Indian IT Industry’s lack of diversification and variety – Issues and prospective solutions

Technically speaking, when we mention the term ‘Information Technology’ we mean a huge domain encapsulating elements like Software products, Services, Hardware, Engineering Services (including R&D), etc. But in case you are in India, IT basically means Services, Services & Services. This is how limited our IT domain is. Lets take a look at some stats. A report released by NASSCOM (a consortium that serves as an interface to the Indian IT industry) states that the revenue earned by the Indian IT industry in the Financial Year 2006 was USD 37.4 billion, out of which a colossal USD 25 billion came from IT Services & IT Enabled Services(ITES). Thats a whopping 67% of the entire pie. Now you know why a minor appreciation of the value of rupee against the dollar has both the Government and the IT sector running for cover. It’s because this meagre change straightaway hits that 67% revenue block. Here’s a detailed breakup of the earnings in the period 2004-2006 with an estimate for the year 2007:
The table clearly shows the hidden truth behind all the hype. A revenue estimate of USD 48 billion for the year 2007 is not bad by any means, but isn’t the industry too dependent on one segment of the IT domain(IT Services/ITES). What if something terribly goes wrong with the IT service sector? Lets get an insight into the mindset of the people running the Indian IT industry.Basically there are four breeds of IT executives in India:

• Ones who find IT sectors like software products, R&D and stuff too risky. (Creating and selling a software product is far expensive than outsourcing services and yes unlike the IT Service sector, the risk involved with respect to the returns is too high)
• Ones who specialize in the IT Service Sector and are completely focussed on their strenths.
• Ones who are afraid of breaking the norms and want to make easy money.
• And finally the rare breed of executives who feel they can actually make a difference.

Unfortunately, the fourth breed is way too petite to make a difference. What’s really astonoshing is that out of 1,100 companies registered with NASSCOM, the pecentage of non-service companies is negligible.Enough of the groaning and moaning…Now lets look at what could be done in order to create a bit of segment equilibrium:

• The IT service companies, specially the ones who now possess substantial market experience, could gradually enter the product arena. This would put the IT product sector under spotlight and set an example for the smaller companies to follow. A great example of this initiative is second largest IT Service company in India – Infosys, which has already put a foot in the product sector through its Banking Product ‘Finacle’.
• Organizations like NASSCOM should go all out on promoting the neglected IT domains like product division and R&D. When an entire consortium backs an issue, the results are bound to be fruitful.
• Strict restrictions should be imposed on software piracy so that people are forced to buy original softwares which of course come at a hefty price tag. This would force common man to look at cheaper domestic alternatives and this where the lndian software product companies could cash in.
• The Government of India would do well to create policies that favour the IT Product and R&D companies. The government could also step in by helping Indian product companies establish MoU’s with the bigger giants abroad. The conduction of large scale Software Product Fairs would also go a long way in convincing common man to give domestic software products a food for thought.
• The Hardware companies should concentrate on presenting their products in an attractive & eye-catching manner and give due importance to branding of their products, so that people dont consider hardware as a piece of crap available at the next door factory.
• Last but not the least, a few established and experienced people working in the product giants abroad could come up with their own product companies in India. Nevertheless, this is a completely personal opinion and is bound to face indifferent reactions.

Even a petite step taken in one of these directions, could ignite the much need equilibrium spark in the Indian IT arena. Only then we would be able to say that the Indian IT industry has finally come off age. And may be then Thomas Friedman’s statement in his book The World Is Flat: “If I have a granddaughter one day, and I tell her I’m going to India, she will say, “Grandpa, is that where software comes from?”, could actually come true.

Ashutosh Didwania