Gulliver’s travels and Indian software

The second part of the book ‘Gulliver’s Travels’ talks of Gulliver’s

experiences when, after escaping from a land of pygmies, he finds himself

suddenly thrust into a kingdom of giants. Today’s domestic software giants are

probably heading for the same experience as they march forward into a world,

which has been forced to sit up and take notice of the Indian offshore

challenge. That’s great news, but it brings with it a set of challenges that

the big four Indian software companies (TCS, WIPRO, Infosys and Satyam) will

have to face if they are to wrest global supremacy from the incumbent giants!

The legitimization of the Indian offshore story, which started with the huge

opportunity, posed by the millenium bug and has today resulted in the

recognition of Indian processes and people to provide support and maintenance

through well-honed dual shore methodologies. The ability to conceptualize,

implement and migrate ERP applications, the demonstration of capabilities in

embedded systems and new product development, and the enhancements and newly

emerging capabilities in technology agnostic solution blueprinting have all

contributed to building the Indian software industry's high reputation.

However, Indian players still compete primarily in the software development,

migration and maintenance space. It is only recently that they have entered

areas like systems integration and business process outsourcing (BPO). In the

$400billion IT Services segment, the software writing component accounts for

less than 20% and having even a double digit share of this segment will not give

Indian companies the market share they crave against the likes of CSC, EDS, and

the Big Four. A serious attempt also has to be made to build and demonstrate

competencies in large SI and outsourcing deals, now dominated by players like

Covansys and Keane. The surprising part is that many of our Indian firms are

ignoring these large technology segments and pursuing management consulting and

e-business integration dreams, which could more logically be pursued by niche

second tier firms.

What is it that makes it imperative for Indian firms to chase the big

horizontal technology opportunities instead of ‘climbing up the vertical value

chain’? Size is the only attribute that enables companies like CSC and EDS to

be relatively insulated from economic sinusoidal curves, which are expected to

be the rule rather than the exception in the years to come. Small wonder then

that Wipro has decided to take on government projects and is eyeing new areas.

With a choppy year behind, then IT service providers can be forgiven for

having modest growth goals for the coming year. Indian firms need to engage them

at their own game in their own markets!

There is of course a flip side to this argument in favor of horizontal

service diversification. Today the high price earnings in multiples of forty

plus enjoyed by firms like Infosys and Wipro in the American bourses may slide

to the early teen levels currently prevailing for the large outsourcers and

systems integrators and at some point, managements and shareholders may have to

make the choice between sustained growth and market capitalization. The

configuration of the Indian and Global industry will change substantially with

many more global professionals joining Indian software companies and Indian

companies acquiring more companies.

Will that affect the fortunes of the Indian IT Industry and the directions

that smaller software firms and startups would need to take? Wait and watch.

Ganesh Natarajan is the global CEO of Zensar Technologies, chairman of the

Maharashtra Council of the Confederation of Indian Industry and a member of the

executive council of Nasscom