Soft, But Steely

–Thomas Paine, The

American Crisis

Fear, Uncertainty, and Doubt

persisted from the previous year. Political circuses were interspersed with bad news from

the economic front. Growth rates plummeted, the Dream Budget, presented by the Finance

Minister, quickly turned a nightmare, inflation played hide and seek with single digits.

Economists went on the overdrive and labeled the Indian economy as one caught between a

semi-recession and stagflation. A 13-party coalition tried to please everybody and ended

up rejected by the people, only to be replaced by an 18-party coalition. Asian markets

melted and economies buffeted by years of fiscal mismanagement, brought the entire Asian

bubble to burst.

In the middle of all this the

Indian IT and its own exclusive club of DATAQUEST Top 20 labored. Some won, some lost, and

others simply hung in there...

In a year when even the Government and

po-litical circles finally felt the importance of software in the country, for the first

time in the history of Indian IT industry, a software company finally made it to the top.

Mumbai-based and internationally active Tata Consultancy Services crossed the milestone of

a thousand crore rupees in revenue-and other hardware (sic) and services vendors-to race

to the top slot. In hindsight, it is easy to say now that we saw it all along. The truth

of the matter is we did not. Even till the JFM was under way, there was little indication

that TCS would dethrone the # 1 company for the last two years and finish with top honors.

If anything, in the brief activity-led period of February to mid-March, Wipro was tipped

to retain its slot. It did not, and TCS jumped. The rest is history.

The one thing that also jumps out from the

DQ Top 20 companies' list this year is the fact that where software was, growth followed;

and where hardware was, growth declined. For instance, if Wipro's hardware had kept pace

with the growth in the software business, Wipro would have unquestionably been at the top.

Similarly with IBM. Both these companies had their hardware markets tested severely last

year, and Tata-IBM actually dropped in hardware revenues. JTS Technology, which came from

nowhere last year into the Top 5 club, stayed there, by a whisker. Its sales actually fell

by around 5 percent due to the meltdown in the Asian markets. It stayed in the Top 5

merely because the momentum was high enough for it to still rake in around Rs 600 crore.

align="right">Three companies, which were

talked about throughout last year due to a surge in their stock prices, performed

inordinately well. Satyam came into Top 20 for the first time. So did Infosys. If Satyam's

entry into the Top 20 club was surprising because it happened so fast, Infosys' entry was

surprising because it happened so late. The third blue chip, NIIT, created history by

entering into the Top 5 club this year.

NIIT's ascension to the top is also the

result of its software growth, and not its traditional business, computer training. NIIT

is also another classic case in point. Just when the software bandwagon started gaining

steam, this company, which is known in India more for its high-profile education business,

quickly worked out a business model-which takes advantage of the fact it has a machinery

for producing IT professionals that it can feed directly into the services market-which is

perpetually people-hungry. Thus NIIT's model of business symbiosis has created a

self-sustaining cycle where the two distinct businesses run based on inputs from each

other. The course content, for instance, is designed on the basis of the need-set that

emanates from the business managers in the software and services end of the business. This

need-set is then converted into a course content and imparted to the student who is then

put into the market where the skill-set is most used, and the cycle continues. The success

of this model is testimony to NIIT's storming into the Top 5 club and becoming the

third-largest independent IT company in India.

align="left">Another company which jumped more

places than NIIT-and one which, from the performance this year, seems all set to enter the

Top 5 portals next year-is Godrej Pacific Technology Ltd (GPTL). After flirting with

hardware systems, software products, software development etc. this company found its

calling when it decided to simply focus on its core competence-distribution and logistics.

That and a tie-up, with Tech Pacific of Australia, ensured that GPTL became one of the

first few companies in India to have a scientific logistics-driven, cost-conscious, and

profit-oriented distribution mechanism. The results this year are stuff that the company

can justifiably be extremely pleased about. A 109-percent growth in revenue in a year when

systems and peripherals were modest and a resultant surge from # 12 last year to # 7 in

the DQ Top 20 ranking this year.

align="right">If there is one company that has

retained its place amidst the churning that has been going on in the Indian IT in the last

three years, it is Digital India. Three years in a row, it has remained # 8, a

manifestation of stability and a vindication of steady strategy that Digital has

implemented in the country: a clear focus on PCs, targeting the manufacturing and

financial segments with solutions, and an Alpha strategy which, despite criticisms in the

past, has been able to pay Digital significant dividends. While it is an open question

whether Digital will continue to exist as a separate company in the

wake of the Compaq acquisition, there is no

doubt that the combined might of Compaq and Digital will catapult the new company into the

top five of the Top 20 sweepstakes next year. In the meantime, Digital is not losing too

much sleep over the post-merger scenario. What is extremely gratifying this year in the

case of Digital is that its software exports, which had dipped in the previous year, have

come back with a bang.

