IT FIRMS HOME IN ON BETTER PROSPECTS

With the US recession translating into fewer orders, the Indian IT sector, sorely dependent on American customers, has two options before it: look for customers elsewhere and/or seek more work at home.

The first option is fraught with uncertainty as the markets that can support Indian IT companies are themselves shrinking. The second option is a more promising one, as some companies have proved by increasingly looking closer home.

For example, 22 percent, or $900 million, of Wipro's revenues are generated within the country. This is expected to grow by 12 percent this year. TCS hopes to double its present revenues of $468 million (or 7.8 percent of the total) from the region in four years. Infosys is perhaps the most dependent on customers abroad, deriving only 1.3 percent, or $57 million, of its revenues from India.

Corporate India can generate the kind of orders that IT companies were used to getting from abroad until the global meltdown came. The number of companies of global sizes in both the private and public sectors is not insignificant; together they could offer a huge potential to the IT sector.

Take the Indian Railways, for instance. This year it plans to spend Rs 450 crore on technology upgradation, up from Rs 360 crore last year. In the five years of the 11th plan, the railways will spend Rs 5,000 crore on technology. Much of this, if not all, can go to Indian IT companies offering the right services. Their wide list of suppliers include all big IT companies, among them, Wipro, TCS, HCL, IBM, CMS and CMC. Companies operating in Germany, Australia, Spain and Japan have shown interest in recent tenders. More tenders are on their way.

The reason why all the tenders may not go to foreign companies is not always jingoistic. 'Foreign companies have great technology, but Indian companies can understand our system better,' explained an official of the centre for railways information systems. That, and the fact that India's creaking railway system needs huge infusions of technology should open up humungous opportunities for IT companies. The government sector alone can be a source of massive orders.

Do Indian IT firms have it in them to service the widely varied need of companies at home' They do, said an Idea Cellular official, who didn't want to be named in this report. 'Indian IT companies are capable of offering outsourcing contracts' IBM has over the years built efficiencies, volumes and scale. But remember, while IBM may be based in the US, it is managed and operated by Indians here.'

Idea has a 10-year deal with IBM for outsourcing a part of its IT operations. The deal is worth between $600 million and $800 million.

IBM also won a $750million contract from Bharti Airtel for managing its IT operations. The deal, renewed now, is worth $2.5 billion.

Could these orders have gone to an Indian company' Possibly. A senior official of BSNL, in the same telephone business, said Indian IT firms had all the capability to offer outsourcing services. BSNL has floated a tender for an outsourcing project. Satyam, Tech Mahindra, HCL Infosystems, TCS, Spanco, Wipro and Infosys have bid for the project. The bids are yet to be opened.

Banking and financial services are an area where Indian IT expertise is proven. The market is worth Rs 10,000 crore to the IT sector annually. Banks still place orders with foreign firms. But there is a reason, explained RIS Sidhu, Punjab National Bank's chief general manager. 'Foreign IT companies have full-fledged bases in India; so it does not make any difference to us. Also, each IT company specialises in some category. For example, for software you have to go to Microsoft, and for hardware, to IBM or Sun Microsystems. The prices and quality of work of Indian and foreign companies are comparable,' he said.

After telecom and banking, finance and insurance, the auto sector is the biggest user of IT services. But at least Maruti's chief general manager for IT, Rajesh Uppal, thinks Indian IT companies are not well equipped to handle his company's requirements. So, Maruti has a strategic tie-up with HP to manage the company's infrastructure. For specific applications Maruti goes to other companies.

Yet, Indian IT companies see potential in increased IT spending in the banking & finance, telecom and government sectors. These now provide a large share of top IT firms. Other verticals, such as energy, power and utilities, are also opening up -- a business being readily lapped up by IT firms.

Wipro has an outsourcing deal worth Rs 1,182 crore from the Employees State Insurance Corporation. The 'passport seva' contract that TCS has is worth Rs 1,000 crore. Both represent the growing government business that IT companies can tap and reduce their dependence on foreign customers.

Nasscom said the dependence on the US market had dropped significantly since 2004. The US market's contribution to the IT-BPO industry in 2004 was 69 percent; by 2008 it dropped to 60 percent.

A number of global BPO companies, which serviced foreign customers earlier, are now eyeing the Indian market, said Raju Bhatnagar, Nasscom's vice-president.

Wipro Infotech's business head for India and West Asia, Anand Shankaran said that India presented a wonderful opportunity for IT firms.

The accelerated power development and reform programme, with an IT outlay of Rs 10,000 crore, is just the kind of opportunity that IT firms are looking for.

'The energies and utilities vertical now contributes only a small percentage to our revenues, but it's going to be a major draw going forward,' Shankaran said. More than half of Wipro Infotech's revenues come from telecom, government and banking, and the company sees the share moving up. 'The growth of the Indian market helps us depend less on the US market,' he added. Besides ESIC, Wipro's major customers include Airtel, HDFC and the Future group.

 

Source: The Financial Chronicle