IT Interrupted–Will the Dream Run be Ruined?

For a few years at the end of the 90s, it seemed like there would be no
stopping Indian Software Inc. Every company hit gold in the US, whether it was just placing bodies on assignments, or taking on over valued dotcom contracts and in the case of the wiser few, converting Year 2000 bug fixing assignments into long-term support and maintenance contracts. Market capitalizations reached stratospheric levels as the stock markets knew only one direction–north. Alas, the reality check was not long in coming as the “irrational exuberance” faded, the dotcoms became “dot gones” and the body shopping boom evaporated in the harsh heat of the economic slowdown through the 2000 and 2001, finally to face the ultimate challenge with the September 11 outrage. If there was any compensation for Indian software exporters, it was the decimation of many small- and mid-sized American and European firms.

"After two years of a continuous struggle, the summer of 2003 is seeing signs of a revival–with company after company having reported improved growth in India” Ganesh Natarajan

After nearly two years of continuous struggle, the summer of 2003 is again seeing the signs of a revival with company after company having reported improved growth in India and customers, probably driven more by back office outsourcing than the development of new applications, again showing signs of loosening purse strings. Does this mean boom time again and the resumption of the dream run for revenues and stock prices? The answer is still “no” and while the bigger players with proven track records in offshore outsourcing will resume a strong growth path, it will still need some serious strategy development for the non Top 20 players to succeed.

Each sector of the IT industry will have to address the new needs of the marketplace to define strategies that leverage strengths and mitigate the real and perceived risks. Our own company, Zensar, is a case study of recognizing and addressing new challenges. An undistinguished company at the dawn of this century, garnering over four-fifths of its revenues from onsite placements and a significant additional chunk by just running virtual desktops for a handful of clients, Zensar has morphed into a firm with a set of unique selling propositions, from running offshore development centers to executing offshore ERP implementations and migrations. Like Zensar, there are a number of other small- and mid-sized firms that have come through the storm with an answer to the question “How are you different from the big five?” and will be able to hold their own against competition in the years to come.

In the BPO sector too, it is the companies that have graduated from being undifferentiated call centers to demonstrating expertise at transitioning sets of processes to be executed offshore, which have shown success. Beyond the Spectramind and Daksh story, a clutch of small and focused firms like Transworks are carving out a niche for themselves. The same story holds for the product space where i-Flex has succeeded where some of the majors failed. It is firms like these that will write the next chapter of the Indian software industry and enable the country to move from the labor arbitrage play to true value creation and help the industry develop defensible entry barriers against numerous wannabes–Philippines, China, Vietnam and Pakistan.

The training sector is still searching for a new relevance and the glory days when Aptech and NIIT were jostling to enter the Top 10 may not be back in the near future. The saving grace is that the brand concept is becoming less relevant for training, with customers willing to invest in the best program on offer.

The conclusion is very clear–no smaller company can succeed, or even survive, by adopting a “me too” strategy and try to become the next Infosys or Wipro or a new model NIIT or Aptech. It will need a clear focus on narrow market opportunities and a willingness to invest in outstanding execution to succeed. For every firm that makes the grade, there will be hundreds who fail. That is what makes the future so exciting for all of us!

The author is deputy chairman and MD of Zensar Technologies and chairman of Nasscom’s SME Forum for Western India

Ganesh Natarajan