The Hindu Business Line : Small, medium IT cos take a harder knock

“Discretionary spending is limited and decision cycles are becoming long. Even where clients were close to signing a contract, they are holding back decisions due to the liquidity crunch.

Moumita Bakshi Chatterjee

New Delhi, Dec. 21 Stung by the global downturn, small and medium (SME) IT companies operating in India are not only keeping a hawkish eye on purse-strings, but have also slammed the brakes on expansion plans and new launches.

Some are even going to the extent of tweaking the billing model to tide over the crisis.

“The impact on smaller IT firms is even more pronounced than on their larger peers, as new projects in the US have practically dried up and clients are renegotiating rates on existing ones,” says Mr Nishant Verma, Vice-President of advisory firm Tholons Capital.

Vendor consolidation

“Moreover, with vendor consolidation, clients who had so far given out projects to multiple suppliers are now looking for a single supplier for volume discounts; hence smaller players may lose out,” he adds.

Mr Verma points out that SME revenue growth could either be flat or even negative in 2009. While the National Association of Software and Services Companies (Nasscom), in its annual industry target, does not give a separate break-up for SMEs, it had initially estimated overall India’s IT revenue to grow between 21-24 per cent in fiscal 2009 at $62-64 billion.

However, Nasscom is now reviewing the FY09 targets in the backdrop of the global financial crisis.

Longer decision cycles

“Discretionary spending is limited and decision cycles are becoming long. Even where clients were close to signing a contract, they are holding back decisions due to the liquidity crunch.

“In other cases, where decision making is still in progress, cycle times have become longer,” says Mr J. Ramachandran, Chief Executive Officer of Birlasoft.

China plans

Birlasoft is leveraging the slowdown to identify potential growth areas for future and is busy creating employee competency in those areas.

The company has also decided to go slow on its plans to set up a facility in China. “Instead, we are looking at collaboration or a tie-up in China to serve customers. Establishing our own facility could lock up significant capex,” he adds.

Delhi-based Visesh Infotecnics has postponed plans for an acquisition and launch of an SME ERP product, in the US.

Its plan to acquire a company that is well-entrenched in software product market in US and western Europe is delayed.

Staggered payments

A small Noida-based company — Netcomm Labs focusing on Web applications and intranet solutions — is allowing clients to stagger payment schedules.

“A bulk of our engagements is in India. Despite that, we find that upfront payment is proving a deterrent in slowdown,” says Ms Sonali Chowdhry, Director of Netcomm Labs. “So we are offering to deploy first, and take the payment through staggered payment schedules,” he adds.

Product development company GlobalLogic points out that outsourced product development had not seen much of an impact as it helped clients drive topline.

“However, in IT services, SMEs who have small clients will face a challenge as those clients themselves will be under tremendous pressure,” says Mr Mukul Jain, COO of the company.

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