Moving away from IT services to products

Venkatesh Ganesh Bangalore | Updated on July 28, 2013 Published on July 28, 2013

Software products involve longer gestation time and adifferent way of thinking as compared to traditional supportservices.

N.R. Narayana Murthy

Customers around the world complain that Indian sales people continue to confuse aggressiveness with inquisitiveness.

While the last two decades saw the Indian IT industry grow into a $100-billion industry, the sector missed out on developing software products and an opportunity to differentiate in the face of global competition.

Earlier this year N.R. Narayana Murthy pointed out the need to position India as an ‘innovation’ destination, build products and add value by strengthening its existing areas and looking at new ones. This clarion call is resonating amongst others in the Indian industry at a time when winning deals and getting Fortune 500 companies to open up their technology budgets are getting harder.

Analysts and industry watchers are of the view that despite growth in the sector’s contribution to India’s GDP, from 1.2 per cent in fiscal 1998 to 7.5 per cent in the 2012 fiscal, the sector still missed out on opportunities to position India.

The two most often cited areas are software products and the ability to go beyond body shopping and cost arbitrage. “When I look at Indian IT services players, I can’t distinguish one from the other,” says a US-based outsourcing advisor who does not wish to be identified as he works with some Indian IT companies.

Change in strategy

The differentiation, he adds, can come by working closely with outsourcers and identifying new ways in which those companies can improve their top- or bottom-line. Industry watchers feel that methods that worked in the past will not work in the future.

“Customers around the world complain that Indian sales people continue to confuse aggressiveness with inquisitiveness. In other words, instead of trying to understand, anticipate and pro-actively shape customer issues that can drive future demand, they assume that the answer to sales growth rests in simply calling upon a customer more frequently,” says Peter Schumacher, CEO, Value Leadership Group. This, in effect, sums up the sector.

Products can offer some differentiation. “Indian companies were never serious about building products and that needs to change,” according to Pradeep Mukherji, President and Managing Partner, Avasant.

Typically, software products involve longer gestation time and a different way of thinking as compared to traditional support services.

While majority of the Indian service companies preferred the easy way out, the focus on products has been not single-minded, apart from examples such as i-flex, Finacle or Tally. Part of the blame should go to the venture capital ecosystem, which, even now is interested in investing in industries that provide quick returns (such ase-commerce, technology in education).

However, according to Mukherji, when companies were not building products, VCs did not have the option to make an investment, unlike the situation in Silicon Valley, which is a hotbed for product companies.

No government support

The Government has also turned a blind eye towards encouraging products over the past two decades.

For example, in the last Budget, payments made for purchase of computer software is considered as royalty and thereby TDS at the rate of 10 per cent is applicable and since margins on distribution is in the range of 2-4 per cent, it puts a lot of pressure on nascent software product companies.

Finally, skill development, an area that is crucial to the sector has been a bone of contention amongst all the stakeholders – companies, academia and the Government. According to the National Skill Development Corporation, a public-private partnership, approximately 12.8 million people will join the job market every year in the coming decade but industry readiness is a concern.

This has also not resulted in sufficient R&D or building on IP in areas like patent filing, which is abysmal when compared to developed or even other developing economies. According to D. R. Agarwal, Director, ITAG Business Solutions, an IP consulting firm, in order to be a strong knowledge hub, building on IP is crucial.

So, has India missed the bus? Abhay Samant, Country Marketing Manager at National Instruments, who was earlier the R&D section manager, says that it is not too late but added that if India does not kick-start its products initiative in the next three years, the country will lose out on this opportunity.

Published on July 28, 2013
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