by Anju Govil
India has the second largest pool of software engineers after the US. Given this figure it is difficult to believe the country rates so badly in the fourth Annual Information Society Index. This index, produced by World Times and International Data Corporation, ISI 2000, measures computer infrastructure, Internet infrastructure, social infrastructure and information infrastructure in each country. May 3, 2000
India is ranked 54 out of 55 countries measured, scoring 871. The US, on the other hand, is ranked second with a score of 5041, just behind Sweden. Worse, India's improvement over last year's score of 793 (for 1999) is marginal. All this when the availability of skilled manpower is not the only advantage India enjoys at the moment.
The IT industry also enjoys the government's blessings and all the concessions that go with it. Growth through 1994-98 was 25.5 per cent in production and 43 per cent in exports. What is surprising is that the players in this sector have failed to climb up the value chain and exploit the favorable conditions to their advantage. Consider this - India enjoys an 18.5 per cent market share in the global market for customized software but less than 1 per cent in the higher value added packaged product segment.
The pattern of volume growth witnessed in the software sector is now being repeated in the virtual world. One reason being cited is the rushed approach adopted towards Web business worldwide. But India's position in the Internet industry makes it really explosive. India will have the largest number of Internet users in Asia by this year end, implying a yearly growth rate of over 273 %. And we already know that this expanding base has shown a ready inclination towards e-commerce transactions.
E-commerce transactions in India are likely to break $68.2 million during the current financial year. Given the profile of people accessing the Internet, this translates into three times as many customers in India's Net space as there are in its real world premium consumer segment. When manufacturers realize this, they want to get involved. Naturally, Indian giants like The Reliance Group and Tata are leading this exodus to the new world of the Internet.
Partnerships
India can match the political will and the human resources of the players leading the race. The missing input, financial resources, is also being provided - in some cases. Indian companies are getting funds from their global partner to facilitate their entry into the World Wide Web.
For example Federal Express' Indian associate, Blue Dart Express, a $40 million courier company, has decided to focus on Internet and e-Commerce for future growth.
Other players are still seeking international partners to aid their entry into the unknown virtual world. One such company is Nippo Batteries, a leading Indian manufacturer of batteries, which is hoping to tie-up with a UK-based company for Web applications and development.
Unsteady Start-ups
India has a population of 950 million, and the number of multiple usage Net connections is expected to increase from 7.16 million in March 2000 to 17.6 million by March 2001. But this isn't the only avenue of potential. Consider the facts that 85 percent of households in India have access to the television and Net through cable access is already in 37 million households - that's more than in the whole of Europe.
Companies justify their foray into the Internet based on these rosy statistics, and have little inclination to take professional help from a qualified consultant. In most cases, a person from the company is designated to prepare a project report and prospect for suitable global partners.
Unmindful of the strategic planning that big companies adopt and the expertise which a foreign partner can bring, companies from all industries and level of operations are planning to find a foothold in the World Wide Web.
Immediate fall out of this lack of planning is a company making promises to its investors based on a non existent growth model. Lack of proper business models also means that companies are spending more on marketing and less on efforts to develop standards, processes or work flow models. In some cases the hype created through advertisements in the traditional media attract the venture capital, and in others the hype follows the venture capital inflow.
Whatever be the trigger, the media, who are still trying to learn to analyze this volatile industry and who suffer from a lack of historical data, contribute to creating false hype. And the cycle continues with more and more new ventures being announced every day.
In some cases, even a brand which has been built up through decades of investment and nurturing, is put at stake. Take the case of "S. Kumars", a highly trusted and respected brand for its textiles, suiting and garments. It recently announced its foray into the Web world. The working model is very simple. Anybody with a capacity to invest about $3000 is asked to open a pay phone booth allowing public access. This set-up will subsequently also become the delivery point for the merchandise sold on the company's e-commerce site.
The only catch is that this merchandise will be bought because of price and convenience factors. Positioning or brand value makes no difference. Is this the right kind of company to risk what it has so carefully built up before for an Internet presence?
Out Of Balance
We all know that a significant proportion of Internet transactions are value based. Of $28.8 million e-commerce transactions completed during 1998-99, only $2.72 million was from retail business. Business to business deals constitute the majority of e-commerce transactions in India.
