Diversification of IT industry?s work portfolio has become paramount

It is always germane to contextualise any perspective. We know that last year?s economic contagion had its epicentre in the United States and thence spread to the rest of the world. Contraction in national gross domestic products, rising unemployment levels and an overall slowdown in the pace of investment activity resulted. What started as a shock in the financial markets, spread to all sectors of the world economy and the exact depth and breadth of the impact is still unfolding.

We also know that India?s economy in recent years has been fueled in large part by the growth of our technology sector. A significant element of this growth has been the ?outsourcing? or ?offshoring? of software development activity and key business processes by large global corporations and other organisations. Our IT sector derives approximately 61% revenues from the US based clients. Hence, the impact of the slowdown in the US had an obvious impact on the prospects of the Indian IT sector.

Having said that, the Indian IT/ITeS sector was quite resilient in spite of the global slowdown. This was in large measure due to the steps that the industry took on management of cost, improvement of utilisation etc. The strong rebound is also a tribute to the robust value proposition that the industry offers global flat.

However, the impact has not been insignificant. The Indian IT software and services industry, which has seen a compounded annual growth rate of around 30% over a fairly long period, is now projected to grow at around 15%. Diversification of the IT industry?s work portfolio has therefore become paramount. Fortunately, the domestic market has picked up smartly. Government is finally making major investment in IT to improve governance and efficiency. And corporates are doing the same because of increased global competitiveness. The dark horse, in all this however, may well be the small and medium enterprises.

Not surprisingly, small and medium enterprises, better known as SMEs are increasingly being brought into focus on account of their huge growth potential. SMEs are the backbone of this nation employing 60 million people and account for 45% of the manufacturing output and 40% of the exports.

India?s SME sector accounts for about 99% of all enterprises in India, contributing to almost half of India?s GDP. It is home to a slew of business opportunities, especially in the immediate future where cloud computing is upon us and all set to revolutionise the IT industry.

Why is the role of SMEs important now? SMEs can carve out value-adding niches for themselves and play an important role at a time when global corporations revisit their established supply and sourcing patterns as a response to the changed business climate.

The potential in the Indian SME segment has been talked about in elaborate terms ever since the global credit crisis impacted the profitability and growth of corporations. In the need to remain competitive, these entities are looking at a market in the product and supply chain areas.

If SMEs are to emerge as the growth engine of the economy, they should be provided with a conducive and enabling investment climate for the orderly conduct of business which includes supportive infrastructure, facilitation of technology transfer training in skill development marketing support and reduced rigours of legislation and over governance. Urgent technological upgradation is needed for SMEs to enhance their cost competitiveness and product quality.

Hence, partnership between SMEs and government agencies/R&D institutions as well as the creation of technology incubation centres by the government from which units can source technology at cost-effective rates can help in modernising SMEs. India?s future growth will come from here?not marginal, but rather, explosive growth that is both inclusive and widespread. The role of SMEs and the opportunities they provide is thus very critical.

In a globalised world, Indian SMEs are facing increased competition from both large Indian players and multinationals on their home turf. They?re also entering global markets, increasingly engaging in partnerships with multinationals and larger Indian players and becoming part of a globally integrated supply chain. All of these require them to beef up, by way of processes, quality and productivity.

Having identified SMEs as the driver of their future growth, IT vendors are striving to address them more effectively, whether by setting up dedicated teams, creating specific products, building and strengthening channel networks, focusing on brand salience, or offering financing options. That no established market leaders exist in the segment makes the investment opportunity even more attractive.

Earlier IT vendors typically had a ?one size fits all? approach. At best they would take enterprise products, strip them of some features, and shrink them for SMEs. But that didn?t work because SMEs? needs and expectations are very different from those of large enterprises. In large enterprises, IT is now used as a business driver, whereas SMEs use IT more as an enabler. Having realised this, IT players are introducing products specific to SMEs.

Further, cloud computing makes technology and the competitive advantage that it brings to the large players accessible to the small guys too. With the SMEs looking to become competitive, the onset of this new phenomenon couldn?t have happened at a better time and only proves that every crisis holds within its womb a great opportunity.

?The writer is chairman, CA Technologies (India)