Why the Market Will Slow DownPart I

Indian IT is now a $50 bn industry, growing at over 30% annually
for over three years.

Yes, two-thirds of that is exports. Were used to growth in
the thirties for BPO and software services. IT services exports rupees grew 37%
(to cross a trillion rupees).

Yet the heartening story is that of the poor cousin, the
domestic market. Despite being a third of the pieless than half the size of
exportsits grown by over 27% annually for the past three years.

Now, as Indias own IT market approaches a healthy $20 bn this
year, will this growth slow down? Or can it holdor even speed up?

Lets look at the exports arena for a moment.

Indias services brand and value proposition are strong, its
foundation rock solid. Theres still a cost advantage (though the gap is
narrowing). Theres competition, but largely from India-based players, if you
count the MNCs. Theres plenty of business opportunity. And yet IT services
exports is slowing down47%, 41%, 36% growth, in dollars. Why?

Because growth, for the majors, is limited not by business
opportunity but by the ability to deliver and to scale.

And thats what the industry serving the home market also
faces. Theres plenty of opportunity, visible and latent. Several thousand
businesses are looking for solutions, with few vendors inclinedor ableto
serve them.

The Indian services majors mostly ignore the Indian market; MNCs
cater to the big banks and telcos. Others mostly do not have the ability to
scale, to deliver solutions to those midsize businesses.

A top manager at Wipro told me that it was a good thing
e-Governance wasnt happening any faster: "The industry would not be able
to deliver," he said. Then theres the "next 10,000 businesseswith
no one ready to service them."

Those who worry at the poor show by PCs (22 mn base, 20% growth)
are looking at a red herring. Yes, the PC number is a health index for the
market and economy, and its dismal against those 185 mn mobiles. But PC sales
do not happen in isolation: theyre driven by applications, solutions
that demand products. Example: the mobile explosion, driven by a killer appconnectivity.

So the need to step into services and solutions is driven not
just by the quest for margins. Its a key part of market development, long
ignored by most vendors. If you dont have the apps, you dont have a market
for products.

And services and solutions are dependant on availability, and
the ability to deliver.

Which is impeded by an acute talent shortage. But more about
that, next fortnight!

Prasanto K Roy

pkr@cybermedia.co.in