Indian IT firms’ expansion plans hiact by West Asia conflict
Middle East conflict is aggravating with each passing day. Attacks and counterattacks have disrupted decades of peace in the region. Images of drone and missile attacks have now changed the perception about this oil-rich region among businesses and investors. For several decades now, rich nations in the Middle East have been trying to diversify their businesses away from crude oil. Cities like Dubai, Abu Dhabi, Doha, Riyadh and several more are being assiduously groomed as financial centres, air transport hubs, technology power houses and recreation centres among the global audience. That is the reason that the world’s wealthy and powerful have been flocking to this region for business, leisure and investment purposes. No wonder, many successful Indian entrepreneurs and HNIs India have migrated to such key cities. It has also emerged as a business hub for several sectors in India. For instance, EPC (engineering, procurement and construction) companies like L&T have a large presence in the region, while FMCG companies and food manufacturers count the Middle East as a key market. Indian IT services firms and established startups see the Middle East nations as a key market. On an average Indian IT firms (large and mid-tier IT companies) draw two per cent to 12 per cent of their total revenue from the MENA (Middle East & North Africa) region. It is one of the fastest growing markets for Indian technology companies, which is expanding at around six per cent annually.
Therefore, the ongoing conflict is likely to have an adverse impact on our IT industry. Indian IT firms have been executing billion dollars of government projects in Saudi Arabia, UAE and Qatar, among others. Given the halting of oil shipments and disrupted refinery operations, technology spend by these countries is likely to be lower than last year.
Energy vertical has been one of the growth spots in the outsourcing industry with rich companies spending billions in digital transformation projects. However, the conflict will hit the spending power of cash rich oil companies, even as oil sits at the core of the global economy. Brent crude prices have reached around $84 per barrel from about $65 per barrel a few days back. Such price rise and supply chain disruption due to restricted entry through the Strait of Hormuz is a cause of concern for all economies. If the oil price hovers at the current level for long, it will pull down global economic growth. From the US and China to India, all will feel the heat of global oil price rise. As inflation goes up, the spending by consumers and global businesses will come down. Indian IT firms’ growth prospects will take a beating as technology spending comes down.
Currently, artificial intelligence (AI)-led disruption is making changes in the business models of IT services companies. As a result, the conflict will dampen growth prospects of IT companies. In their bid to diversify their geographical
reach, domestic IT companies are also investing heavily in the Middle East, South America and Africa. But the ongoing conflict will derail expansion plans for now as businesses will try to conserve cash to meet any eventuality rather than spending on technology space. In that way, Indian IT companies are now facing a double whammy in 2026 though the rupee fall against US dollar will provide some cushion to their earnings.
