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India not yet all IT needs to
be
By Indrajit Basu
KOLKATA - For
all the gloom and doom theories doing the rounds in the Indian
information technology industry after last September,
India's IT exports to the US have actually grown. And,
while IT spending by large US-based corporations still
refuses to grow, India continues to remain top of the
mind for US IT managers interested in offshore
development and maintenance services; so says a recent
report titled, "IT Spending Survey: US" prepared by
Goldman Sachs.
"Corporate interest [of the
US-based companies] in offshore services seems to be
generally stable," said Goldman Sachs adding, "The
recent geopolitical problems in India and Pakistan may
have tempered interest for some corporations, but for
others, increased corporate focus on cost cutting has
increased interest in India." India's exported software
services to the US went up by 31 percent to US$4.7
billion since then, said the report.
But the
National Association of Software and Service Companies
(NASSCOM), India's apex industry lobby, says that many
things have changed for the IT industry since that
fateful day. For one, most contracts have become fixed
priced ones; billing rates have been pruned; and more
services have been added to portfolio - including system
integration, package implementation and network
management.
"Until last year, nearly 65 percent
of Indian IT exports went to the US," said NASSCOM
chairman Arun Kumar adding, "Indian IT companies have
since taken steps to enhance business in Europe and the
Asia Pacific."
According to NASSCOM, while large
Indian players such as Wipro, Infosys and Satyam have
their US listings to fall back on (which lends
credibility to the players in other major markets),
mid-sized IT players grappling with the question are now
set to place their bets on the "inside out-Trojan Horse"
approach to leverage the Europe market.
This
model entails the company setting up a local subsidiary
in Europe (for that matter any new and uncharted market)
and approaching customers as a local player. The Indian
development back-end is leveraged as a competitive value
addition for getting work outsourced at lower costs.
"This clearly gives the client a sense of
confidence because the IT company is accountable and
local legal enforcements can apply to the deal," says
Ravi Ramu, CFO of MphasiS-BFL. "While having a
subsidiary is not essential, it is certainly the better
way to approach the market, rather than just have a
branch office outpost there," Ramu adds.
However, according to industry experts, the most
significant change that has occurred in the past year is
that the security of IT infrastructure and, in turn,
information system design, received the attention that
it deserved (but remained underserved for years). Indian
companies, particularly the IT offshore service
providers, have beefed up their security networks
considerably.
"Most IT offshore service
providers are even ready with disaster recovery plans
that US-based executives were asking for," said Joy
Ghosh, country manager of Symantec India, makers of
anti-virus tools.
On the downside, however,
Indian IT companies did see a southern movement of
billing rates affecting the profitability of even blue
chips such as Infosys and Wipro. Their overseas clients
insisted on rock solid alternatives that forced Indian
IT companies to invest not only in Indian development
centers but also in global development centers over the
past one year. "This has led to major investment costs
in terms of communication and office infrastructure,"
said a study by the Bangalore-based Indian Institute of
Information Technology (IIIT).
But that had an
upside as well. "In the process, Indian IT companies
have become multinationals, with operations in dozens of
countries," adds the IIIT report. "Companies like
Infosys today have more than 2.5 percent of employees
whose nationality is other than Indian and who come from
more than 33 countries - a true Indian MNC in the
making."
The IIIT study says that Indian IT
professionals have undergone paradigm changes as well.
"To Indian IT professionals, the September 11 disaster
meant re-assessment of their core skills to include
security analysis in the design of any system; it has
implications for their very attitude to system design,
their skill sets and in the process, an approach to
building systems that are architected rather than built
in haste. In the process, the very process of
information system design has matured, which brought
about maturity of the IT professionals' mindsets too."
The Indian IT industry, meanwhile, is brimming
with confidence. NASSCOM's annual industry survey
estimated that the total size of the Indian IT services
market for the financial year 2002-2003 is expected to
be $12.3 billion, up from $10.1 billion recorded in the
previous year.
"While globally, IT budgets are
expected to be flat or marginally up, the share of
software services in IT budgets is expected to
increase," said NASSCOM president Kiran Karnik speaking
on the outlook for the current fiscal year. "Moreover,
within IT services we are going to see a further up-take
in outsourcing due to continued cost pressure faced by
global companies. This will ensure continued volume
growth for Indian software and service companies".
NASSCOM added that in the current year, Indian
IT software and service companies will work toward
beefing up their capabilities in the area of marketing
and will examine the possibility of building global
delivery models to overcome geo-political risks.
Further, the industry will try to contain costs by
recruiting in line with utilization rates, hiking the
proportion of variable pay, and better management of
fixed price contracts. The industry is also expected to
witness a rise in merger and acquisition activities as
players try to broaden product offerings and build
scale.
(©2002 Asia Times Online Co Ltd. All
rights reserved. Please contact content@atimes.com
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