Although technical skills are available in the marketplace, management skills are proving to be more elusive. The Web bandwagon is sweeping existing business owners off their feet, and taking many of their blue eyed boys with it. The latest to switch sides are successful managers from the corporate circuits. They are quitting from well-rewarded and secure positions to join Internet start-ups and prove themselves as good entrepreneurs.
Helping them on this path are the angel investors and venture capitalists, who are now laying more emphasis on the presence of professionals in the management team of any start-up venture. The result is that many people are switching jobs despite the fact that most of the big Internet ventures have yet to take off. And where they have taken off, they have yet to make any money.
As all the accountants, business managers, entrepreneurs, journalists, industrialists and companies get caught up in the World Wide Web, India is fast pushing itself into an unbalanced nation, with the majority of its skilled workforce looking only at the IT industry and Internet revolution for their source of jobs.
In spite of all-pervasive involvement in the Internet world, only three Indian companies are listed on NASDAQ, compared to 97 companies from the tiny country of Israel. Israel has achieved this growth outside the Internet world. More than 50 percent of Israeli companies are from non-IT sectors, but most Indian companies are from the IT sector.
It's fine to rely on technology-based growth, but it does need to be well balanced. The current haphazard growth could fall flat on its face, or leave the country in a permanent slot at the lower-middle level of the value/revenue chain.
Anju Govil is a Web developer based in Bangalore, India.
Penton Media (an associate of internet.com) organizes India's premier Internet trade show - Internet World India 2000, September 27-29, New Delhi, India. For more details visit http://events.internet.com/
17 May, 2008
13 May, 2008
Information technology in India
Gravity's pull
Dec 13th 2007 BANGALORE
From The Economist print edition
Is India's computer-services industry heading for a fall?
OnAsia
MOST foreigners visit Mysore to see its many palaces, testaments to bygone royal splendour. But the city, south of Bangalore, is also a good place to observe monuments to India's modern might. One of its suburbs contains a lush campus with a collection of futuristic buildings: the Global Education Centre, one of the world's largest corporate-training facilities, operated by Infosys, a leading Indian information-technology (IT) services firm.
Visiting the centre, you would think that for India's IT businesses, the sky is the limit. Rarely has an industry grown so rapidly for so long. It has boasted annual growth rates of nearly 30% in the past ten years, with revenues now nearing $50 billion, about 5.4% of India's GDP. But some in India are starting to worry that the industry is heading for a fall. At the very least, analysts say, the industry's leading firms—Tata Consultancy Services (TCS), Infosys and Wipro, to name only the three largest—need to do more to adapt their business models as the industry matures.
The “IT” in India's IT industry has always been something of a misnomer. True, most of its more than 1.6m employees sit in front of computers, writing software for Western firms, remotely maintaining their computers and electronically handling some of their operations. But the business is mostly about people and processes. The very essence of India's IT firms is their ability to marshal huge local workforces to supply high-quality services.
One of their biggest innovations has been to borrow ideas from manufacturing and apply them to services, by building a sophisticated human supply-chain, for instance. They have also focused on certification and continuous improvement—a result of having to be, at least initially, better than their Western rivals in order to win business, says Girish Paranjpe, the boss of Wipro's consulting arm. Today more Indian than American firms meet the highest internationally recognised standards for software development.
All this has enabled Indian firms to take advantage of a rare, if not unique, set of market conditions. On the demand side, Western companies needed to cut costs, but their computer systems still required a lot of human labour. On the supply side, there was an army of well trained, English-speaking engineers demanding only a fraction of a Western salary. Fast fibre-optic links brought both sides together and a favourable exchange rate made this global connection even more attractive: customers paid in dollars, and employees were paid in rupees. The result was a “low-risk, high-margin business”, says Kiran Karnik, the outgoing president of Nasscom, the industry's trade group. To increase sales, firms could hire more people without caring too much about productivity, with the result that growth in revenue correlated closely with growth in headcount.
So why the concern? Indian IT faces a host of threats, says Sudin Apte of Forrester Research, a consultancy, who argues that the industry needs to reinvent itself. The most immediate difficulty is the rapid appreciation of the rupee against the dollar in recent months.Since its low in mid-2006, it has gained 16%. This has made a liability out of what had been a big asset for Indian IT firms—making most of their sales in America. The strong rupee has also thrown other structural problems into relief. These fall into three categories.
