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The EY study found that 72 per cent of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59 per cent of CEO respondents across all industries

A latest tech sector study revealed on Thursday that the biggest opportunity for tech companies in 2023 is to adopt an active mergers and acquisitions (M&A) strategy. As valuations come down, the appetite for deals is set to return next year, the study said despite high inflation, energy crisis and crumbling consumer confidence. The EY study found that 72 per cent of tech CEO respondents plan to pursue M&A in the next 12 months, compared with 59 per cent of CEO respondents across all industries.

In a statement, Nitin Bhatt, EY India Technology Sector Leader said, “The weakening economy in Europe and an impending slowdown in the US have led many commentators to sound the alarm bell regarding the future of the Indian tech sector.  “However, such calls are unwarranted. While the next few quarters might see muted expansion as customers tighten their purse strings, the Indian tech sector is on a multi-year growth cycle. Global companies that have embarked on the path of digital transformation are unlikely to abort critical initiatives, and IT services companies will continue to partner with them on digitalization and IT estate modernization journeys,” he added.

The study says that the improvements in the supply chain over the last few years have been thwarted by a decline in the political, economic and financial climate. In third place on this year’s ranking is the opportunity for tech businesses to reduce their dependency on geopolitically unstable geographies by doubling-down on localisation. And tech executive respondents are on board, with 78 per cent now planning to decouple their supply chain – including nearshoring and reshoring. 

On talent, the study found that driven by a re-alignment in work priorities during the COVID-19 pandemic, 56 per cent of employee respondents in the sector indicated they were considering leaving their current role in the pursuit of higher pay, better wellbeing programs and new career opportunities. “Today, the sector is not only dealing with talent shortages to fuel long-term growth, but also with hiring freezes and layoff rounds in response to economic uncertainty,” said the report. 

The report further predicted that environmental sustainability (fourth position in the ranking) will impact the tech sector in 2023 more so than in previous years, as companies adapt to comply with incoming regulation on disclosure around emissions and climate change risks. And a new entrant in seventh position is the potential for edge computing to reach maturity in the next 12 months for those businesses that are willing to invest in new IT architectures. “If the macroeconomic scenario worsens, one can expect further downward pressure on discretionary tech budgets and a reprioritization of spends towards cost take-out initiatives,” Bhatt added.