Advertisment

DQ-IDC Mega Users Survey 2008 : RETAIL: the New Growth Driver

author-image
DQI Bureau
New Update

Highlights

Advertisment
  • The average IT spending in 2007-08 grew by 27% with retail leading at 43%

    owing to the entry of new players and scaling up by the established players

    from backend to advanced application software
  • The year 2007-08 saw 43% of the total IT budget going to hardware. This is

    expected to come down to 41.6% in 2008-09, owing to price reduction and market

    commoditization.
  • With a growing majority of Indian enterprises taking to outsourcing like

    never before, the services market is expected to go up from 24.9% in 2007-08

    to 26.5% in 2008-09
  • Traditional verticals like BFSI, ITeS and Oil & Petrochemicals continue to

    remain the highest spenders on technology

As the CTO of Shoppers Stop, one of Indias leading retail chains, Arun Gupta

has many things to take care of. The last year has been especially busy for him,

what with the company undergoing logo and branding transformations, and, more

importantly, being a part of the great Indian retail boomthat has been such a

crucial feature of the Indian corporate scenario.

Advertisment

Its not just the Shoppers Stops and Pantaloons, the direct or indirect

entries of the likes of Walmarts or Tescos promise to transform the Indian

retail scene once and forever. The unorganized Indian retail market is

graduating from the mom-and-pop neighborhood kirana stores to the swanky,

state-of-the-art hypermarkets and neon-lit shopping malls. The customer is the

king here, and delivering superior shopping experience is the only way to

capture the market. And like any other industry observer would tell, technology

is the key differentiator driving the retail revolution in India.

While the retail boom has resulted in swankier malls and supermarkets, it has

also recorded the highest growth in IT spend (43%) in the current year amongst

all verticals, according to the Dataquest-IDC Mega Users Survey 2008.While this

years survey does confirm the importance of IT in retail, it also throws up

other interesting nuggets on how various sectors across India Inc are faring in

terms of IT adoption. Traditional spenders like BFSI, IT/ITeS and Oil &

Petrochemical though have spent the most, the percentage growth in the use of IT

is maximum in retail.

Advertisment

There is no denying the fact that India is on a growth curve with technology

playing a key role in its business success. More and more Indian enterprises are

witnessing a growing automation trend leading to more sophisticated usage of IT

but, more importantly, this has resulted in increased IT spending across

verticals. Even though the companies have been somewhat apprehensive when it

comes to disclosing their IT spends, the DQ-IDC Mega Users Survey has tried to

do the job well over the years.

Advertisment

This year too was no exception, though we needed to work within the

limitation where most of the telecom behemoths stayed away from the survey.

Advertisment

Based on the feedback of the participating companies as well as some readers,

we have decided to change the nomenclature from Mega Spenders to Mega Users.

In this era of proactive cost cutting, one of the apprehensions of the

participating companies was to be tagged as a Mega Spender. Therefore, from

this year onward the survey would be known as Mega Users Survey.

Advertisment

IT Spending: Which Way to Go



Taking all key IT spenders into consideration (including 11 companies which

did not participate but we got the data for them from IDCs earlier studies and

secondary research), the DQ-IDC Mega Users Survey noted that during 2007-08 the

average IT expenditure across organizations has recorded a 27% growth touching

Rs 32 crore. However this year too the traditional IT spenders like BFSI,

telecom and Oil & Petrochemical spent the maximum but when it came to growth it

was retail all the way.

The retail sector at 43% clocked the highest growth in IT spend in the

current year amongst all verticals. Other sectors like BFSI, IT and ITeS, and

automobile maintained the industry average; while utility was the only other

vertical that crossed the industry average. This year too oil and petrochemicals

was the relative laggard, joined by pharma and biotech which clocked 10% and 11%

growth respectivelydespite the fact that both these verticals are regarded as

tech-savvy.

Advertisment

Interestingly, the survey predicts that IT spending in FY 2008-09 would slow

down by 22% to touch Rs 3,748 lakh in 2008-09. It is as many analysts point out,

the sign of a maturing market which has reached the initial saturation point.

Ashok Kumar Wahi, director, Group-IT, Spice Telecom attributes it to a growth

in outsourcing which explains the slowing down in growth in IT spending.

What we are now seeing is Indian enterprises taking to outsourcing like

never before. This has therefore resulted in the growth of the services market,

says Wahi. The survey finding of hardware spend as a percentage of total spend

going down in 2008-09 also is consistent with this observation. Packaged

applications too are finding a place in the IT budget, and, therefore, while

spend on hardware is reducing, that on packaged software and services is

steadily rising. With IT outsourcing becoming the norm of the day, it appears

that companies are now more comfortable outsourcing their IT infrastructure and

focusing on their core business rather than maintaining their IT departments

in-house.

