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US downturn, a reality check for Indian software companies

Fakir Chand, in Bangalore

The ongoing five-day BangaloreIT.COM 2001 has turned out to be a perfect setting for the subdued Indian software companies to do a reality check on what is in store for them in the light of the downturn in the US economy as well as in its IT industry.

With over 60 per cent exposure to the US market, Indian software companies have been reeling under the impact of its tech meltdown, and facing price pressures on billing rates since the downturn began early this year.

Barring a few top-notch players like TCS, Wipro, Infosys, HCL, and Satyam, majority of the small and medium enterprises have been facing rough weather with contracts ending and projects drying up.

To take stock of the crisis gripping the industry, the Bangalore chapter of the Silicon Valley-based The Indus Entrepreneurs has organised a two-day brainstorming session in Bangalore from Friday as part of the IT.Com mega show.

Inaugurating the session, Infosys' president and managing director Nandan Nilakeni, who heads the Bangalore's TiE chapter, admitted that the current situation was indeed challenging in the short-term though the outlook was positive in the long term.

"Having got used to annual growth rates above 50 per cent over the last couple of years, the Indian IT industry is suddenly faced with the kind of crisis that was unknown or seen before. Though the pace of its growth has slowed down, majority of the software companies are still out of danger, thanks to their inherent strengths and resilient nature," Nilekani stated.

Making a comparative outlook of the US as well as the Indian IT firms, Nilekani said in stark contrast to several US tech companies posting losses, cutting on expenditure, and laying off employees in thousands, majority of the Indian companies were better off, posting modest profits, and consolidating their businesses to be smart and competitive.

"But there is no room for complacency. This is the time to be innovative and move up the value chain for emerging as niche players in new technologies. In order to remain competitive and sustain growth, Indian software firms have to make a differentiation by becoming increasingly customer focused, cost-effective, and adopt to time-to-market deliveries."

Nilekani also spoke about the sober effect of the slowdown on the Indian techies, who have now become cautious with their feet on the ground.

"Gone are the days when wannabe software engineers could ask for the moon to remain in one company. With all-round cost cutting and effective control over wasteful expenditure, the software professionals are realising that more than perks and ESOPs, what matters today is holding on to the job and give their best shot to make their company flourish," he added.

Giving an account of the impact of the US slowdown on the Indian software industry, Dr C Ram Akella of Stanford University said the problem with the Indian software firms was that all of them have the same approach and target the same customers, vying with each other for a pie of the same cake.

It amounts to too many players chasing too few clients with similar vanilla offerings in terms of technologies and services.

"With the emergence of web technologies, which are more driven by convergence and multiple applications, the Indian software companies should be different from each other. They have to carve out niche markets in terms of domain expertise and business processes to have a competitive edge over their rival players.

Survival and growth in these troubled times depends on how smart and communicative the companies become in dealing with their customers, who are quite demanding and look for value added services at lower costs," Akella affirmed.

Projecting an upswing in the US economy from next year, Akella said even in these troubled times, the business potential for Indian software companies is still huge.

"The message from the US is customers are still looking at outsourcing their requirements from Indian techies, thanks to their high quality skills and cost-effective solutions to their projects."

The refrain in the US is if you can give us what we want, then there is plenty of business for you. It's a question of how smart and quick you are in delivering the goods. It's as simple as that. The present situation may be grim, but there is a silver lining.

"With fed interest rates almost bottoming, and prospects of consumer/customer spending looking up, the outlook is bright. Indian firms should leverage upon their skills to ensure growth in business as well as in revenues. The margins have come down, the business will continue to grow though it may not be at a pace it was till last year."

In view of the reputation and recognition the Indian software industry have gained over the last few years in the US market, Akella said it was high time Indian firms, especially in the SME sector, have started setting up incubation centres across the US to be not only nearer to their customers, but also be in a position to take up concept development leading to new product architecture so as to move up the value chain.

"Nasscom (National Association of Software and Service Companies) and the Indian government should take the initiative to hold more trade shows in the US and participate in technology events to showcase Indian skills and spread the awareness that we can still do better.

"There should be more funding from the government through the STPI (Software Technology Park of India) in the Silicon Valley to enable SMEs set up incubation centres to take up innovations and product development for real-time execution."

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