The Hindu Business Line : Stuck in the comfort zone

The small and medium enterprise (SME) IT market is still `low-key' in terms of revenues and global reach. Is it that these players don't dare to dream big and are happy being just average players? eWorld captures the scene in and around Ko chi.

KURIAN Thomas is a bit embarrassed as he welcomes me to his office. It's a real mess, and he says apologetically, "Our latest excuse for this mess is that we are shifting office soon." I find computers that yearn to get back some of their missing parts and an assortment of gadgets, files and other paraphernalia strewn around. We settle down in one of the rooms to talk about the company, Xtend Technologies. A labouring ceiling fan gives us company. Thomas again tells me that the new office is being set up. I want to tell him that he shouldn't be so sorry about his office. Don't we know that some of India's best companies had a worse start?

Barely a few meters away, the world in this part comes to an end at the feet of the Arabian Sea. About seven years ago, Thomas and his friend and co-promoter of Xtend, K. Jayakrishnan, attracted the attention of a world across the sea for developing software that allowed Net users to access graphics using their shell Internet account that provided only text. That was the time when the Internet was in its nascent stage and costly. The freeware called `ShellSock' had about 25,000 downloads in a month and, soon, it ran into legal issues with the then Internet monopoly, Videsh Sanchar Nigam Ltd (VSNL). "The cost of a shell account was Rs 5,000 for 500 hours, but for the TCP/IP account, the cost was Rs 15,000 for 500 hours," recalls Thomas.

It surely was a dream start for any new kid on the block, but why is it that Xtend still remains in the same old building? "We must be the slowest growing IT company," he admits sheepishly. Xtend today has 12 people and an annual revenue of Rs 40 lakh. "Had they been in California or even in Bangalore, they would have built up (a big company)," says S.R. Nair, Managing Director of Team Frontline, one of the oldest IT firms in Kochi.

So what went wrong?

About 70-100 small IT firms — may be more — are writing software codes, managing databases, developing gadgets and maintaining Web sites from apartments, houses and small offices in Kochi, which was rated by Nasscom as one of the best cities in India for IT-enabled services. (A number of BPO firms have also come up in the city since then). Most of these companies have a similar structure: `1+10 combination'.

"You have a promoter who functions as the CEO cum CTO cum CFO cum what-have-you plus some 8-10 people," says Nair. The turnover of these firms could be anywhere between Rs 10 lakh and Rs 1 crore. Except for a few like Xtend, most of them work on older technologies such as Foxpro and do low-level programming. Finding talented people and retaining them — the quintessential problem of the tech-industry — assumes a much larger proportion for smaller firms.

In another part of the city, Jacob John and his wife, Jaya, are into their fourteenth year of running Data Devices, a software firm that specialises in Enterprise Resource Planning (ERP) for hotels. The company has nine people and last year it clocked a turnover of Rs 12 lakh. "We don't get people and the new people we hire don't want to learn," says John. "While sitting here, they think about new jobs," he complains.

Nasscom, the apex association of the Indian software industry, admits that the country's small and medium enterprise (SME) market is still `low-key' in terms of revenues and global reach. This segment accounts for only 10-15 per cent of the industry revenue today. Nasscom expects that by 2008, this share would go up to 50-60 per cent. The association has created a special SME forum to address the problems of this segment exclusively.

By and large, smaller firms also focus on the domestic market, where billing rates are much lower compared to international markets. Companies such as Xtend and Data Devices are only now thinking about going global since they could not afford to set up offices abroad or send a marketing team. "We were inexperienced entrepreneurs and we faced all the problems that naturally come with our inexperience," says Thomas. According to Nishanth Kumar, Manager, Business Development, at Kerala IT Mission, smaller technology firms in Kochi were engaged more in providing technology consultancy to clients rather than getting into the development space. "Many of them have patented technologies and they were happy with their way of business rather than fighting with bigger rivals," he says. Since they operated as a small team, they were content with the small revenue they were making. 0Nair cites this complacent attitude as a big drawback for the companies in Kochi. "They have no ambition to grow. And they often lack the vision to emerge as leaders. They are happy being average players and it is this tendency that goes against them," Nair, who was also the President of The IndUS Entrepreneurs (TiE) Kerala Chapter, laments.

While mergers and acquisitions drive the growth of companies elsewhere, such activities are not happening in smaller centres like Kochi. However, there are a handful of players in Kochi, such as the Nest Group, SoftSystems, Avenir Software and Dimensions who are making their presence felt on the country's IT map.

Nasscom believes that the SME segment will be a key ingredient for sustaining the future growth of the Indian software and services industry. "However, SMEs will have to align their offerings with the demands of the industry to emerge successful in the long run," Nasscom says. Smaller firms will have to find a `defensible niche' in new verticals such as healthcare, education, transportation, etc and ensure that they have a robust business continuity infrastructure and a global delivery network, the association says.

And there's one last thing they need to do: Dare to dream big.

vipin@thehindu.co.in

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