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The overall Indian IT industry grew 19%—from Rs 62,584 cr to Rs 74,787 cr
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Despite concerted efforts to enter other geographies like EU and the APAC region, Indian IT’s reliance on the US market increased—from 64% to 67%
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SW & services exports—including BPO—made up 64% of total industry size IT training was the worst hit of all segments—it shed 23% to Rs 1,215 cr
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If ever there’s been a year that’s kept everyone in
Indian IT guessing, it was fiscal 2002-03. The year began with signs of a
recovery, but most of Calendar 2002 saw wild swings, gravitating around vicious
pull factors—the US-led coalition war in Iraq, sluggish economic conditions in
the US and most of the West, the outbreak of SARS, rising visa and immigration
issues, price manipulation by buyer enterprises, seething undercutting of rates
by IT and BPO vendors... The slowdown-inflicted practice of tighter belts and
lighter wallets continued through the year, and it was only in the last quarter
that shades of a rebound in IT purchase and implementation made themselves seen.
What you had at the end of March was a grin-and-bear-it tally—overall
growth of 19%, against the previous year’s 14% score; software exports growth
of 17% (26% if BPO numbers were added), compared to last year’s 20% (27% with
BPO); growth of 5% in domestic hardware sales, respectable only against a
negative 3% showing; and a steep 14% fall in hardware exports, compared to 45%
growth. The total services space showed marginal recovery with 16% growth,
against 2% last year, and IT training looked healthier despite its 23d% negative
growth, only because it had shown negative 37% last year.
2002-03: The macro-economic picture
India’s economic growth prospects were pegged down to 5.1% earlier this
year, from an earlier projection of 6%, mainly due to the impact of the war in
Iraq, SARS and dampened growth in the US and EU. However, analysts feel India’s
GDP may not be affected so adversely and it may post 5.5-5.6% growth this year.
"Since the Iraq war was short, India’s GDP will grow in the region of
5.5-5.6%. If oil prices fall, we might end up with 6% growth," said one.
Saving grace #1—even after the downgrade in growth
prospects, India continues to be one of the fastest-growing nations after China,
slated to grow by 7.5%, Vietnam (7%) and Fiji (5.2%). Saving grace #2—India’s
GDP for the previous year was 4%. Therefore, while the pace may be debatable,
the Indian economy is moving ahead. Saving grace #3—stock markets, the most
telling barometer of economic health, have been moving up for the last many
months.
PSUs to the rescue
The DQ-IDC India Megaspenders Survey for fiscal 2002-03 rattled out odes to
the BFSI sector... but even as BFSI saved the day, the final tally was far lower
than projections. Overall, against forecasts of 56% growth in enterprise IT
spend in 2002-03, final figures showed a decline of 17%—the slide would’ve
been worse, if not for heavy spending by the IT industry itself. Last year’s
survey had reflected an upbeat CIO mood, as they predicted 56% growth in spend
on infotech products and solutions—signifying an end to the slowdown and a
return to the days of rock ’n roll. Grim end-of-the-day numbers, however,
pooh-pooed that forecast.
It was public sector banks and insurance companies that
placed the biggest orders in fiscal 2002-03, with four of the top five spenders
coming from this space. The top corporate IT spender in 2002-03—Punjab
National Bank, with IT investments of Rs 180 crore. Last year’s leader LIC (Rs
140 crore IT spend in 2001-02) was still strong at #3 this year, with Rs 105
crore of spend this time around. Canara Bank, Bharti Cellular and Central Bank
of India made up the Top Five Club.
Other verticals that had shown promise in the previous year
and projected a steady climb in the ongoing year, however, fell by the wayside,
as the slowdown and tighter pockets placed all but the most ambitious plans on
ice. Surprisingly, though, the vertical that fell most in terms of projections
and actual investments was insurance—43% short of forceast spend. Telecom
(-40%), manufacturing (-27%) and the government space (-25%) were other
laggards. As for where most of these monies will go, it is hardware that
continues to top the CIOs’ agenda—with 42% of overall spend expected to go
there.
Why did banks figure so prominently in our list for the
second year running? The reason came from CIOs themselves—given the success of
tech-savvy private banks, PSUs had no choice but to embark on IT-enablement of
their operations. PNB tied up with Cisco Systems to evolve the network design
and implement a nationwide network backbone connecting all its offices across
India. The rollout already covers 300 branches, and will be extended across
1,000 PNB branches by 2004. Given its IT spend, it was little surprise that PNB
bagged the ‘Best Bank Award’ for excellence in banking technology from IDRBT
in October 2002. Similar was the case with Canara Bank, which tied up with Wipro
Infotech to interconnect its 835 offices and branches across 98 cities, using a
high-speed WAN. And everyone knows about Tata Consultancy Services and its
mega-order from State Bank of India and its affiliated entities.
Storage: Coming of age
Despite being 18 months in the past, 9.11 and its fallout continued to cast
its spell on the storage market, with an increasing number of enterprises
implementing disaster recovery and data replication solutions, driving demand
for hardware, software and networking. The year saw a proliferation in business
spend—sophisticated storage infrastructure was in. Network storage options
found greater favor, at the cost of some percentage points for DAS. While the
trend of lower storage hardware prices continued, vendors weren’t mauled as
much as last year. The year ended with a growth of 6% in value terms, compared
to a fall of 5% last year, even as growth in volume terms matched last year’s
level of 70%.
