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The chips were down for the IT industry

M D Riti in Bangalore

The first year of the new millenium is almost over. But the Indian IT industry, especially small and medium tech companies, are still trying to tide over the two major disasters that came with it.

Just when IT companies were trying to come to terms with the traumatic global slowdown, the September 11 attacks only brought further bad news.

The two major global developments have had varied effects on different companies. While the slowdown hit body shops, software service peddlers and project implementers, the terrorist attacks affected the Customer Relationship Management and call centres.

Nobody is willing to talk numbers yet. Financial results too, are still to be announced. One can only draw certain broad conclusions going by the emerging trends in these sectors.

The impact of the blasts, of course, is only temporary. Says Manufacturers Association of Information Technology director Vinnie Mehta, "Indian software companies will have to assess how many of their large Fortune 500 clients will be affected by the attack on a major commercial centre like the WTC. I personally think that in the short-term, some business might be disrupted as all resources are diverted towards rebuilding. In the long run, though, business might not be impacted."

The short-term impact is for various reasons. Firstly, client companies went into a nervous tailspin. "Nervous sentiments are likely to continue for a while," says Sujay Chohan, research head of Gartner India. "A clearer picture will emerge only after the dust has settled down."

Secondly, following the US disaster, most American software companies are deferring their spending decisions. This has already increased the existing pressure on Indian companies to cut their hourly dollar wage rates even further and quote all-time low outsourcing rates.

Thirdly, much of the business that comes to call centres in particular follows after actual client visits, during which prospective clients physically view the facilities and reassure themselves about the capability of the company to be a public voice for them.

"In-country client visits to call centers drive client decision-making and help them choose between multiple service providers," says K Ganesh, CEO of Customerasset, a leading CRM company.

"With travel to the Indian sub-continent being curtailed, we expect that decision cycle times would increase. To surmount this we need to be able to display clearly demonstrable results vis-a-vis our facilities and we expect that video conferencing and web casts will play an important role in surmounting bottlenecks that may arise.

Ganesh asserts that the decision to use India is a long-term strategic decision unlikely to be affected by the events. "In the short-term, client visits have been postponed due to international air travel curtailment. To that extent the projects will get shifted by a few weeks," he adds.

Most industry leaders in this segment support this point of view that in the slightly longer term, more business will come India's way because of the twin disasters of the slowdown coupled with the attacks in the US.

"American companies will now be forced to cut down costs, which is likely to generate business for Indian IT or IT-related companies," says Salil Aggarwal, Vice-President, Hero Serve IT. "Lots of work can be outsourced to India due to the disaster. The companies that were considering various business options will now be forced to take decisions."

A National Association of Software and Services Companies survey predicts that India can earn above $17 billion and provide jobs to at least 1.1 million people through call centres by 2008. The firms in the CRM business are hoping that this prediction will not suffer too serious a setback because of the two disasters.

PricewaterhouseCoopers partner Arvind Mahajan echoes the sentiments of many in the lower end of the Indian IT business when he says that India might actually stand to gain from the events. "Outsourcing to India in the past has increased as India offers cost-effective support," he says. "I think that outsourcing to India will increase for the very same reasons."

Meanwhile, the Customer Relationship Management and Enterprise Resource Planning companies are busy planning strategies for the immediate future. In general, they will not change their focus or areas of operation. They may only cut costs, enhance operational efficiency and optimise resource utilisation.

"We do not see any need for major change in our strategy," says Ganesh. "In some segments of industry the sheer volume of interactions may reduce (for instance, in travel and hospitality). In other segments, say for instance in retail, volume of spending and therefore customer interactions will go up. Now, there is less internal resistance to outsourcing in American companies as they are all facing acute financial pressure."

Small and medium software services and projects companies, on the other hand, say they were hardly affected by the attacks. The slowdown, on the other hand, hit them harder.

"The blasts have not directly affected any of our existing business relations with customers in that or other parts of the US," says a spokesperson from Aditi Technologies. "We have been affected by the slowdown in the US economy to an extent. We have found decisions being put on hold or getting delayed and overall IT spending being reassessed. Customers are spending more time in due diligence while choosing vendors, which is in fact good for both the vendor and the customer in the long run.

Apparently, companies that had earlier not considered cost as a predominant criterion are now looking at offshore plans seriously. Aditi Technologies is confident that IT spending will pick up and there will be renewed spends on offshore endeavors by most US companies. Meanwhile, the company has ramped its sales efforts in with new sales offices in Dallas, New Jersey, Boston and California.

Most services and projects companies are now looking to the conversion of all European currency to the common denomination of Euro to bring them low end software work, so as to face the rough weather. Just as Y2K work was once the bread and butter of many such firms, they hope that Euro money will now be the saviour that will assure a giant stride into the European software market.

Amid talks of gloom and recession, the two year old IT ministry took a giant leap towards convergence.

While IT Minister Pramod Mahajan soon after taking over communications portfolio from Ram Vilas Paswan managed to merge the two high-technology ministries, the Communications Convergence Bill was introduced in the Parliament.

The move came following the Cabinet clearance of draft Convergence Bill prepared by noted jurist Fali S Niman for creating a unified licence and regulatory regime for IT, telecom and broadcasting instead of separate licences required at present. The Bill has since been referred to the Parliamentary Standing Commitee and is expected to be passed in the Budget Session.

In a year of rise and fall of ambitious projects, while the government signed an agreement with Massachusetts Institute of Technology to set up Media Lab Asia, the much-touted Sankhya Vahini project embroiled with litigations was aborted after Carnegie Mellon University pulled out of the joint venture with the Department of Telecom.

The burial of the controversial high-speed data network project Sankhya Vahini, which faced strong opposition from the RSS at the time of its inception, had a very demoralising effect on somewhat subdued sentiments of the industry.

Even as CMU pulled out of the venture citing redtapism and inordinate delay as reasons, the government announced that projects to create excess bandwidth in the country would continue.

In a rather sombre atmosphere, there were some talks of prospective organisational marriages as well, intensified following the demise of high profile IT evangelist and Nasscom chief Dewang Mehta in mid 2001.

Soon after, at the opening up of the fourth edition of India Internet World 2001, new Nasscom President Kiran Karnik hinted at a likely merger of Nasscom and its counterpart hardware body MAIT for putting up an integrated approach for the industry, in the near future.

The year saw IT industry gifting divestment ministry its first fructified privatisation of the year, with the sale of 51 per cent of the government stake in state-owned Computer Maintenance Corporation to Tata Sons for Rs 1.52 billion.

Additional inputs: PTI

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