Why looking inward won’t do for IT firms

IT companies have a long way to go before they can implement a strategy of beating global recession by turning to India.

Reacting to IT companies’ calls for the need to focus on the local market to counter the US recession, Indian IT consumers at the Nasscom Leadership Forum landed a few punches on their suppliers for the shoddy treatment meted out to them.

Alok Kumar, head of technology for the Mukesh Ambani-led Reliance group, said he has more or less given up on established IT vendors in favour of alternate solutions such as in-house development and open source.

“Companies want to sell you only boxes, with a $100 million licence fee... Outsourcing invariably makes us spend more. It’s like a bone in the throat… it neither goes out nor goes in. People who are selling have lost touch with reality. They come in suits and try to sell us things we don’t use,” he told a mildly startled audience of IT vendors.

The biggest point of contention was margins. Having been used to profit margins of 30% to 40% in their contracts for overseas customers, Indian IT companies were unwilling to settle for less in the lower-margin domestic markets, pointed out Arun Gupta, head of IT for the retail chain Shoppers Stop.

“When I hear of great people here talking of tapping India, they are still talking of charging in dollars,” he said. “If it is $33 for GE in the US, it’s the same $33 for us.”

Echoing the sentiment, Kumar of Reliance said the vendors treated Indian companies like second-class customers. “We pay in rupees, so we get only second grade.. When I give a contract to a big company, he subcontracts it to someone else and that someone else gives it to someone else.. Finally, I have someone who is paid Rs 5,000 a month working at my company. But I am charged Rs 40,000 by my contractor,” he complained.

Another problem is with the attitude of the IT company staff. They rarely show the flexibility expected of them, pointed out Kumar. “In the US, I had been pressing only two buttons. Here I am pressing three… I am doing you a favour,” that’s their attitude, he said.

Anand Shankaran, CEO of Wipro Infotech, admitted that the problem had to do with unrealistic margin expectations on the part of the IT companies. “Expecting a 30% margin would not be realistic in a services business in India, it would have to be between 15 and 20%,” he pointed out.

IT vendors also pointed out that there was a cultural chasm between companies operating in India and those operating in developed markets such as the US.
“First of all, Indian companies are very arrogant,” said Rajan Vasudevan, CEO of US-based outsourced IT services provider Safaltek.

Rajan gave up trying to sell to Indian companies soon after starting his company. “They have the attitude that if you are trying to sell something to me, then it’s your need. It’s easier to sell in Africa than in India,” he said, adding that issues such as receiving payments only in cash to help customers evade tax too were a turn-off. “Because of the difference in corporate governance, you would always have two sets of companies to serve the American market and the Indian market,” he said.

The Indian IT and BPO services market, including software products, is estimated at around $12-15 billion, or $24 billion including hardware. However, it is only about half the size of the export revenues.

Things, however, are about to change, according to Ganesh Natarajan, chairman of Nasscom. “The markets we are used to, such as US and Western Europe, are not limitless,” he said, pointing towards the economic downturn. “You need to have a strategy for non-US, non-European markets,” he added.