Think Different

Imagine a Google originating from India. A very fast-growing, innovative tech

company, founded just a few years ago by young IITians, creating wealth by leaps

and bounds with only 1,400 personnel on its rolls, its annualized revenues

growing six fold to $900 mn with profitability of more than a third of revenues.

Wish such a company were within the realm of reality in India.

Sadly, the biggest tech company in India has taken more than three decades

with about 25,000 IT professionals to reach a similar position in revenues.

Other Indian software "giants" are no younger and have not seen great

per capita revenues, either. Will Indian corporates ever be able to realize this

dream of high growth gradient and productivity?

At present, the Indian IT industry is banking too much upon the low-end

services market, which is not a healthy sign. Competing on low wages alone would

not help for long. For, there might emerge another place in the world that would

be cheaper, and another company that would be able to do the job as well.

Therefore, strategies need to be extended beyond the low-cost one to developing

unique capabilities that will give sustainable competitive advantage. While

India cannot afford to miss cashing in on the current wave of outsourcing

services, it must make sure that low-end services do not become the industry's

Achilles heel in the long run.

Big corporates in North America and Europe will need to outsource from India

and other developing countries to keep themselves competitive. There is little

doubt that this phenomenon will keep the cash registers ringing for a number of

companies here, at least for some time. But did you know that in order to

achieve $87 bn (Nasscom-McKinsey) target for software and services by 2008,

India would require cumulative imports worth $120 bn for hardware alone between

2001-08.

There is no denying that as a country, we need to export whatever we can in

order to have the purchasing power to finance our imports. But mindless export

of low value or less profitable services will cost us dearly later on. A recent

McKinsey study shows that every dollar of labor cost outsourced offshore creates

over $1.45 of value; 78% of this value is retained in America and only 22% of

the value goes to outsourcing destinations like India. Besides, American

industrial corporations invest a whopping $200 bn annually on research and

development, a figure unthinkable for the Indian industry.

Our business leaders need to start giving due importance to innovation, and

come out with strategies for creating value in the emerging markets. There is no

dearth of opportunities in the high-end software and services market. Look at

what Google has done to the world through its innovative thinking, despite being

a late entrant to the market of search engines. Such is its might today that if

your company cannot be "googled", it virtually ceases to exist! Very

soon you shall have to pay to this innovative organization (if you aren't

paying yet) for your existence on the planet earth.

Without creating original technology and moving up the IT value chain, no

company in India will be able to scale the heights some American companies have

reached-no matter how many software services and BPO jobs we are able to

attract. We are losing the strategic advantage and bargaining power that

internal R&D can provide. India ought to invest thoughtfully on creation of

intellectual property to secure its IT future.

Very few Indian companies have invested in core R&D to create unique

products and services for the global markets and stand a chance of demonstrating

hockey-stick growth. Spearheaded by a missionary zeal and original and

innovative thinking, founders of companies such as iFlex Solutions, Ramco

Systems and Newgen Software, have lately started seeing the benefits of their

approach. Whereas, in the US, Google is just one of the many companies, like

Sun, Apple, Compaq (later acquired by HP), that have shown sharp growth rates

and high productivity in the past. Maybe it's time to start thinking

different.

The author is managing director, NewGen Software Technologies mail@dqindia.com