daybeforeMicrosoftunveiled its own (de-
cent) results on July 22nd, LinkedIn, its
professional social network, said it
would lay off nearly 1,000 workers be-
cause of a drought in corporate recruit-
ment. Overall, profits of big American
firms in the s&p500 index are expected
to have fallen by 44% in the three
months to June, compared with last year,
estimates FactSet, a data firm.
For investors the earnings offer a
belated inkling of how bad things are. By
May one in two s&p500 firms declined to
issue guidance about their results for the
quarter ending in June, citing pandemic
uncertainty. Ignorance being bliss, the
stockmarket swiftly rebounded from its
collapse in March. Now a little know-
ledge may prove a dangerous thing.Seeing is disbelieving
Corporate profitsAmerica Inc braces for an earnings bloodbathRed alert
S&P 500Sources: FactSet;Bloomberg *Estimate †Nodata;netlossexpected ‡AtJuly22ndEnergyConsumer discretionaryIndustrialsConsumer staplesMaterialsFinancialsCommunicationsservicesHealth careUtilitiesInformation technologyProperty403020100Netprofitmargins,bysector,%
Q2 2019 Q2 2020*†
†16014012010080
20191817162015Stockmarket index,Q12015=100Earnings per shareIndex
‡*