Crashing disk and hardware prices meant more businesses could
afford sophisticated infrastructure. An interesting side-effect of cheaper disks
was that it encouraged large and medium enterprises to go in for disk-based data
replication solutions, abandoning tapes altogether. Steadily-decreasing margins
on hardware forced vendors to focus on storage strategies. The storage software
market continued to grow rapidly—posting 65% growth—riding on the back of
increased enterprise spending on applications like disaster recovery, business
continuity planning and high availability. Growing awareness among Indian
enterprises about the availability of solutions offering these enhanced features
acted as a catalyst for growth. As data continued to grow beyond the ‘manageable’,
need for software-controlled automated processes like online backup and restore,
and storage resource management forced many to look at software solutions.
Strategy: Brand positioning
Whether it was storage or peripherals, networking or systems, vendors went
in for brand positioning and took a segmented approach, with SMB topping the
agenda. With urban markets reaching a point of saturation, vendors went deep
into the upcountry markets and organized roadshows and custom campaigns to tap
the market potential. It was a year to realign strategies and reach out to the
customer.
In the SMB and SOHO space, the top three—Tech Pacific,
Redington and Ingram Micro—drove the industry at large. For second-tier
distributors and resellers, the going was tough because of lack of best
practices. They struggled to manage multi-vendor product and credit lines,
resulting in unethical practices abounding and some resellers closing shop,
leaving distributors in a fix. New products, technologies, aesthetics and
styling were in. In the case of peripherals, for instance, devices like
printers, scanners and monitors became sleek and thin. Above all, the year gone
by also drove home what convergence is all about—multi-function devices became
a reality, with vendors offering integrated all-in-one devices that could print,
scan, copy and fax.
SW exports & BPO: Champs again
Let’s begin with BPO, which stood out bright and zippy (and nearly alone).
Larger BPO players continued to increase numbers at a steady clip—some even
more-than-trebling their headcount. But this was also the beginning of a phase
of consolidation, and this was evident in the crashing billing rates as
competition grew fierce. Smaller companies—those that can find suitors—will
get bought out sooner rather than later, while countless others will die a
sudden death... quite similar to the beginnings of the IT services industry in
the country. One clear trend in BPO was that this was a space where mere
specialization and success in the IT space would not guarantee success, for the
rules and economics of business were very different. Thus it was that other than
Wipro (with Spectramind), none of the Top 20 companies made any news in this
space, though nearly all had kicked off their operations.
What this jump in numbers in the BPO space did was to provide
a reason to live for the beleaguered training industry. Still reeling from the
37% revenue drop in 2001-02, the training industry made quick and deft moves
toward BPO training—while that helped, smaller training companies continued to
shrink and disappear. This forced IT education players to experiment with
product bouquets and offer courses specific to the BPO segment. The focus toward
improving processes and enhancing efficiency and quality levels fueled demand
for training programs like project management, testing and CMM/PCMM. Again,
thanks to BPO, the balance hung in favor of soft skills training—to enhance
customer relations management, talent transformation, multitasking and knowledge
and job enrichment.
As for software exports, Year 2002-03 was a mixed bag. At Rs
35,181 crore, the software services export sector accounted for 47% of the total
industry size. But it wasn’t size that was cause for worry—it was the
crashing growth rates, this time well into the sub-20s. And clearly, there’s
no respite in sight—"We are entering an era of the teens," Nasscom
president Kiran Karnik said, commenting on growth rate for the next year. As
many as eight of the Top 20 software exporters saw growth shrink into the teens
or below. Four of these showed single-digit growth... one showed negative
growth.
Buyouts & acquisitions
In India, there are few big M&As, especially in the tech business. Most
have been quick and matter-of-fact, such as Airtel’s acquisitions in Bangalore,
Chennai, Kolkata, et al. But the slowdown has triggered some brisk merger
action. Aptech’s fairly quick sale to SSI was one. For the merged entity, it
makes sense to move to an operation with the scale necessary to compete with
NIIT. It was just very unexpected—SSI, struggling with dropping margins,
suddenly buying out the much larger Aptech for a mere $5 million. Then GTL
buying out Singapore-based Redington Group, including Redington India. While
everyone twiddled their thumbs to figure out what a telecom equipment and
services company would do with a thoroughbred IT distributor, the proposed
merger went into a tailspin.
Siemens Information Systems, traditionally a strong player in
telecom, firmed up plans to acquire a financial software company. The ostensible
reason being to ramp up its product line and acquire its customer base. Mentor
Graphics acquired three companies and is said to be looking for more.
EDA bigwig Cadence acquired system-on-a-chip verification
tools vendor Simplex Systems for $300 million. The same day, Cadence announced
the acquisition of privately-held Plato Design Systems, a place-and-route tools
company. These deals looked like a response to the decision by Synopsys to
acquire troubled Avanti for about $737 million, which is one of the larger deals
witnessed in EDA history.
Then we had restructuring at this year’s Giant #4—announcement
that the SW export business of HCLI would be hived off to HCLT. HCLI would hive
off its 128-seat facility for the technical help desk business, under HCL
Infinet.
Former group company NIIT continued its acquisition drive—it
bought out eGurucool to strengthen its focus in the IT-assisted education space,
and tied up with leading Japanese Systems Integrator CAC Corp to tap into the
system re-engineering space in the Japanese market.
And finally, the mother merger—HP and Compaq, which has
been coming along just fine. As 1+1 came pretty close to being 2, detractors
were sent scurrying away. Another move within the company is that of Digital
absorbing over half of HP India Software Operations—that should pan out
through the year.
RAJEEV NARAYAN
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