Y2K Dead End

If history can be rewritten,

why not computer codes! There is perfect logic here. But the question

is, why compare history with computer codes? For, as history rewrites

itself to welcome the new millennium, the world will be watching with

bated breath the pranks that the Year 2000 (Y2K) bug may yet play. And

that is where the comparison between history and computer codes becomes

relevant. Companies, individuals and businesses who have made it to the

millennium mark without the Y2K glitch, but with burgeoning coffers will

consider this period as the best of times.

The Y2K problem has been a heaven-sent gift

for the Indian IT industry. India’s reputation for producing excellent

software coupled with the fact that we have a skilled, cheap and English-speaking

work-force, made the software industry go on a roll. But all good things

must come to an end. And with the Y2K problem tapering off, questions

arise–Where is the Indian software industry heading? Will the software

exports get hit? Which are the emerging areas where Indian software industry

can make an impact? Will the technology lock-down happening in the West

lead to a decline in the exports, affecting Indian software exporters?

These are questions which need serious thinking–and answers–if the IT

industry has to maintain, even by conservative estimates, an average growth

rate of 50%. The fear

looming large among companies, and the industry as a whole was–with the

Y2K slowdown taking a toll, will the bug bite into its coffers? The Y2K

computer glitch is likely to rock the world trade and may end more than

eight straight years of the US economic growth, says a special US Senate

panel studying the problem. Moreover, it was also reported that the technology

companies saw the first signs of the Y2K slowdown in the West, especially

in the US. Customers, who are trying to bug-proof their networks in time

for the millennium are scaling back orders for the new equipment. All

this does not augur well for the Indian IT industry, which still depends

on the US for over 60% of its business.

However, the industry is

mixed in its reaction to the enormity of the problem. The Indian IT industry’s

mindset is marked with skepticism to absolute optimism. While some thought

that there will be an adverse effect on the growth rate of Indian software

exports, others believe that the cooling period will only be a temporary

phase and would be over by the end of March 2000. The other view is that

it will not apply to business-critical or mission-critical systems and

infrastructure. As Arvind Thakur, Director and Senior VP, NIIT, says,

"In most of the companies, a freeze on new initiatives does not cover

e-commerce. In fact, e-commerce or business has separate budgets assigned."

However, Kiran Deshpande, CEO and MD, Mahindra British Telecom, says,

"There is likely to be an impact as business, government and industry

concentrates on minimizing the impact of Y2K."

The fact is that the Y2K

slowdown was anticipated and most of the major companies had already planned

for it. Though IT spending has declined in the US and Europe till the

first quarter of next year, it should not dramatically impact software

exports from India, according to Saurabh Srivastava, Executive Chairman,

IIS Infotech. This is because the normal development and support activity

is going to continue. "In fact, there may be extra need for software

support because of Y2K," says Vivek Govilkar, Head-Process and Quality

Management Group, CITIL.

So, the software exports from India in the

wake of Y2K may certainly show a low-to-moderate downturn, as there will

be a slight possibility of a global recession due to Y2K-related disruptions.

"However, IT being the strategic competing tool that it has become,

it will move ahead and a lot of pent-up demand that was on hold due to

the Y2K bug would then emerge. For those companies still into Y2K, there

will be a last lot of Y2K revenue that will come in," says R Mohan,

Director, BFL Software. As Dewang Mehta, President, National Association

of Software and Services Companies (NASSCOM), says, "The contribution

of Y2K solution projects is almost 20% of the total software exports in

the first quarter of the current fiscal." There are revenues still

to come, the inustry

feels, and hopes that the Y2K business that it was able to generate will

lead to new avenues and new sources of income.

"With the Y2K bomb ticking

its way into the millennium, Indian firms that have cashed in on the $5

billion opportunity, are eyeing new spin-offs from the bug. Companies

are focusing on non-Y2K business from the existing Y2K customers. Thus,

any Y2K activity will only act as door openers, enabling entry and a strong

foothold at customer accounts," says Saibal Mitra, Assistant VP,

Corporate Marketing, Sonata Software. This finds support from Srini Rajam,

MD, Texas Instruments (India) Ltd. He feels that though it will affect

the IT industry, there are different opportunities which the industry

can focus on.

The Y2K bug has been an opportunity

for the Indian IT industry to make an impact on the global scenario and

it has been made well use of. While it brought in close to 25% of the

total exports in the last fiscal, according to industry estimates, the

current fiscal will certainly show it coming down to a single digit figure.

And if the conservative growth estimates are to be maintained, new areas

should come up that will replace revenues from Y2K.

What will replace Y2K?

One thing

that crops up across the cross-section of the industry when we speak of

replacing the Y2K revenue is ecommerce. It has been the buzzword of the

new millennium and irrespective of the size of the company, one thing

common is the constant endeavor to convince and believe that ecommerce

is going to be the ‘inthing’. There is definitely no doubt about it, with

every new start-up pitching its strength on the ecommerce arena. But a

slight introspection will show that ecommerce, unlike Y2K, is neither

just dependent on manpower nor on cheap labor. The area of work is vast

and there are going to be no geographic barriers. The Indian IT industry

should cope fast, with companies in different sectors making use of the

business model rather than the technology model. The other area that is

being thought of to bring in revenue is euro conversion. But again, it

is a short-term window whose fruits will start showing only about mid-2000.

Internet has been looked at as a messiah

by the IT sector. And that is the main reason that ecommerce has been

looked upon as the business that will outdo both Y2K and euro put together.

