M&As are inevitable in a mature IT industry

Updated: Aug 15 2005, 06:35am hrs
Even as India has emerged as the fourth largest market for Oracle Corp in the Asia Pacific region, it is the overall buoyancy in the countrys economy which has put the $10 billion business software maker on an aggressive growth path. The company is expanding its development centres, besides introducing products for the small and medium enterprise segment. IT investments by governments and companies have been increasing, so there is an increasing demand for databases and applications. A lot more customers are looking for integrated solutions for their businesses instead of buying software in pieces from different vendors, says Oracle India managing director Krishan Dhawan. In an interview with FEs Sudhir Chowdhary, Mr Dhawan talks on a variety of issues, ranging from e-governance to mergers and acquisitions in the Indian IT sector. Excerpts:

Why has IT uptake in India been slow despite a great deal of enthusiasm for the governments e-governance program

While India is emerging as an IT superpower, I dont think e-governance is the route to achieving the same. The IT supremacy is based on our ability to meet the needs of the world at large rather than requirements of the domestic economy. Its been a export-led development which started around the turn of the century with various Y2K initiatives.

Over time, the Indian IT industry has added to its capabilities and moved up the value chain and broadened its geographic footprint. Indian IT firms have moved beyond the US market and are increasingly focusing on the European and Japanese markets as well.

As far as e-governance is concerned, it is a specific application of technology. It enables government to work more efficiently in its internal administrative processes. It also changes the nature of the transaction between the government and individual citizens for the better. It operates at a broad spectrum municipal, state and federal levels.

However, its true that IT adoption in rural India is dismal; adoption is concentrated in the metro cities due to easy availability of various modes of connectivity, and the way income distribution takes place in the country.

Dont you think there has been near absence of a focused initiative by the government to promote e-governance across the country

I dont think so. On the contrary, I believe that the government has recognised the need for a nationwide e-governance rollout. This is one area where there has been a broad level of consensus in terms of various policy initiatives. There is a National E-governance Programme which the government is using as a blueprint to rollout its e-governance projects across the country. I think there are endless possibilities for e-governance given the huge size of the country. So far, we have seen various e-governance initiatives in the country, at the state as well as central government level. We might be experimenting with various projects and some tend to overlap, but more or less, we are in the right direction.

But, how can the government ensure that the benefits of e-governance are passed on to its citizens at large

As a first step, the government has to create the necessary infrastructure power, roads, telecom, etc. Fiscal deficit is one of the major issues the government faces. This basically implies that there is a mismatch between the government revenues and expenditure. In my opinion, e-governance will help the government in revenue collection as well as spending and help control fiscal deficit in the long run. Indian Railways is a classic example on how they have caught up with changing times and adopted technology to stay efficient.

How well is the country currently equipped to deal with compliance issues

In general, compliance has got a lot more attention in the last few years than before. For banks, Basel II has requirements on interest ratios, etc. In India, stock exchanges plan to use Clause 49 which will govern the behaviour and compliance issues relating to big companies. There is an increased awareness and express need for compliance. It just happens that various abuses take place periodically and there is a reaction to some corporate frauds.

The biggest benefit IT brings to the issue of compliance is that it enables availability of accurate information based on which business decisions can be taken. However, I think that various industries and the government here are not yet geared up to meet the stringent requirements relating to compliance.

Also, inadequate investment in IT has taken place in this area. People are waking up the fact that investing in IT is a positive way to gain competitive edge. I think, traditionally, the governments investment in IT has been low. However, I see that in certain departments, it is being corrected.

Dont you think that acquisitions today are changing the face of the IT industry Is consolidation the mantra to achieving market share

Absolutely. Acquisitions are imperative as the industry matures. Apart from achieving market share, they help companies to broaden their product offerings and reduce the total cost of ownership to the buyer. I think there will be two significant trends in the industry consolidation in terms of size, and integration in terms of product offerings.

As industries mature, be it automobiles or petroleum, there is a tendency globally to consolidate by way of mergers and acquisitions. We are beginning to see this in the IT industry. I feel the IT industry is in for consolidation with the top companies pulling away from the rest. At the same time, there will continue to be room for niche players. However, the middle space will increasingly come under pressure. They will not be able to compete with the big ones and will either fall away or get acquired.