English mythology has it that when those in nobility wanted to get rid of a
guest who had overstayed his welcome, this guest
would be served a cold piece of lamb shoulder for dinner–a subtle suggestion
that it was time for him to head homeward.
Thus was born the maxim, "Giving the Cold Shoulder". A contrarian
affliction seems to have enveloped the Indian IT services space. Much as
everyone wanted this segment to build on its strong showing of 2000-01 (total
revenues had jumped by 39% that year), the segment has refused to hang around
and perform, registering a measly 9.3% growth in 2001-02.
The less-than-expected revenue is being seen as a direct consequence of
crashing systems sales and a tightening of corporate technology budgets. The
reaction of the industry to the southward trend has been singular and unanimous–vendors
across the board had a tough time landing orders for services, an area
traditionally considered to be the IT industry’s profit pill. After all,
services had saved the IBM ship from sinking in the nineties.
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The domestic services segment stood at Rs 6,073 crore in fiscal 2001-02, with
the largest chunk coming in from turnkey projects from systems integration and
network integration. The turnkey projects market stood at Rs 1,729 crore, 28.5%
of the total services market. Most vendors described the SI and NI markets as
nearly flat. So what was the reason for the greatly lower 4.8% growth in this
segment this year, compared to a healthy 31% last year? The industry placed its
bets on public sector companies, large telecom infrastructure projects,
state-wide networking projects and some large corporate network expansion and
consolidation deals. While the first half of the year looked promising, most
organizations ran shy when it came doling out projects–they cited global
economic uncertainty, fall in national economic indices, curtailment of expenses
due to bottomline pressures and other debilitating factors. Order cycles got
lengthened–the Punjab sales tax order, for instance, got re-tendered twice
over and many telecom orders went into a tailspin.
Slicing |
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2001-02 (Rs crore) |
2001-01 (Rs crore) |
Growth |
|||||||
Domestic | Exports | Total | Domestic | Exports | Total | Domestic | Exports | Total | |
Hardware Services |
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Facilities Management |
160 | 10 | 170 | 110 | 15 | 125 | 45 | -33 | 36 |
Maint. of own brand (systems) |
750 | 0 | 750 | 613 | - | 613 | 22 | - | 22 |
Third-party maintenance |
920 | 30 | 950 | 855 | 58 | 913 | 8 | -48 | 4 |
Total | 1,830 | 40 | 1,870 | 1,578 | 73 | 1,651 | 16 | -45 | 13 |
*DQ Estimates |
Network integrators have reported that terrestrial networks found favor with
most takers, as against the previously hot VSAT networks. VoIP and virtual
private networks led the growth chart in this area. Service providers like
Bharti, BSNL, Tata Internet, Tata Teleservices and VSNL are now expected to
enter the fray and deliver managed VPN services. Some of the notable networking
and SI projects for the year were executed by Life Insurance Corporation, New
India Assurance, United Bank of India, Syndicate Bank, National Insurance,
Ericcson, Gujarat WAN, West Bengal WAN, Iffco and State Bank of India–most of
these hailing from the financial sector. Leading vendors included Datacraft
India, GTL, HCL Comnet, IBM, TIL, Compaq and Wipro.
A similar fate awaited the customized software development segment, the
second-largest component of the services story.
The customized software development market grossed Rs 1,667.5 crore, growing
only at 4%, with the reasons for this dismal performance mirroring those in the
turnkey projects space. While companies continued to tweak their software,
however, they deployed their in-house resources in the good old-fashioned way,
instead of engaging software and service companies to do the job. Call it the
‘captive’ software development market. While it is difficult to measure this
activity, Nasscom has estimated the market size for captive software development
in a bid to show the greens at home to export-obsessed software companies–the
number bandied about here is Rs 2,784 crore.
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One trend driving spending in IT services is that of consolidation within
large organizations. In the banking area, this manifests as a move from a
decentralized structure to a centralized one–in effect moving from a focus on
branch computerization to having a core banking system deployed at the center,
with branches connecting to it. Notable examples are SBI, UBI, and the Reserve
Bank. In the manufacturing context, the trend is seen in the form of large
companies consolidating their ERP systems and adding refinements like supply
chain integration and partner integration. Firms with legacy applications are
engaging in enterprise application projects.
Services in the form of ASP, e-procurement, payment gateways and the like–all
of which hinge on electronic network-based delivery models–are yet to take
off. They are currently more of an exception than a rule, though there were a
couple of such projects signed during the year.
Security as an area witnessed a lot of traction during the year. Due to
well-publicized incidents of hacking and security breaches, organizations are
acquiring a heightened sense of the importance of security. Coupled with this is
the fact that companies are now integrating external constituencies–like
partners and suppliers–to their computing backbone through the Web. Banks and
financial institutions are using the Web for service delivery as well as
information delivery. The net result is that organizations are increasing
investments in security, according it a top priority. For services vendors, this
presents an opportunity in the form of end-to-end security solutions involving
security audit, designing security architecture, evolving policies, and
deploying multi-level security technology. In a very similar manner, large
organizations have got sensitized about the need for business continuity
programs and are setting up disaster recovery centers. Storage and storage
networks are being set up and the area presents a very good opportunity for IT
services vendors.
Amongst vertical market segments, banking and finance took a clear lead once
again. With nationalized banks waking up to the reality of competing though
technology, most chalked out large IT projects. The manufacturing segment
chugged along at a slow pace, while the service sector was depressed and
telecoms a mixed bag. In the transportation segment, except for freight
management systems under CRIS (railway information backbone), airline spending
was low. The IT industry, which in itself was a big consumer of IT
infrastructure and services, showed a negative growth this year.
In all, the services segment growth was uninspiring. But vendors opine that
this is a passing cloud. There’s enough evidence of potential growth coming in
from telecom, banking, insurance and the government, they say. These will drive
the required growth in the IT services segment in the coming year. Amen.