TECH TALK: India’s Software Industry: Overview (Part 2)

The past year has sliced the software industry into three. There are the giants, who now have enough scale, marketing and execution prowess to continue growing at rates in excess of the industry average. Then, there are the small companies, who specialise and survive. And in between are the middle-tier companies, who are caught between the need to specialise and the desire to grow big rapidly. The middle-tier companies run the risk of becoming the “living dead” unless they achieve rapid growth. Software is one industry in which consolidation is likely to happen less through mergers and acquisitions but more through the departure of clients and employees in the middle-tier companies.

While the going was good (read “the dotcom and telecom era was thriving”), there was plenty of business for everyone, and some. In the past 18 months, most of this business was evaporated. The software services business is now focused on helping the larger corporations of the world in implementing their eBusiness strategies and making the most of their existing IT investments. This requires not just execution skills, but also a deeper understanding of their industries and business processes. This is where relationships and branding matter; this is what the biggest Indian companies are on their way to exploiting. This is also where the middle-tier companies face their biggest challenge because their ability to differentiate is limited, and competing purely on price is not going to take them too far.

So, as the pressure builds on Indian companies to “move up the value chain” (an oft repeated term), there is also the looming threat of China with its “what-India-can-do, China-can-do-better-and-cheaper” approach. At the same time, newer opportunities are opening up in IT-enabled services and business process outsourcing, as companies worldwide look to cut costs and shore up earnings. Newer markets are being scanned across geography (outside of the US) and in industries like biotech, where IT is playing an ever-increasing role. Emerging technologies like Web Services and the Mobile Internet promise more investments in technology in the coming years, creating a need for even greater demand for integration services.

All in all, India’s software industry is growing up – fast. The opportunities are there but so are the challenges. As the euphoria of sky-rocketing stock prices has faded away, there is a growing realisation that while the market opportunity is there, a lot more needs to be done to grab it. After all, India’s largest software company has revenues of less than USD 1 billion. Compare this with IBM Global Services’ revenues of USD 35 billion. India’s share of the total world market is just 1.3%. We have a long way to go!

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.