Hard selling software Taking the Down out of slowdown
It will be incorrect to say today that the Indian software industry will remain insulated against and immune to the US economic slowdown. However, the fact remains that while some software exporters are getting hit, some are still managing good export growth rates, and yet others are trying to convert it into an opportunity. Overall, the industry is re-strategizing to continue on its existing growth path.
According to Nasscom, the software export statistics for 2000-01 are expected to be around US$6.2 billion–a jump of over 55 percent over the US$4 billion achieved in the previous year. By all accounts this is healthy growth.
While the figure of US$6.2 billion is significant for the Indian market, in terms of the overall size of the US economy, this is but a small portion. Had the Indian software industry been at the level of $30-40 billion of exports in 2000-01, we would indeed have been facing an uphill climb. Luckily, this is not the situation. At US$6.2 billion of software exports, we can still aim to grow at the 40-50 percent level, provided we have dynamic strategies.
In hindsight, the other bit of comfort has been that India has been focusing on IT services rather than products. Consumer confidence in the US is currently at an ebb. Customers are not purchasing or investing in new IT products, a trend that is leading global hardware and software majors to sound alarm bells.
IT giants such as Cisco and Oracle have already announced profit warnings. The Indian software industry, however, is not in the same business as some of the US-based IT companies. While, some of our exporters are in the products business and are doing well, the majority are in IT services exports that might prove to be a saving grace, at least for the time being.
Close to 20 percent of software export revenues from India are realized from segments such as remote maintenance. This segment continues to grow for off-shore outsourcing at more than 50 percent. The other area where the software industry has set its sights is the e-banking, financial and insurance market. In 2000-01, close to 36 percent of the country’s software export revenues were generated from these segments. Here too, no slowdown or reduction of business is expected.
We need to remember that one of the success mantras to cope with the slowdown is to cut costs or outsource. Surveys by consultants such as Merill Lynch and Goldman Sachs based on responses of CIOs in the US have shown that these companies will increase offshore outsourcing and that many will come to India.
However, there are many US customers of Indian software companies that are being hit by the slowdown. This is creating a ripple effect and causing a reduction in the outsourcing business that normally comes to India from these customers.
Therefore, if we place the positives and negatives face to face and analyze the situation, we can confidently say that the Indian software industry will continue to grow at a handsome pace.
There have been various media reports challenging this theory. We have been reading articles about how thousands of Indians are coming back after losing lucrative jobs in the US. While some of these stories are partially true, many are false. What we have to realize is that over the last three months, it is the “body shopping business” that has been severely curtailed and not so much the legitimate on-site services activity. Body shopping is not a part of the software industry. Body shopping refers to the activity where recruitment agencies hire Indian software engineers, enable them to get HIB visas, send them to the US and earn a commission on them.
The US economic downturn has drastically hit “body shoppers” and put them temporarily out of business. Even on-site services have been struck, though the problem will not lie in bagging orders, but rather in the elongating sales cycles.
The other bit of encouraging news is that many US clients who were earlier going for on-site orders, are now converting these, owing to cost considerations into off-shore assignments. While off-shore projects work out inexpensive for US companies, they represent a lucrative business opportunity for Indian companies.
Derisive remarks such as B2B now implying “Back-to-Bangalore” and B2C now standing for “Back-to-Chennai” are not really accurate. Besides, the sunny side to the issue is that the off-shore market has the capacity to absorb this returning workforce.
The Indian software industry is meanwhile already undertaking significant measures to face the challenges ahead. For one, Nasscom and its software brigade will be conducting road shows across the US during April and June 2001.
In 2000, 185 of Fortune 500 companies outsourced their software requirements to India. The idea through the road shows will be to target the remainder 315 Fortune 500 organizations and convince them about the viability of outsourcing their software requirements to India.
Such road shows will also spotlight the Indian software industry’s expertise in segments such as IT-enabled services especially call centers and back-office operations. An extremely positive response to the Indian pavilion at the recently held global conference and exhibition, CeBit in Germany has also given software companies cause for encouragement. Indian participants received more business queries than ever before. This suggests that Europe has woken up to India’s potential and Japan too is a new emerging market.
The Nasscom-McKinsey report has estimated that the Indian software industry will achieve US$50 billion of exports in 2008.
Logically, to reach that target, the software industry needs to grow only at 35 percent annually. The industry will undoubtedly achieve that goal and possibly even exceed it by logging in growth rates of around 40-50 percent.
It goes to the credit of the software industry in Indian that when other segments and other industries are growing at 10-15 percent per annum, the software industry is surging ahead at 40-50 percent levels. That to my mind reflects the real success of Indian software exports. The only hope is that in this Internet age, even the upswing will probably be equally quick. Moreover, many experts believe that the slowdown may not last more than two to three quarters.