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BUSINESS: SOFTWARE SLOWDOWN
Threat ... Or Opportunity?
The fallout of a slowdown is real, but so is the possibility
of more business. The Indian software industry feels it will gain more than
it will lose.
By Malini Goyal
Seldom is good
news as indistinguishable from bad news as it is in the Indian software
industry today. The slackening of the $10,000-billion US economy all through
the year 2000 has raised fears that the Indian software industry's decade-long
dream run-it clocked an annual average growth of 45 per cent in the 1990s-is
finally coming to an end. The fears aren't misplaced. With the US accounting
for more that 60 per cent of India's software exports, the fortunes of
its economy are umbilically joined to the fortunes of the Indian software
industry. Revenue growth of many companies have mirrored the growth pattern
of the US economy (see graph).
 Says
P. Rajendran, director of the Delhi-based NIIT: "The global economic
slowdown is turning out to be more rapid and pervasive than anyone had
estimated. We are gearing up for an uncertain 6-9 months by investing
in new technologies and retraining our workforce." NIIT and the Bangalore-based
Infosys have issued warnings of lower profits in 2001-02, which triggered
a panic reaction in the stock markets. The price of an Infosys share plummeted
from over Rs 4,000 in March 2001 to less than Rs 3,000 in April, before
recovering marginally. Similarly, NIIT share prices fell from a high of
Rs 1,279 to a low of Rs 404, before staging a recovery. Says Nandan M.
Nilekani, managing director of Infosys: "Our US clients are affected
by the slowdown. But it is also time to look at new markets."
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"We
are gearing for an uncertain six to nine months."
P. Rajendran, Director, NIIT
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The mixed message hidden in Nilekani's statement
typifies the uncertainty-if not confusion-that's running across the software
industry. Is the global slowdown good or bad? Is IT a threat or an opportunity?
Actually, it's both.
That US IT companies are shedding staff (see
following story) and cutting back on the onshore job (work done by Indian
companies for US companies in the US) is undisputed. But there is a consensus
among CEOs of Indian software companies that the global slowdown will
eventually result in more revenues and higher profits. "The global
downturn has brought along with IT new opportunities. It is for the industry
to identify the opportunities and move ahead," says S. Ramadorai,
CEO of India's biggest software company, TCS.
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"It
is for the industry to identify the opportunities and move ahead."
S. Ramadorai,
CEO, TCS
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One big opportunity is the shifting of a larger
proportion of software work out of the US, much of which should come to
India. Points out Carly Fiorina, CEO of the US-based Hewlett-Packard:
"India's strength has been exceptional quality of talent and competitive
costs. Both remain unchanged. I see no reason why India won't benefit
from the slowdown in the US." Faced with a downturn, most US companies
will try to source more of their work from India to cut on costs. Such
work will range from software and application development to back-end
services like customer support and systems maintenance. "The Indian
software industry grew out of nothing in 1991 when recession-hit US companies
first started outsourcing work from India," says Ashok Soota, chairman
of Bangalore-based MindTree Consulting. He feels India will stand to gain
from the current US slowdown as well due to its cost efficiency, quality
standards and the strong working relationship with US companies.
By doing in India what they were doing in the
US Indian companies will be able to improve their profit margins substantially.
Vineet Nayar, executive vice-president of the Noida-based HCL Technologies,
estimates that offsite software development centres have about 50 per
cent higher margins than onshore projects.
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