The average IT spend as a percentage of the total turnover for the companies

surveyed this year was 0.63, a marginal decline from the previous year. BFSI saw

the highest average spend at 1.50%, and retail, which was the big surprise, was

at 1.32%.

The Indian retail industry has of late seen the entry of the biggies of the

global retail market, and with technology playing an integral role in the

success of any business, this has expectedly resulted in the established players

going in for advanced IT adoption in a bid to retain their market share.

Even though the vertical has

grown less than the industry average, the sector is spending on

consolidating its IT infrastructure from possible threats, whether it is

spending on security solutions, disaster recovery, or establishing WAN and

VPN

With BFSI traditionally being one of the more mature verticals when it comes

to IT adoption, the fact is that while BFSI took a long time to reach the

maturity level, retail has made the journey fairly early. Retail has emerged as

the clear leader whether being the highest spender on business line specific

software (at 49%) or growth in IT spending (at 43%). One can clearly deduce that

retail is here to stay and the rapid growth in the sector would only result in

IT adoption going up steeply.

Tracking the Spend



There is no denying that IT has become an integral part of any business, and

there is a growing trend of automation across verticals. Indian enterprises are

increasingly moving forward from the deployment phase to integration. The

conventional manufacturing industry has already implemented ERP, SCADA and is

now going in for the next level of integration and automation.

On dissecting the IT spending pattern, enterprise-wide IT infrastructure

continues to top the charts at 46% with the oil and petrochemicals sector

predictably taking the lead with 61% followed by the pharma and biotech. IT has

become crucial to drug discovery efforts and computational biology or

bioinformatics offers enormous strategic options in discovering new drugs or

modifying old ones to make them more effective.

One has to realize that the petrochemical and oil sector by nature is

infrastructure intensive, and that there are lots of processes that are computer

controlled. Similarly, in the ITeS sector as well, whether I get five calls or

5,000, a basic infrastructure has to be in place. So whether it is the

petrochemical sector or BPO, the day you set the place up, you have to spend on

IT infrastructure, says Ajay K Dhir, CIO, Jindal Stainless.

But, like last year, this year too there has been a paradigm shift toward

packaged software and IT services. In the business-specific software, retail at

49% emerges as the clear leader. Agrees Anup Mandal, CIO, India Today Group,

when it comes to business specific software, we have to keep in mind that

retail has arrived just a few years back. Initially, the retail players used to

have home-grown applications but now all the big players of packaged

applications have specific software for retail, and this is very expensive.

Moreover, the retail players had just basic backend in place 5-10 years ago but

are now scaling up with the entry of new players. Infrastructure investment

along with application investment will be there. The established players are

moving from backend applications to vertical applications. And, not

surprisingly, since the retail sector is gradually making the shift from

mom-and-pop stores to more organized retailing.

Retail chains like Big Bazaar, Spencers, Shoppers Stop, etc, are reorganizing

the way the retail business is conducted. The entry of new players like

Bharti-Walmart, Reliance Retail, and Birla retail has only meant that technology

adoption is on the upswing in these areas. In FY 2007-08, retail was at the

bottom of IT spending when it came to enterprise-wide IT infrastructure but when

it came to business-specific software, retail led with 49% indicating that

retail store management applications and retail end-to-end solutions were in

demand.

The auto sector is increasing

its spending on packaged software application, namely engineering

applications, leading to increase in business efficiency, reduced

time-to-market, and seamless integration across the supply chain

Currently, Security Solution, Mail Messaging, and Wide Area Network continue

to dominate the technology penetration graph with most organizations continuing

to deploy these technologies.

But when it comes to future spending by organizations, Enterprise Resource

Management takes the lead followed by VPN, WAN and CRM. Significantly, ERM also

has the highest priority across verticals. However, there are some technology

areas where even though the companies are looking to invest but would not

feature in the top investment priority list simply because the cost of

implementing them is quite low as compared to others. For instance, security

solutions is a technology where most companies are looking to invest, but it

does not feature in the top investment priority list due to low investment

costs. On the other hand ERM features in the top priority list due to high

investment costs.

The future, of course, will see the ubiquitous mobile phone becoming all

pervasive whether it is data capture or money transactionin short, everything.

Any application which could earlier be done on computer is now possible on the

mobile and it is gradually becoming the most important channel of communication.

The situation is not too far away when we will see increasing usage of mobile

as credit card, forecasts Wahi.

The vertical is expected to

maintain its growth figures in 2008-09 as well increased IT spending on the

services

Stuti Das



stutid@cybermedia.co.in


Graphics: Paras Jain

Advertisment