Biggies of the Future

Consider this: Of the 900 Nasscom members, 70% of the total export revenue
comes from 25 companies, and 90% from the Top 50 companies. The other 850
companies contribute only 10% of the country’s overall export earnings.

Let’s now look at another set of figures: In 1995-96, there were only four
companies with over Rs 100 crore of export revenues. This number grew to 20 in
‘98-99 and 44 in 2000-01. The number of companies with export revenues in the
range of Rs 25-Rs 50 crore was 15 in 1995-96, 58 in 1999-2000 and 65 in 2000-01.
Further, companies with export revenues up to Rs 1 crore grew from 253 in
1995-96 to 426 in 1998-99 to 1400 in 2000-01. Clearly, small and medium sized
enterprises (SMEs) have moved into the higher slabs. And today’s SME could be
tomorrow’s giant. If we do not nurture this base, the industry may not witness
quantum growth and achieve the $ 80 billion target by 2008.

Second, advocates of the SME segment say that it will not be possible for the
Top 50 companies to maintain the kind of growth seen during boom time. With no
perceptible change in IT spending, software companies will not be able to regain
the growth figures of those heady days. Overall industry growth has already
declined from 58-60% to 29%. Therefore, the contribution from top companies is
bound to go down. The best way to counter the impact would be to increase the
contribution of smaller companies.

Besides, SMEs are performing another valuable function. The SME segment is
chiefly responsible for churning out the talent pool of the industry. Larger
companies prefer to hire experienced professionals from smaller IT companies as
against recruiting freshers. An analysis by a leading business daily has shown
that spending per employee in top IT companies has actually increased during
2001-02 despite layoffs, freeze in hiring and cutting down on employee benefits.
The major reason cited for the increase in spending per employee is that lateral
recruitment has greatly increased during the fiscal. And this is  likely to
continue as the industry matures.

Today, SMEs are engaged in a tough battle for survival as they are the ones
affected most severely by the slowdown.

According to the National Association for Small and Medium IT companies, as
many as 250-300 companies have closed down between January ’01 to June ’02.
While larger companies have the resilience to withstand the demands of the
slowdown, smaller companies have simply closed shop. The Association has now
demanded sops from the government to sustain smaller companies. One of the
immediate relief measures is the demand to ease the tax burden on SMEs who
adhere to the same tax structure as large companies like Wipro and TCS. The
association has therefore asked for tax holiday for the next five years for
companies with a less than Rs 10 crore turnover.

The association has also demanded that the government include at least one
member from the SME segment in the advisory committee formed by the Ministry of
IT and communication. The association believes that the incentive structure is
skewed in favor of large companies due to lack of representation from the SME
segment. Sanjiva Shankar Dubey, CEO, Bhilwara Infotech Ltd, a start-up company
of the Bhilwara Group, suggests that government bodies like STPI should charge
infrastructure usage on a pay per usage basis from SMEs. PK Sandell, chairman of
NASMEIT, adds, “About 60-70% of companies in STPI are SMEs and the
government should review the demands made by them. Bank co-laterals should be
waived off and there should be differential rates of interest for companies with
less than Rs 25 crore turnover.”

Both Dubey and Sandell suggest that since the government is making a lot of
IT investments these days, some projects like those below Rs 20 lakh be reserved
for SMEs. When it comes to bigger contracts, the government can give preference
to SMEs whose bid could be 20% higher than a big company. After the bid is won,
SMEs can form a consortium with big companies and execute the project jointly.
Another issue dogging the industry is sub-contracting. In the absence of a
sizable domestic market, sub-contracting would have kept the segment thriving.
But it has not happened since bigger players hesitate to sub-contract work.

NIIT chairman Rajendra S Pawar attributes the hesitation to difficulty in
monitoring the quality of software coding, as against manufacturing, where
details are specific and there’s less room for error. “However, the
mindset is changing and we are beginning to explore the possibility of
sub-contracting work to smaller firms,” says Hughes Software president Arun

The need of the hour
SMEs need to focus on niche segments and beef up their marketing strategies.
“Niches are difficult to find but easy to market,” says Dubey of BIL.
BIL is focussed on niches markets like steel, textiles and jewelry. It is
important to find more than one niche but SMEs have the advantage of being
nimble and can leverage on quick turnarounds.

Says Vishnu Dusad, Managing Director, Nucleus Software, “Entrepreneurs
should have a commitment to survive, find a niche and concentrate on
marketing.” Nucleus Software, with a turnover of Rs 62 crore was among the
few medium sized companies to have registered quantum growth during the last
fiscal as against the previous year’s turnover of Rs 35 crore.

Dusad says Indians are culturally modest and hesitate to talk about their
strengths. Entrepreneurs should learn to live with having doors slammed on the
face and leverage on networking skills. The government has sanctioned Rs 10
crore to help SMEs market themselves abroad. Another initiative has been a
recent delegation sponsored by UNIDO and the UK to China to establish direct
contact between SMEs in both the countries. As a result of that initiative, a
delegation of Chinese SMEs has come to India during this month to explore
avenues of building business relations.

Balaka Baruah Aggarwal Cyber News
Service in New Delhi

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