Mid-tier IT Firms Can Face Trump Disruption

Most of the deals clinched by mid-tier IT companies are smaller in nature as compared to their large counterparts, which need large cost takeout or digital transformation deals to move the needle in the revenue front. As Trump tariffs and subsequent market disruption have made many enterprises edgy about technology spend, large deals may be few in numbers

Bengaluru: Mid-tier IT services companies are better-placed to deal with the Trump tariff-induced disruption as compared to their bigger counterparts on the back of their less dependence on large deals and pricing advantage. According to company officials in the mid-tier space, mid-tier IT firms with strong sales engine will do better than their counterparts.

“Most of the deals clinched by mid-tier IT companies are smaller in nature as compared to their large counterparts, which need large cost takeout or digital transformation deals to move the needle in the revenue front. As Trump tariffs and subsequent market disruption have made many enterprises edgy about technology spend, large deals may be few in numbers,” said an official with a Pune-based mid-tier IT firm. He, however, said that unless stability comes to the market, growth will be adversely impacted for all players.

Trump administration has imposed tariffs over all its trading partners across the world in order to reduce its trade deficit. From April 2, US has imposed 20 per cent tariff on goods exported from European Union. UK saw imposition of 10 per cent tariff on its exports. European region contributes around 30 per cent of Indian IT industry’s revenue. Such imposition of tariffs has already raised fears of a full scale trade war in coming days, leading to inflationary pressure in the US economy.

According to global investment bank- Goldman Sachs, there is a 45 per cent chance of the US economy slipping to recession in the next 12 months. With recessionary fears lurking, many enterprises are likely to hold back large digital transformation deals in the coming quarters.

Meanwhile, global markets have seen wild swings in the last few days with the US markets alone losing more than $6 trillion in this period. Not only markets in the US, but key market gauges in European region, China, Japan, South Korea and India have lost 5-10 per cent of market cap during this period.

Meanwhile, sources in the know said that IT services firms have started brainstorming over mitigating risks arising from this event.

“Teams managing large accounts are reaching out to clients for understanding the immediate stress levels. As slowdown may lead to emphasis on cost savings, strategy is being designed to sensitise sales team in this respect,” said an industry source.

However, companies are internally preparing to face client-specific issues like ramp downs, and abrupt cancellation of deals as seen during the Covid period.