What are the prospects for 2003?

The year 2002 witnessed numerous structural changes in the global and offshore IT industry. Many companies hit the headlines with news of mergers and acquisitions, strategy redefinitions, diversification and so on. 2003 promises to be another interesting year for the IT industry.  Read on to find out what Prayag's views are on trends in the IT services as well as IT enabled services segments for 2003.

IT services

What to expect?

The three technology areas to watch out for are EAI, BI and Data warehousing, and Security Software.

In an environment characterized by thriftiness and close scrutiny of money spent, leveraging existing IT assets would be a prevalent theme. Many businesses are realizing that they must now integrate all systems in order to remain truly competitive. This is where EAI technology comes into play; building a bridge between systems within an enterprise and also external to the enterprise. Enterprises are keener on realizing ROI on existing investments rather than invest in new systems. Therefore, many  large organizations would focus on EAI initiatives, while mid-sized organizations would look at point to point integration solutions.  Analysts predict that the Enterprise Application Integration (EAI) market  would  grow to $25 billion by 2005. Indian software companies can study the business setup of existing clients and suggest ways to leverage existing systems. For instance, helping a company to set up an enterprise wide Intranet or Extranet, Web enabling legacy systems, or setting up an employee portal are some applications possible under the EAI umbrella. A very good understanding of the client’s business, as well as understanding of multiple technologies and leading ERP and best of breed packages, is crucial for success in this area.

BI and Data Warehousing promises to be another technology trend with possibilities. Continuing with the theme of leveraging what exists, companies will soon look at building data warehouses on top of existing enterprise applications.  Today, enterprises do not entirely comprehend the impact of BI or Data warehousing solutions on their business results. Making organizations realize the value of these solutions, implementing them, and producing successful and tangible business results will be the challenge that IT services providers will be faced with.

In the wake of the September 11 episode, Security in systems has been brought to the forefront. Businesses are taking a hard look at how susceptible their systems are to cyber-terrorism. Very recently, the NASA web site was hacked after the Columbia space shuttle disaster. Companies, especially the Fortune 500 club, would be keen on strengthening their security irrespective of downturns in the economy.

Far from the madding crowd

As always, the US remains the launching pad for technology innovations and retains the top spot as highest spender on IT services. The European markets will follow the path set by their US counterparts.

Closer Home

In the Asia-Pacific region, India and China will be the leading investors in IT services according to the Aberdeen Group. IT spending by India and China is expected to grow at a compounded annual growth rate of 10.9 percent and 14.6, respectively. Software companies should start focusing on India and China as they are among the fastest growing economies in the world. There is a real opportunity in setting up computerized systems for businesses, e-governance and e-learning in these countries. Consider the Indian scenario. Manufacturing companies in India have a real need for low cost ERP solutions, the government is launching several e-initiatives, banking and financial institutions are realizing the significance of consolidating information and so on.

The challenge here, however, is to help companies in these countries to understand the need for such solutions. These companies may not have sufficient knowledge or experience with IT systems to identify the need. Indian software companies should invest time and effort in dev eloping domain expertise and understand what the business requirements are. They should position themselves as high-end end-to-end consultants who can recommend appropriate solutions for a business and also implement them.

What should Indian companies do?

1. Develop vertical expertise and position themselves as high end providers in select emerging markets.
2. Become more business savvy- make customers understand their business requirements.
3. Gain expertise in integration tools, and data warehousing techniques.
4. Develop Business continuity plans and keep the client informed of steps taken for handling disaster recovery.

ITES

Companies are convinced that outsourcing of business processes is the way to go if they want to stay in business and generate profits. By getting non-critical tasks out of the way, they can focus on their core competencies and this  is the key driver of the burgeoning BPO industry in India. Indian companies are today looking to address specialized services such as animation, transcription and translation services, market research and GIS over and above regular BPO services. BPO has proved to be a double winner with average contract sizes being large and the customer relationships being sticky and long-term.

What to expect?

• The investor community would focus on already existing BPO units with good delivery track record, than on startups. This is in line with the belief that scale of operations will be a crucial determinant of longevity, unlike in the IT services space where small generic players continue to survive and do well. One therefore expects to see more consolidation.
  
  
• We expect more more IT service companies getting into the BPO business to offer one stop solution to all  IT and BPO needs of their client companies. The initial success exhibited by companies such as Progeon, Spectramind (which now bags orders leveraging the Wipro name) and Intelenet would only spur more of the larger IT services companies. CTS and Satyam have also made their intentions clear.
  
  
• We believe that the vendor’s ability to scale and be a long- term player will be the prime consideration for large buyers.  Our experience with some key players shows that detailed understanding of BPO and call center operations is not really expected by clients, as they know that the industry is in its infancy in India . It is also evident that BPO companies spawned by first tier IT services companies will play the scale game.
  
  
• There is still an opportunity for niche players with strong domain competence to create a differentiated positioning for themselves. Value added BPO engagements which require domain knowledge, but may not be very large sized could be executed by such players. And they would co-exist with the large, more generic scale players.

What should Indian companies do?  

1. Indian companies should gain domain expertise in their service offering. Alternately, they may need to acquire deep competence in a business process that spans across industries. New entrants are likely to face a stiff time unless they have process expertise or target a niche segment.

2. Incorporate technology and make their delivery processes predictable and scalable. This will help in delivering on the committed SLAs  and also provide value added services.

3. Address the growing issue of employee attrition. With more and more BPO companies offering attractive jobs in the market, companies should dev ise innovative ways to retain employees.