Essays

One of the crucial factors, which shaped Indian IT industry in the crucial periods, was the cheap and well skilled resource availability. Nationality no longer defines boundaries. In this industry, enterprise, labour and capital are dispersed across the world.

To support this fact we have Nasscom reporting that in 1999- 2000, 284,000 (including those employed by IT users) professionals were working in India of which about 200,000 were working on H-IB visas.

But the scenario has changed since 2001, or more correctly after Sept 11. Industry sales growth rate sharply declined to a mere 23.1%. Growth of domestic sales fell even more drastically to 10.7 per cent. One of the main indicators being the complete cessation in campus recruitments both in engineering colleges and B school campuses.

If we look back at the IT industry in our country, we may say that it can be broadly divided into three phases.

The first one from 1995-99 had been predominated by theY2K problem. In 2000-01, e commerce took over, and thereafter ITES is supposedly the next focus of the industry. It had been enjoying a steady growth ever since the early nineties. Even today, in spite of the drastic fall in the billing rates of lnfosys, rapid fall in the profits of Wipro and Satyam, the turnover and net profit growth rate seems to be above average.

The killer USP behind the steady growth of the Indian IT industry is the cost advantage and reputation for quality. Another major advantage is the conversance of Indian software engineers with English unlike their Chinese and Taiwanese competitors. Furthermore the Indian human capital, its skilled and competent pool of engineers, enabled it to make a substantial entry into the software market. The next is the geographical location, being halfway round the world from the US west coast made it the ideal location for firms wanting to work round the clock.

But how long can India ride on these advantages? Wage costs are a small component of the industry's revenue — 20-25 per cent, less than its profit margin - and there are many countries where programmers' wages are not much higher than India's. As for case of knowing English being an advantage, while it is true that India's software exports are heavily concentrated in Anglophone markets, so is global software consumption. Programming requires the most elementary English, with a very limited vocabulary and simple syntax. Thus over a period of time these advantages may also be squeezed and Indian companies need to look for other USPs to stay in the global competitive market.

What the analysts think is that the current domestic industry needs top focus on some key issues to maintain their position in the global market.

 Even though for many years the major target of the Indian companies was to create a global image for themselves, but currently their own bases are threatened. Multinational giants like Accenture and Electronic Data Systems (EDS) are rapidly expanding in India. With the global slowdown, MNC have to look for cheaper destinations, and India is undoubtedly one of the most preferred destination. With the MNC s coming here, Indian companies are losing their price advantages, as they're willing to offer the same offshore rates as Indian companies. At salaries 10- 20% higher than Indian companies, headhunters are poaching employees from the top Indian companies. So the next question arises, how are Indian companies countering it? They are putting up new revenue fronts, like BPO, infrastructure, outsourcing, and package implementation services. They are looking beyond custom development and maintenance work today. What Indian companies need to do today is to shift their focus to much higher value work, like solutions architecting, process engineering and business consultations. For this, they need to improve upon their domain knowledge and client facing skills.

Do Indian firms have the brand name or brand width to get big orders? To wish to grow into world-class outfits, from multi location to transnational they need to gain maturity to handle billion dollar deals and the balance sheets should leverage growth. "While an Infosys handles average deal sizes of$3.5 million, EDS and Accenture have average deal sizes of$30 million. The major problem with Indian companies is that till date they have handled project work so far, not complete IT outsourcing projects. The ; possible reasons may be lack of project managers who have handled large contracts before, the lack of ability to structure contracts so that there is some profit margin left after the tendering process. Since these works are tendered, there is always a tendency for companies to bid low, leading to an unprofitable deal. But things are changing for the better. Many companies are splitting up contracts and assigning multiple vendors. So, in this process parts of a deal can be taken offshore, and then the classic Indian concept of cost arbitrage becomes applicable.

After a promising start in 2001, ITES has failed to maintain its pace in India. Records show, neither Nipuna (Satyam), nor Progeon (Infosys) or Spectramind (Wipro) are yet to make major deals. In 2001, most IT services firms identified BPO as software and outsourcing processes. BPO, unlike software service business, represented a much more stable revenue, though of lower margins. They run for 3-5 years as compared to 6 months to 1 year of IT projects. BPO solutions indicated providing a complete solution. But what IT companies failed to understand was that it was a completely different ball game. The ability to write a software package for an HR or accounting function does not allow one to manage the accounting or HR department of a client. It requires process knowledge; technology expertise alone cannot give that capability. The other problems -faced in companies rushing for BPO businesses are high attrition rates, rising compensation levels, a squeeze on billing rates by companies desperately looking for business at low rates.