align="left">Another company which is creating

a lot of bangs on the software exports front is Mumbai-based Tata Infotech. Three years

ago, in the very same columns of DQ Top 20, the prognosis for this company was extremely

bleak. A paralyzed management, too much of deadwood, and a JV with Unisys, which was not

exactly an advantage for it, prevented the company from going into newer hardware

platforms and operating systems environments. Three years later, it is totally another

story. A brand new CEO, a brand new strategy, no crippling JV...In fact the Mumbai HQ of

this Tata Company is humming with activity. TIL's performance has proved another

point-that the success or failure of any IT venture depends less on the technological

pools of expertise lying scattered around the company and more on the perspicacity of the

top management and its will to make things a success, never mind the odds. With a

55-percent growth in his second year, TIL's MD Dr Nirmal Jain is one self-confessed techie

who has transcended the tuggings of technology to look beyond at the needs of his

customers, investors, and employees. And look at the magic. Growth is back, stock prices

have zoomed, employee attrition is low and the entire company is on a roll. Not that Dr

Jain's job is complete. Far from it. Having re-laid the foundations for a successful

enterprise, he now has to consolidate, spin off businesses that bring little synergy to

the overall long-term prospects of the company, retrain the people into newer

technologies, and push the company onto what could be a second phase of growth.

align="right">In fact, that is one singular

message that is coming out loud and clear for many of the companies in the DQ Top 20 club

1998. Companies which have done extremely well in post-reforms period will now have to

shift into the next gear with strategies that may have little to do with the ones that

catapulted them into the club in the first place. Three companies come to mind

immediately-Aptech, Unicorp, and CMS.

Aptech has had a bull run for the last six

years, without interruptions. Along the way, it has also pioneered several new concepts in

the area of computer training like using the broadcast media like TV for imparting

computer training, tying up with management schools both in India and abroad for combining

the IT skills with management skills etc. Aptech was also amongst the first in the country

to evangelize concepts such as business process reengineering for the corporate markets in

India. Such evangelism has paid off for the company in the past. The company now has to

devise strategies for carrying on the tumultuous growth of the yesteryears into the next

century. While it is arguable whether the current training paradigm could work the magic

for Aptech again, mere horizontal expansion of the breadth of the career courses may not

provide quantum jumps. What might is innovative usage of the new methodologies and

delivery mechanisms that have arisen in the past, coupled with a high value-add training

into markets which are already IT-savvy for upgradation of skills and expertise. It has

already started on that mission, if the recent relationships with Microsoft and Novell are

any indication. What could buffer this venture is the entry into two new areas-high-end

training like RDBMS, AS/400 etc. for working professionals and a breakthrough into

end-user training, which Aptech has been ignoring, like the rest of the industry for

several years now.

alt="https://img-cdn.thepublive.com/filters:format(webp)/dq/media/post_attachments/da4e4ef22c7eaebcfa3bc73935676fdf1111b06647fa14e4ca62afe9f0802303.JPG (71625 bytes)">

border="0" hspace="2" vspace="2">Similarly,

Unicorp's problems will be to sell more iron in more places. Compaq will continue to be

the jewel in the company's crown but it will have to devise ways and means of trying to

broadband its portfolio of products beyond the box. Whatever be the risks involved,

Unicorp must figure out ways and means to enter the services business in a manner more

effective than the past experience. CMS, on the other hand, has already decided to play in

the emerging systems integration market while continuing with the box market in the

western region of the country.

The Top 20 club's share of the total IT

revenue this year continues to tumble. From a high of 60 percent of the industry in

1995-96, the share was down to a little over 50 percent in 1996-97. A year later, in

1997-98, the Top 20 companies contributed to just 46.7 percent of the total. This was

because of alt="https://img-cdn.thepublive.com/filters:format(webp)/dq/media/post_attachments/051ff437f075a675bdb882778a1df41ed952496aa762623d17c8b5c5ffb6bd55.jpg (19566 bytes)" align="left" border="0" hspace="2" vspace="2"> face="Arial" size="2" color="#000000">two important reasons: one, HCL's entire hardware

business has not been factored in due to HCL Corp. choosing to represent the figures of

all the constituent companies, with the exception of NIIT, a group company which came in

separately. Two, the beating that the hardware business got severely dented the Top 20

companies and helped the fortunes of the smaller companies, be they Genuine Intel Dealers

(GIDs) or other, smaller regional resellers. DATAQUEST expects this trend to change

marginally next year due to the fact that HCL Infosolutions will be a consolidated company

after merger with other HCL systems-selling companies to return to the Top 20 fold.