As Achyut S Godbole, CEO, L&T Information Technology Ltd, says, "Web-enabling

of applications is catching up and is expected to make up a substantial

chunk of current year’s exports. Supply Chain Management, Customer Relationship

Management and IT-enabled services are likely to be the other prominent

areas. Maintenance of applications will also form a major part of exports

this year." Godbole has unequivocal support from the entire industry

on this matter. As Arun Jain, CMD, Polaris, says, "The possible areas

where the Indian IT sector

can make inroads is in migration to new technologies, web-enabling the

current application and internet-based applications."

The other area where some

light has been thrown and which can definitely be a harbinger of things

to come is the embedded software area. "With the world moving into

an era of digital convergence or communication, there is a lot of scope

for embedded software opportunity. We have the skill set suited to this

need. However, it calls for some expertise in creating domain expertise

and once it is done, there is no looking back," feels Rajam. Agreeing

with him, Mohan says, "We are seeing large business coming from the

embedded systems area, particularly from the telecommunications, transportation

and leisure industries given the convergence of computers, communications

and entertainment. It is leading to the emergence of intelligent information

technology."

In the end, it seems that

ecommerce along with web-enabled applications are the core areas that

are bound to constitute a large chunk of exports for the country. According

to Mehta, the Indian software industry is now focusing on upcoming segments

like ecommerce, euro and a wide gamut of IT-enabled services.

Where does India stand?

When we speak

about the emerging technologies and the scope for Indian IT industry to

make a mark in these areas, one has to take a look into where we actually

stand as far as these areas are concerned. There is no doubt about the

fact that Indians are fast to adapt to the technological changes and also

to learn and apply them. And one of the main reason has been the early

exposure to emerging technologies. As Arun Jain says, "The fundamental

reason is that the hardware platform for these technologies are cheaper

than mainframe and they are available in institutes as well as small companies."

It has been seen that Indian software professionals have been excellent

in adapting technologies. As Godbole says, "Maintenance of legacy

systems and ongoing applications development has always been India’s strong

point. Indian companies have always kept themselves up to mark in terms

of learning the state-of-the-art technologies such as communications and

embedded systems."

The sad part, however, as Mohan says, is

that the Indian industry lacks in conceptualizing the technology to serve

an end goal. "We look at technology for the sake of technology itself

and fail to recognize that technology is only a means to achieve business

growth for an enterprise. We need to build our ability to harness these

strengths to achieve an end business result." Adds Thakur, "Some

areas where we possibly lag are technologies involving security algorithms,

very large applications and trusted systems." Another thing that

comes out is the need for creating intellectual property rights (IPRs).

"India needs to go up the value chain in terms of creating IPRs.

Quality of service in telecom must

improve. Restriction on certain telecom technologies like voice over internet

protocol (VoIP) need to be removed," says Deshpande, reflecting MBT’s

area of interest.

So, despite having the capabilities

and means to garner the expertise, Indian software industry has to pull

up its socks and gear up to the challenge. As Mohan says, "Ways and

means of doing this include taking on higher value-added roles such as

consultancy, systems integration and facilities management. An alternative

strategy can be to look at strategies such as product-based revenue and

fundamental software research." These are areas where the Indian

software industry lacks its thrust and until R&D is taken up seriously

by the companies, it will be difficult for Indian companies to keep in

step with the global market scenario.

Business model gets the

nod

India has

followed the traditional services’ model as the inherent strengths were

in this model and this has been successful to a large extent. There is

consensus among the industry captains regarding the services’ model being

followed. But we have seen that slowly the companies have started adopting

the onsite-offshore business model. And this has been successful due to

the price competitiveness and has provided significant value proposition.

However, if the companies

have to be really one up on its counterparts from other parts of the world,

it is imperative that it slowly move to a model by getting into a customer

transaction model, where the company comes close to the customer’s point

of transaction. "In this manner, chances of an Indian company becoming

redundant will reduce and its ability to charge on a transaction-based

usage may go up. Already we are seeing the trend from Sun and Microsoft

on their office products for usage-based charging systems," says

Mohan. As Thakur adds, "Today, Indian companies are not interested

in merely being distribution partners in one country, but are looking

for global partnership models." But Govilkar says the services’ model

has been quite successful because of the obvious advantages of costs.

"So far only a few Indian software companies have attempted selling

software products internationally and even fewer have been successful,"

he says. Nitin Wagh, MD, Merant Solutions, says that R&D is going

to be the key word. "The IT industry is a big industry and the companies

should invest in R&D and productisation as the technologies are available."

Competition is going to come

mainly from countries like China, Taiwan, the Philippines, Mexico, Ireland,

Israel and Russia. Govilkar says even Bangladesh and Vietnam may give

the Indian companies a run for their money. "For, they can beat anyone

in the low price game". Moreover, as Rajam says, the competition

may come even from small, venture-oriented companies as they have the

ability to access the emerging markets.

All in all, it has been a

rosy picture all through for the Indian software industry. Everything

has been going around well and the bottomline as well as the topline have

been showing remarkable growth rates. The markets have been gung-ho and

investors have been bullish on IT scrips. But the time has come to take

a relook at where the software companies are heading. It is time the Indian

software industry got its backroom ready to face the challenges and threats.

The software export industry has been growing at an average of 50% over

the years and in the current fiscal’s first quarter, it grew by 55%, but

the next six months are going to be a period of extreme caution and preparedness

for the IT industry. "Anything could happen", is the voice of

the industry. If only we had a crystal ball!

RAJESH

MENON

in Bangalore