What goes up...
First come the familiar problems. One is India's clogged and insufficient infrastructure: workers in Bangalore can spend four hours a day in traffic. Then there are the tax breaks that subsidise the industry, some of which expire in 2009. There is also a growing talent shortage. Indian engineering schools award around 200,000 diplomas each year, and produce around 250,000 graduates, but only half are employable by the IT industry. Employees have learnt to switch jobs for better pay, and salaries are going up by 10-15% a year. For senior staff, they will soon reach Western levels.
Second, competitors are starting to emerge. IT industries in other parts of the world, such as Central Europe, may never match India's in size, but they can still pick off valuable contracts. Meanwhile, foreign IT firms have been beefing up their Indian subsidiaries. In 2002 the six biggest—including Accenture, IBM and HP—had fewer than 10,000 employees in total in the country. Their combined Indian workforce now exceeds 150,000. This enables them to rival the Indian firms in scale and cost, while exploiting their stronger brands and international scope.
The third category concerns future threats. In the short term a slowdown in IT spending looms as America's economy weakens. In the longer term Indian firms must keep abreast of technological changes. Many of the services they now provide will eventually be automated; this is already starting to happen, for example, in software testing. Western firms, meanwhile, increasingly want Indian providers to do more than just keep systems running; they want help in developing new solutions to business problems—something few Indian firms are set up to do.
The question is whether the industry's business model can cope with these threats even as the potential for growth in its established markets declines. According to calculations by CLSA, a French-Asian investment bank, Indian IT firms will soon have a share of nearly 20% of their addressable market's value and almost 40% of its volume. They will also struggle to make their existing business more efficient: most fat has already been cut.
Many think that Indian IT firms need to move into new, higher-margin services and to cut the link between revenues and headcount, for instance by offering more consulting, developing more intellectual property and making acquisitions abroad. To be fair, the leading firms are already doing this. Infosys now generates nearly a quarter of its revenues from consulting, says its new boss, S. Gopalakrishnan; and Wipro recently paid $600m for Infocrossing, an American firm, the largest in a series of acquisitions by Indian firms.
But is the industry moving fast enough? Nasscom's Mr Karnik says no, but he thinks there is still time to change things. Partha Iyengar of Gartner, another consultancy, sees more urgency. He expects slower growth and lower margins if the big firms are not making most of their money in consulting and other high-margin areas within three or four years. This will be hard, he says: today's focus on people, processes and profits may keep many firms from reaching the next level. But, he says, India's IT firms have shown before that they can change if they really need to.
Even if the heavyweights stumble, smaller firms are ready to take up the baton. For example, MindTree Consulting was founded 1999 in anticipation of the very threats that have now materialised. However potent these threats prove, they have already demonstrated that for all the talk of the world being flat, economic gravity still applies.
Dec 13th 2007 BANGALORE
From The Economist print edition
Is India's computer-services industry heading for a fall?
OnAsia
MOST foreigners visit Mysore to see its many palaces, testaments to bygone royal splendour. But the city, south of Bangalore, is also a good place to observe monuments to India's modern might. One of its suburbs contains a lush campus with a collection of futuristic buildings: the Global Education Centre, one of the world's largest corporate-training facilities, operated by Infosys, a leading Indian information-technology (IT) services firm.
Visiting the centre, you would think that for India's IT businesses, the sky is the limit. Rarely has an industry grown so rapidly for so long. It has boasted annual growth rates of nearly 30% in the past ten years, with revenues now nearing $50 billion, about 5.4% of India's GDP. But some in India are starting to worry that the industry is heading for a fall. At the very least, analysts say, the industry's leading firms—Tata Consultancy Services (TCS), Infosys and Wipro, to name only the three largest—need to do more to adapt their business models as the industry matures.
The “IT” in India's IT industry has always been something of a misnomer. True, most of its more than 1.6m employees sit in front of computers, writing software for Western firms, remotely maintaining their computers and electronically handling some of their operations. But the business is mostly about people and processes. The very essence of India's IT firms is their ability to marshal huge local workforces to supply high-quality services.
