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Suresh Krishnamurthy

MUMBAI, Feb. 7

THE Indian IT Industry may have grown at 30 per cent during 2001-02, but the small and tier-two players in the Indian software industry have been recording negative growth rates. This is according to the estimates of McKinsey, the global consulting firm.

In fact, many participants at Nasscom 2002 emphasised that small and medium-sized players in the Indian software industry will face tough challenges in the days ahead if the they (SMEs) had modelled themselves on the large players in the industry, viz Infosys, Satyam and Wipro. This is because the SMEs will face intense competition from large players as well as global majors for projects. At the same time, these players lack the "front-ends" such as a full-fledged marketing team or a brand to counter competition. Mr Raj Vattikuti, founder and Co-chairman, Covansys said that SMEs would need to decide what their focus would be. They would have to decide whether they would be generic end-to-end solution providers or focus on niche segments.

Mr Alfred Elbrick, Managing Director, Technology Investment Banking at Duetsche Bank, said that Indian companies needed size to compete with global majors. He also said that SMEs were in a Catch-22 situation. They need large projects to become bigger, but without being big they would not get such projects.

The Vice-Chairman, Nasscom and President &CEO, Digital Globalsoft, Mr. Som Mittal, said these trends were an outcome of the fall in demand. Earlier, when there was supply crunch, SMEs delivered capacity to the industry. Now, when there is a demand crunch, SMEs are finding the going tough. However, almost all the participants say that it is not the end of the road for SMEs.

Mr Ashank Desai, Chairman and Managing Director, Mastek, pointed out that even in the US where the big five companies such as IBM dominated, there were more than 7,000 small players. He said small and medium-sized enterprises would prefer to work with similar-sized software services companies.

He added that Indian software SMEs could also try to focus on niche segments. He said that SMEs could not do it alone and, therefore, would have to do it through alliances or mergers and acquisitions. He also said that they could seriously look at sub-contracting.

Mr Mittal said that large players in India would also like to buy skills from these players, which they did not have in-house. He said Digital had sub-contracted work to small players in the past.

Even McKinsey which indicated that Indian SMEs had weaknesses in their business models stressed that it was not all over yet.

Mr Noshir Kaka, Principal, McKinsey, indicated that SMEs could aspire for growth if they changed their business models.

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