Another reason is that, with software and services on a higher growth path, the share of

software in the overall Top 20 companies will rise. As and when that happens, the share of

Top 20 in the overall industry will consequently rise.

align="left">In more ways than one, 1997-98

was a watershed year. It was a year when Indian IT, coming to grips with global

competition, faced a year full of rough economic conditions and advance of software and

solutions over the box. While the current year is not expected to be any easier, the

second six months of the current fiscal in all probability will see the beginnings of the

rebound. Fresh hardware purchases will take place, ERP implementation will begin in the

medium and large corporates, homes will continue to buy and the Small and Medium

Enterprise (SME) segment's need for solutions will become imperative. In this situation,

political problems notwithstanding, Indian IT buyers will have to figure out ways and

means to buy IT. In that scenario, the fortunes of the Top 20 companies will be the first

to go on the rise.

Another important issue that the industry

will have to get used to is one of evening out of quarters and the subsequent changes in

strategies that will need to take place. For instance, last year the AMJ buying was close

to 23 percent of the total annual purchase, as compared to 19.4 percent in the previous

year. With the homes becoming significant players, this trend is unlikely to change. At

best the second six months could contribute to close to 55 percent of the total and, with

renewed corporate buying, this figure can rise to 57-58 percent. Clearly, the return to

golden JFMs is probably not in the immediate future.

One major issue that has been brought into

sharp focus this year is the importance of distribution channels. Both GPTL and Redington

have driven home this point with a vengeance, with growth rates of 109 percent and 68

percent, the highest in the domestic markets. PC companies such as Wipro, Tata-IBM, and

Zenith will do well to lubricate their channel strategies significantly. This will be

especially true of Wipro, which will re-enter the market this year with its own brand of

PCs, and Zenith, which has made a determined bid to position itself as India's second most

important local brand. Paradoxically, the surge for channels will be from these two

companies who have their own local brands to push, and a point to prove. IBM, on the other

hand, has a tougher challenge to tackle. Not only must it considerably augment its channel

strategies for the MNC segment, which is also the premium segment in the market today, it

must also create a brand new push into the home segment, where it had lost the battle last

year.

With the exception of Compaq, which is not

in Top 20 this year due to its becoming a subsidiary only late last year, few of the Top

20 companies could make inroads into the home markets. As a result, bulk of the home

segments bought from either GIDs or the smaller players or HCL (which is also not

reflected in the Top 20 list due to reasons mentioned above), and the share of Top 20

players this year went down steeply from 8.2 percent in 1996-97 to less than one percent

in 1997-98. If Wipro and Tata-IBM are able to get their act right in this market, this

figure should go up significantly.

In any case, with Compaq and HCL poised to

enter the Top 20 club next year, the share of the home market will indeed go up. DATAQUEST

estimates that the Top 20 players' share in the home market will touch close to 15 percent

next year, and could even go up more if some of the newer players get aggressive in the

home segment.

What of the companies which exited the club

this year? Not entirely unexpected. PCL's case is poignant in the sense that for the whole

of last year, it did not find a single company ready to rescue the once-PC supremo in

India. Continuing to be mired in financial problems, the promised bailout package from the

financial institutions also did not turn up. While some hardware vendors, both from India

and abroad, evinced an interest in the beginning, not much happened, as DQ learned, due to

a mismatch between the perceived prices of the buyer and the seller. Both the Tandon

companies, ATD and Tancom, exited due to the Asian economic problems and if the Asian

economies do not turn around in the near future, their return to the club is highly

suspect.

New entrants included Infosys, Satyam, and

Zenith-all entirely expected. While Zenith has been a regular in the Top 20 in the past,

it slipped last year by a whisker and came right back this year with a 'one-up' strategy

which, more than anything, became the high point in a price war that was started in the

early part of 1998.

All in all, it was a year of software. It

was a year when globalization started bearing fruit. A year when solutions, which have

been the buzzword in the industry for over a decade, delivered demonstrable results. A

year when the Indian IT industry stood its own ground when the rest of the country's

economy was falling. A year when the politician woke up to the importance of IT and a year

when the country's Prime Minister promised to create an information society in his

inaugural address to the nation. A year which started on a downward note, declined

precipitously, fell to depths that were not seen before, and was just turning the corner

when it all ended, in the hope of a better future.