Indian CIOs Look To Garner Benefits From Rupee Appreciation

The rupee appreciation has brought about a boom in the Indian economy, resulting in lucrative opportunities for technology service providers on the domestic front, which in turn is benefiting Indian companies. The boom speculated to span over a long period of time, has instilled confidence in companies across all verticals to take a step towards investing. This translates into a scenario, where there would be a shift in the focus of Indian IT service providers from the international to the domestic market. This shift has taken place due to the fall in billing rates, coupled with larger margins, comparable on a global scale.

According to a report released by NASSCOM, the total domestic IT software and services market in India has increased from $6.7 billion in FY 06 to $8.2 billion in FY 07. As per NASSCOM’s research, traditionally this segment was led by MNCs; however, Indian firms are gradually gaining ground as well. Over time, as mid sized firms increase their levels of IT adoption, this segment could become a large SME play area.

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According to Arup Roy, senior research analyst, Gartner, “The Indian domestic business offers Indian IT services providers the opportunity to test and develop their high-end service capabilities, and take what they have learned to their global clients. This would open up new avenues for those who have traditionally banked on offshore work.”

Focus on Indian market

While key MNCs like HP and IBM have already gained traction in the Indian market, players such as Wipro and HCL, through their domestic arm, Wipro Infotech and HCL Comnet respectively, are carving a niche for themselves in the large as well as SME space.

All players in the IT services segment have made individual strategies for operating in the Indian market and are also quite aggressive about providing expertise and best practices to their customers in India. Informs Mrydul Vats, assistant manager, Software and Services Research, IDC India, “Major vendors like Wipro and TCS have already earned around 10% of their total revenues from the Indian market. Rising maturity, growth curves and large deals will definitely act as the enticing factors for the IT vendors to look at the domestic market.”

Infosys recently established a separate business unit (IBU), especially for the Indian markets. Wipro Infotech which generates close to 90% of its revenue from its domestic operations has acquired 3D Networks, as well as 10 TOS contracts, including HDFC Bank, Dena Bank, Yes Bank, Colgate Palmolive and others.

Gaurav Chadha, general manager, Business Development, Wipro Infotech, shared, “We are amongst the very few Indian IT firms which have constantly focused on the domestic market, even when the market was nascent and not growing rapidly. The IT investments in India will get a fillip due to lower costs of imports. As a consequence, it also leads to an increase in services opportunities in terms of system integration, managed services and associated IT services. Today, we are reaping the benefits of investments we have made in the geography over the last five years. As a result, we have transformed ourselves into being a complete IT solutions provider offering TOS, Consulting, Software solutions and infrastructure integration and management services.”

TCS has been associated with critical projects in India such as NSE, BSE, National Security Depositary Limited (NSDL), State Bank of India, Indian Bank, Bank of Maharashtra, Ministry of Company Affairs (MCA 21), Mumbai International Airports, Municipal corporations of Mumbai and Kolkata and the Shipping Corporation of India. Lately, TCS won a mission-critical engagement with BSNL, worth Rs 574 crore ($ 140 million) over a multi year period.

A spokesperson from TCS said, “TCS will provide a comprehensive range of telecom services to enable complete transformation of existing systems and processes to the next generation convergent billing system in the coming days in India. We want to continue to focus on the domestic market and play an important role in it.”

Indian CIOs positive about the shift

Indian CIOs are very positive about the transition to domestic markets, following the rupee appreciation. The proportion of IT costs to the total costs has also been affected by the boom, and could spur further investments. The Indian market for hardware and packaged software has dramatically changed in the past decade. This has been a great boon to businesses in this country, providing them with quality information and process management tools.

Although the IT business market in India is growing rapidly and the gap between the yield of the Indian and American business diminishing, it has not narrowed down to the point of raising substantial interest in the domestic market.

Elaborates Satish Pendse, CIO, Hindustan Construction Company, “The top Indian IT organisations get a large chunk of their revenue from the overseas market and hence their focus on the Indian IT market is very limited. Indian CIOs therefore feel deprived of the kind of services that these best-in-class IT organisations offer to their overseas clients. While there are a few notable exceptions to this strategy, the overall trend is to have a greater focus on overseas market.”

“This is certainly a topic causing a lot of grief in the IT/ITES community. But I think that for most Indian CIOs there is an upside here. Firstly, imports will become cheaper since most of it is dollar denominated. More significantly, the big software companies will increase their focus on the domestic market. This means that better quality people should be available for domestic projects, which has been a long-standing problem in the industry,” explains Alagu Balaraman, vice president, Process and Architect, Britannia Industries.

The move on the part of the service providers towards domestic clients has helped the CIO community take advantage of global technology. Says Suresh A Shanmugam, national head, Information and Systems, Mahindra and Mahindra Financial Services Limited, “As CIOs, we are more keen about the solutions and ROI which will swifter the applications requirements and standardisation with requirements across. It matters a lot when you deploy and execute the task on global operations and bring in the technology to our country. Further use the solution, which requires multi tasking or multi usage on multiple requirements on global products.”

According to Arvind Tawde, senior VP and CIO, Mahindra and Mahindra, “The focus by Indian service providers will of course be beneficial to Indian CIOs as we now have a greater choice of service providers at competitive rates. By focusing on the Indian domestic market, Indian service providers are basically beneficiaries, leveraging the current growth in the Indian economy - rather than being the drivers of growth.”

Challenges of operating at domestic level

There are several challenges for these service providers while operating in the domestic market, which is more complex than the international market. With the domestic as well as MNC players approaching the Indian market due to the growth opportunities, the market has become quite competitive.

“The domestic service providers are held back by immature service management, delivery methodologies and capability that negatively affect the whole market. Thus substantial investment in methodologies such as ITIL and ISO 2000, for IT outsourcing (ITO) is necessary, as a range of waterfall and rapid application development methodologies for packaged-based services,” opines Roy.

IT services players should strive to provide the best-in-class services to enterprises in India. This is increasingly becoming important as the Indian market matures and customers look more closely at international best practices/IT strategies and innovative delivery models that the IT services players are bringing in to align IT with the business processes of the organisation.

“The Indian market scenario has totally changed in the last 2-3 years and now CIOs/IT heads and their line of business counterparts are much more demanding with a strong focus on business results. They are concerned about the quality of service, as well as getting the most competitive price,” concludes Vats.