Export Quality Story

The recent IT Services and Software Snapshot published by JP Morgan makes an
interesting point–while the global IT services sector trades at 12.8 times the
expected earnings in 2003, the Indian services sector trades at a 14.6 multiple,
a reflection of the faith that the world in general and stock market watchers in
particular, have in the value enhancement capability of Indian software
exporters.

In these difficult times, this fact continues to be both a challenge and a
source of encouragement for the Indian software sector. The current joke is that
the recession will certainly lift and happy days will return in Q3, except that
one is not too sure of the year. The dipping of the Dow beyond the psychological
8000 mark and the Sensex below the 3000 mark as this article is being written
does not bode well for the fortunes of any sector, including software exports.

The chest thumping of the Bush administration against wily Iraq is one more
reason, in addition to the general sluggishness of the US economy for the
nervousness of the stock markets. The verbal exchanges between the Indian and
Pakistani chiefs at the United Nations also does not provide too much confidence
and the S&P downgrading of India weakens the Indian story further.

Paradoxically, what helps our case is this very same weakening of global
economies. In the short term, most companies are looking at every opportunity to
drive costs out of their balance sheets and Indian BPO and software maintenance
offerings look very attractive to CIOs and functional chiefs alike. Most CIOs
have today reconciled themselves to a lower staff headcount, used primarily for
project management while IT consultants and consulting firms are employed to
cater to the peaks. In the US, while software spending has flattened from 2000
to 2001, and a likely decline during 2002, particularly in new custom software
development, there has actually been a rise in pre-packaged software buying,
which is a good sign for companies with a healthy enterprise practice. Europe
too is facing price pressure and declining volumes and the performance decline
of I2, Siebel and recently Oracle, shows that the medium term outlook for all
software firms including those out of India will be healthy only if the much
awaited pick up in spending really happens in the first or second quarter of
calendar 2003.

There is a myth that the consolidation of the industry will leave all small
and mid-size firms out in the cold while all the business flows to the eight
hundred pound gorillas. Our own experience has been far from that and there is
no reason why smaller firms cannot show superior quarter on quarter revenue.

This of course, needs focus and building demonstrable core competencies. Our
own focus on areas like knowledge management and solution Blueprinting continues
to win kudos and new business from clients and there are many other firms who
have identified their sweet spots in the otherwise tight market and pull in
contracts with reassuring regularity.

In a very tangential sense, the fact that Indian software has firmly placed
the country on the world map was underlined by a casual statement made by a bus
driver in the little town of Skagway in Alaska. Driving a group of tourists up
the Klondike valley, he waxed eloquent on the limited career options in little
Alaskan towns, which made them leave their beloved state in search of jobs in
the mainland US. And pointing to us, the only Indian tourists on his bus, he
said "Very like these folks, who write computer software that makes our
country run". Now is that an endorsement of Indian success? I leave it to
you to judge.

Ganesh Nararajan

The author is the global CEO of Zensar Technologies