With issues like extension of benefits under the Software Technology Parks of India (STPI) hanging fire and onshore operations costs soaring, small and mid-tier IT companies are facing difficulties. So far, the STPI cover has enabled many small and mid tier IT firms to pocket non-taxable profits. However, since 2009 the Centre takes ad hoc decisions regarding the extension of these benefits with no final word on its continuity or termination. This has cast a shadow over the future of small and mid tier companies, which are unable to decide whether to continue in STPIs or relocate to SEZs and enjoy uninterrupted tax breaks. Vanaja Arvind, executive director, Thinksoft Global Services, a Chennai-based mid-tier IT company tells FE?s S Saroj Kumar about how small and mid-tier companies are finding it to continue operations, expand and how wage inflation compounds the problem. Excerpts.
Does the business scenario augur well for small and mid size IT companies to relocate to SEZs?
With ambiguity surrounding STPI continuity and whether SEZs will house small and mid tier companies, players will have a hard time executing their expansion plans. Termination of STPI benefits would hit these companies harder than to large firms that operate from SEZs.
What are the in-house challenges faced by midsize companies?
One of the issues is about maintaining a balance between offshore and onshore costs. The ideal balance would be 45% onshore and 55% offshore. Our onshore-to-offshore ratio stands at 63% to 37%. We would like to reduce it to 59% to 41% in 2010-11. Wage hike is another issue as the employees expect a rise on par with big companies, pressurising employee cost and over all operating margins.
How is the repeat business ?
Small and mid-companies earn 85% of their revenue from repeat business. For us, it is around 72%. Our 53% business is derived from top five clients and nearly 77% from top 10 clients.
Testing becoming a commoditised business, how do you see the future of testing domain of core software?
We operate in the BFSI (banking, financial services and insurance) vertical that is touted to garner 50% of IT services business in the global market.
Testing BFSI software services and products is a huge domain having great potential tied to the performance of BFSI clients, mainly big banks and insurance companies. It will be quite interesting for IT vendors with emerging business opportunities ushered in by mobile banking, national payment gateway and testing back-end in disaster recovery management of the banking operations database.
What would be your business strategy going forward ?
We believe growth would come from value creation and by offering incremental services on non-linear basis to our clients. We would also be focussing on demarcated IP products and testing services. We wish to be known for research-based IPs that strengthen our brand by creating a top of mind recall. Also, we will build domain expertise, required business sustainability.
How grim is the skill shortage in BFSI testing?
Employees from smaller companies switch to bigger ones for higher remuneration. However, companies like ours embarking on incremental services for growth look for experts who develop deep knowledge in their functional domain. Incremental services could be possible only with domain experts who have iterative knowledge by long-term involvement in specific areas of the project. There is acute shortage of such talent base across the BFSI IT vendors. To tide over the shortfall, we plan to bring up such talent in our Chennai and Bangalore facilities. There is also a need to have a multinational workforce to overcome diverse talent issues.