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PANEL DISCUSSION "The Gloom Here Defies Logic" The BT-Gartner panel discussion on the future of the Indian IT industry, the threat posed by China in the global software business, and the potential of IT-enabled services. By Roop Karnani
What should be the road ahead for Indian it services companies? To answer this question BT got together a panel of eight senior analysts from technology consulting major Gartner. Excerpts from the panel discussion: BT: Thank you for taking time out of your schedule to be with us. This discussion comes at a critical time for the Indian it industry. There's a general air of gloom in the industry. We'd like you to help us understand the dynamic changes that are happening in the global it industry and how it will impact India. Second, who will win the race to be a software superpower, India or China? And third, how can India emerge as an outsourcing destination? Bob Hayward: You have one of the fastest growing it markets in the world today. So I don't know why there is an air of gloom and doom. We believe the slowdown in the US economy will be shallow and be over reasonably quickly. It is also restricted to hi-tech companies that were highly dependent on business from dotcoms, telecommunication (companies), and pc companies. I don't understand why Indian companies are worried. There has been some impact on other Asian countries like Singapore, South Korea, and Taiwan-countries highly dependant on exports of hardware to the US. But surveys that we have done in the US show that companies will spend a lot more on software and services during this year. Then, there is domestic demand. The domestic demand (in India) for it services is growing at more than 50 per cent per annum. This is the fastest in any market in this region other than China.
But the US slowdown is a lesson for some Indian it vendors to start diversifying into other markets. I think it is forcing them to look at what they do and forcing them to concentrate on doing it better. India is in the right market and at the right time, particularly when we look at the movement towards business process outsourcing. Not just software development, but things like remote call centers, R&D, data entry, managing financial systems remotely, running payroll remotely, doing collections-companies are going to focus on core competencies and outsource everything else. We believe the business of business process outsourcing will be worth $180 billion by 2008. Geoff Johnson: There is some element of spring-cleaning going on. Companies are getting rid of the dead wood. You will see inventory being written off, investments in dotcoms being written off the books. Sujay Chohan: Today, it is far easier for an American company to say I am going to cut so many jobs in the US and transfer that work to India. A lot of people got into it services to go public and make a quick buck. What happened in the US with dotcoms happened in India with it services. Those players are no longer in the business. Another positive fallout is that the prices of it professionals have stabilised.
C.F. Baity: Bob made a presentation this morning in which he said the Indian it services market will grow by more than 50 per cent. That figure is conservative. Partha Iyengar: It's possible that what has shaken the Indian market the most is the laying off of the people. Is it likely that more companies will do this? Chohan: Look at who is being retrenched. All the people who lost jobs are in the dotcom and telecom companies. How many mainstream it services companies have retrenched people? Baity: We have first hand evidence of companies that say, 10 per cent of our people don't do much, so we are just going to get rid of that 10 per cent. Another positive outcome is that a lot of people working for dotcoms in the US were Indians and now they are coming back to India. That actually strengthens the talent pool here. BT: One reason why some people think there is reason to panic now is because onsite billing rates for some Indian software companies have gone down... Johnson: That sends a big message to the markets to stop climbing. BT: And increments in most Indian IT companies have been far more rational this year. Their employee-turnover rates are down... Hayward: This is the beauty of the Indian software market. You have little bit of a impact on India, which slows the market down; you end up having more guys with skills and more work; and you haven't have to pay them as much. BT: But what's worrying us is this talk of the value chain. Some analysts claim India operates at the low-end of the value chain where IT-spending is discretionary. The other fear is that Indian software services companies will increasingly face competition from the likes of China, Vietnam, and Philippines. Hayward: China is producing a lot of engineers. They are all Chinese-speaking hardware engineers. So, China can't compete with India. It's not a China or India situation as many of you see it, but a China and India situation. But I do not see China succeeding in software. Just like I've never seen Japan succeed in software. The problem with China and Japan is that they have no tolerance for errors. There isn't a Japanese company on this planet that would dare release a product like Windows. 1
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