- 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
- 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.
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.
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.
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.
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.
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
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
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
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
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
|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
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
Graphics: Paras Jain