C P Gurnani, the CEO designate of Mahindra Satyam-Tech Mahindra combine, when asked whether Australia could offset the setbacks in the West, at a recent press conference said that was a possibility because the size of the two economies is almost the same.

The question stemmed from the high profile appointment of Edward ‘Ted’ Pretty as the Chairman of the company’s Australian and New Zealand operations.

While the company wants to piggyback on Tech Mahindra’s delivery strengths in Africa, it is focusing on Latin America, the Gulf and Asia-Pacific. Ted’s appointment is clearly part of the strategy to look at emerging markets.

Broadly, the industry considers the rest of the world, sans the US and Europe, as emerging markets. Though the industry has been talking about exploring this region for a while, it is only in the last 1-2 years that they have begun a serious attempt to develop this market as a dependable marketplace.

Emerging markets

It is not just Mahindra Satyam, the entire Indian IT and IT-enabled services industry is looking at the emerging market (which includes the domestic market) as a cushion to dwindling fortunes elsewhere.

IT research firm Gartner forecast last week that the spending on IT outsourcing in the APAC region would grow by one per cent this year and increase by 2.5 per cent next year. Though absolute figures are not available, an executive of ITsAP (IT industry association of Andhra Pradesh) has said this could mean a lot for the Indian IT industry.

Gartner cites huge inflow of capital into the region to supports its view. “This would lead global and regional businesses to scale up their operations,” it said.

NIIT Tech’s Head of APAC Arvind echoes this view. He sees prospects for significant growth in the region. The company, which earns 25 per cent from the region, however says inflationary trends and global economic challenges have an impact. “Customers are delaying decisions. Deal structures are changing. But we see this as an opportunity for mid-sized companies. We are better placed to address this new structure,” he says.

That emerging markets are continuing to invest significantly in their home markets demonstrates the ongoing potential of the countries and their recognition of the threat of losing market share to newer emerging markets, a recent survey (Connected World) conducted by Tata Communications observes.

The study surveyed 1,600 companies. While 58 per cent of US companies indicate that they are currently looking into emerging markets, the greatest level of interest comes from two of the emerging markets themselves with 61 per cent of respondents in India and China currently looking at operating in new markets.

About 55 per cent of companies in Singapore, 45 per cent of the Gulf companies and 40 per cent of South African companies state that they are already operating in emerging markets, a figure that exceeds those currently looking at opportunities there.

If you have doubts at the emergence of this region as a force to reckon with, look at this. APTECH, the IT training company with presence in 40 countries, is soon setting up centres to teach English along with the courses in IT. This is an indication that the IT consumption there have matured and moving up the value chain. Interestingly, all the 40 countries fall in the emerging market category.

Tata Technologies, which offers services in aerospace enterprise solutions, automotive enterprise solutions, ERP and SAP implementation, says it goes to geography along with its customers as they expand. “We look at sweet spots for a customer and follow them around the world,” Samir Yajnik, President (Global Services) of Tata Tech, points out.

It is looking at China, Italy, the Gulf, Russia and Brazil that can be groomed for prospective business.

Indian opportunity

Mr Saurabh Srivastava, Chairman of CA Tech (India) former chief of NASSCOM , says India emerged as a key market for the industry outside of the US and European markets. Till 5-6 years ago, India never figured significantly in balance sheets. “It’s changed now. Several companies report more than one billion (dollar) revenues from the domestic market. Huge spending by the public sector and Government is driving the demand in the country,” he says.

RIM (Research in Motion) growth in demand for wireless communications is an indicator that the businesses are expanding operations across emerging markets. “With increase in high disposable income, there is also a soaring demand for smartphones, localised content to fulfil the need to be connected 24x7. This has further opened up several opportunities to sustain and grow the entire ecosystem that is enabled by wireless technologies.” Sunil Lalvani, Director (Enterprise sales, India) of RIM, comments.

Fledgling markets

It is not just top-notch destinations like China, Brazil and the Gulf that are attracting the attention of the industry. Myanmar, Burma, Bangladesh, the Philippines, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia and countries deep in Africa too are emerging as possible markets to explore.

The trigger, as elsewhere, is banking, financial services and insurance sector. The growth in telecom and healthcare sectors too are beginning to consume IT products and solutions. Obviously, IT-enabled services follow suit.

Elango R, Executive Vice President (Interim Head Emerging Market SBU and Chief- Human Resources Officer) of Mhpasis, says emerging markets are assuming a significant percentage of its revenue pie. “We have been in the Emerging Market for over 10 years. Our longest client relationship is over 7 years now,” Elango says.

Some of the innovative deals are in BPO, Application Management, Financial Inclusion and Cash Management sectors are from the Emerging Markets.

Opportunity to build a market proposition is at higher value in the emerging markets than in the mature market. Winners in this space are players who do few things and do them really well.

Tata Communications has made emerging markets as one of their three strategy pillars for growth. Srinivasa Addepalli, Chief Strategy Officer, says it focuses on three emerging markets regions - Asia, the Gulf and Africa.

“These are regions of very high demand growth and we have invested considerably in those geographies, not just in submarine cable connectivity but also intra-region capabilities.

Challenges

The biggest challenge, however, is price points. With the emerging markets proving to be a lucrative proposition, small, medium and big companies are pitching for the deals, leading to a kind of price war .

Many new entrants are taking the price route to break-in. Clients are driven towards IT and BPO for cost consideration rather than a long term strategic outcome. “Services providers have to evolve to being catalysts for client success rather than have instant gratification with cost reduction,” Elango observes.

kurmanath.kanchi@thehindu.co.in

(This article was published on August 16, 2012)
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