The Hindu Business Line : Small fry, big catch

Tired of talk of the IT potential that small Indian cities hold? Understandable, without the evidence to back the claim. But the action is picking up now. Though there are no numbers yet, companies seem to be finally tapping the opportunities they have talked of for long.

Over the past few months, top officials of a number of technology firms such as Cisco, Oracle and Nortel have made it to Kochi.

"Why do you guys keep coming to Kochi these days?" a journalist could not but ask Ashoka Valia, Managing Director of Nortel India, at a press meet. Valia had the answer ready: smaller cities like this are now fast emerging as important markets for technology products.

Gone are the days when a Cisco or Nortel would focus only on metros. Now all of India looks an attractive market for IT products and services, and nobody wants to miss this opportunity. After all, it doesn't matter where the money comes from, as long as it comes.

Key driving factors

A host of reasons are behind the growth of IT usage in smaller cities and towns across India. The first and foremost is the sustained growth of the Indian economy.

The overall gross domestic product (GDP) growth during 2005-06 was 8.4 per cent, higher than the 8.1 per cent projected in the advance estimates by the Central Statistical Organisation.

The manufacturing sector recorded a growth of 9 per cent, while the trade, hotels, transport and communication sectors grew by 11.5 per cent.

Finance, insurance, real estate and services grew by 9.7 per cent in the fiscal. All these sectors are major users of information technology, and naturally, their growth has driven the growth of the domestic technology market.

"The liberalisation of the Indian economic policy, de-regulation of key sectors and progressive moves towards further integrating India with the global economy have been key drivers of increased IT adoption in the country.

This is best reflected in the fact that most indigenous players in telecom and banking, two key sectors with significant multinational corporation (MNC) participation, have significantly upgraded their levels of IT adoption to offer best-in-class services comparable to those offered by the global competition," a study on the domestic IT market by the National Association of Software and Service Companies (Nasscom) and IDC India has said.

Nasscom expects domestic spending on outsourced IT services to more than double to over Rs 238 billion by 2009.

Along with banking and telecommunications, the other major contributors to this growth are governments, IT and BPO companies and education. With State governments now vigorously adopting technology to provide better services to citizens, a huge market has opened up across the country.

The branching out of IT and BPO firms to smaller cities is another factor that helps proliferation of technology to smaller cities. In order to rein in costs and source talent, software and BPO firms have no option to but to set up facilities in Tier 2 cities.

S.R. Nair, Managing Director of Team Frontline Ltd, a systems integrator, says companies such as Nortel and Cisco are turning to Kochi because it is an emerging destination for call centres. Already call centres and BPOs such as Outsource Partners International have come to Kochi.

Even though places like Kochi may not offer large-sized business deals on the lines of the top five metros, in terms of growth, these places offer great potential.

"In the past one to one-and-a-half years, companies such as Oracle, SAP and Microsoft are also aggressively tapping markets like Kochi. There is a growing demand for ERP and CRM solutions as small and medium businesses are now increasingly adopting such software to improve efficiencies," he says.

Education is another sector that laps up technology.Wipro Infotech recently bagged an order from the Kochi-based Toc-H Institute of Science and Technology to provide technology solutions as well as training to students.

Cisco show

"There is a tremendous growth (in IT usage) in the Tier 2 cities. We have been witnessing this for the past one-and-a-half years or so," says Ranajoy Punja, Vice-President, Marketing, of Cisco Systems India, a major player in the networking segment.

In order to capitalise on this boom, Cisco India recently rolled out a mobile showcase of its solutions and products, `Network on Wheels.' For eight months, the Network on Wheels bandwagon will travel to 50 cities in the country, most of them Tier 2, to display Cisco's offerings.

The main target of this initiative: small and medium businesses (SMBs) scattered across the country.

Role of SMB

Talk about the role of SMBs in this IT revolution, and chances are that technology journalists would tell you they are sick and tired of companies' announcing new strategies and products tailor-made for this rapidly growing segment. Who doesn't have an SMB focus these days?

But that threadbare news element notwithstanding, SMBs are perhaps the biggest reason that propels IT usage in smaller cities. According to a study by Access Markets International (AMI), the estimated 7.6 millions SMBs in India are expected to spend $ 7.7 billion this year to strengthen their IT infrastructure.

The changed business environment, where you have to deal and often compete with international players, has prompted businesses in smaller cities to aggressively tap IT solutions. Today, a small auto component maker in Coimbatore cannot afford to work in isolation; he has to be part of a global network.

Nortel's Valia says that growth in communication networks, particularly broadband, in smaller cities has also prompted users to take to IT in a big way.

Metro vs local needs

How different are the IT needs of a user in a small town, compared with one in a metro? "SMBs in smaller cities are fairly knowledgeable about IT solutions, though not as IT savvy as those in a metro," Cisco's Punja says. "They don't have the time and resources to get into detailed analysis, etc," he says.

However, that does not mean that selling in small towns is an easier proposition. Users are extremely cost-conscious and satisfying their requirements is not that easy.

The Nasscom-IDC study says that the top three concerns of domestic user organisations are price, quality of service and lack of people with suitable skill sets. And ensuring proper customer care too comes with its own share of problems. Companies like Nortel are now rolling out special customer-care strategies to address this segment.

Whenever one talks about India's IT prowess, it immediately draws comments about the lop-sided IT development in the country.

Critics point fingers at the low usage of IT solutions within the country and the reluctance of service providers to tap the domestic market. However, that situation is set to change.

Companies have realised that the domestic IT market is as lucrative as that overseas. Small businesses in small cities now look a big opportunity.

vipin@thehindu.co.in

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