One of their biggest innovations has been to borrow ideas from manufacturing and apply them to services, by building a sophisticated human supply-chain, for instance. They have also focused on certification and continuous improvement—a result of having to be, at least initially, better than their Western rivals in order to win business, says Girish Paranjpe, the boss of Wipro's consulting arm. Today more Indian than American firms meet the highest internationally recognised standards for software development.
All this has enabled Indian firms to take advantage of a rare, if not unique, set of market conditions. On the demand side, Western companies needed to cut costs, but their computer systems still required a lot of human labour. On the supply side, there was an army of well trained, English-speaking engineers demanding only a fraction of a Western salary. Fast fibre-optic links brought both sides together and a favourable exchange rate made this global connection even more attractive: customers paid in dollars, and employees were paid in rupees. The result was a “low-risk, high-margin business”, says Kiran Karnik, the outgoing president of Nasscom, the industry's trade group. To increase sales, firms could hire more people without caring too much about productivity, with the result that growth in revenue correlated closely with growth in headcount.
So why the concern? Indian IT faces a host of threats, says Sudin Apte of Forrester Research, a consultancy, who argues that the industry needs to reinvent itself. The most immediate difficulty is the rapid appreciation of the rupee against the dollar in recent months.Since its low in mid-2006, it has gained 16%. This has made a liability out of what had been a big asset for Indian IT firms—making most of their sales in America. The strong rupee has also thrown other structural problems into relief. These fall into three categories.
What goes up...
First come the familiar problems. One is India's clogged and insufficient infrastructure: workers in Bangalore can spend four hours a day in traffic. Then there are the tax breaks that subsidise the industry, some of which expire in 2009. There is also a growing talent shortage. Indian engineering schools award around 200,000 diplomas each year, and produce around 250,000 graduates, but only half are employable by the IT industry. Employees have learnt to switch jobs for better pay, and salaries are going up by 10-15% a year. For senior staff, they will soon reach Western levels.
Second, competitors are starting to emerge. IT industries in other parts of the world, such as Central Europe, may never match India's in size, but they can still pick off valuable contracts. Meanwhile, foreign IT firms have been beefing up their Indian subsidiaries. In 2002 the six biggest—including Accenture, IBM and HP—had fewer than 10,000 employees in total in the country. Their combined Indian workforce now exceeds 150,000. This enables them to rival the Indian firms in scale and cost, while exploiting their stronger brands and international scope.
The third category concerns future threats. In the short term a slowdown in IT spending looms as America's economy weakens. In the longer term Indian firms must keep abreast of technological changes. Many of the services they now provide will eventually be automated; this is already starting to happen, for example, in software testing. Western firms, meanwhile, increasingly want Indian providers to do more than just keep systems running; they want help in developing new solutions to business problems—something few Indian firms are set up to do.
The question is whether the industry's business model can cope with these threats even as the potential for growth in its established markets declines. According to calculations by CLSA, a French-Asian investment bank, Indian IT firms will soon have a share of nearly 20% of their addressable market's value and almost 40% of its volume. They will also struggle to make their existing business more efficient: most fat has already been cut.
Many think that Indian IT firms need to move into new, higher-margin services and to cut the link between revenues and headcount, for instance by offering more consulting, developing more intellectual property and making acquisitions abroad. To be fair, the leading firms are already doing this. Infosys now generates nearly a quarter of its revenues from consulting, says its new boss, S. Gopalakrishnan; and Wipro recently paid $600m for Infocrossing, an American firm, the largest in a series of acquisitions by Indian firms.
But is the industry moving fast enough? Nasscom's Mr Karnik says no, but he thinks there is still time to change things. Partha Iyengar of Gartner, another consultancy, sees more urgency. He expects slower growth and lower margins if the big firms are not making most of their money in consulting and other high-margin areas within three or four years. This will be hard, he says: today's focus on people, processes and profits may keep many firms from reaching the next level. But, he says, India's IT firms have shown before that they can change if they really need to.
Even if the heavyweights stumble, smaller firms are ready to take up the baton. For example, MindTree Consulting was founded 1999 in anticipation of the very threats that have now materialised. However potent these threats prove, they have already demonstrated that for all the talk of the world being flat, economic gravity still applies.
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