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How Will Indian Software Industry Survive?
Monday, November 17, 2008

But half way across the world, in the high-tech cities of India, the wave of euphoria is still at its peak. Will it sustain despite, or perhaps thanks to, the US slowdown, or are we at the beginning of an extended period of depression, that will last as long as the US slowdown?
We at siliconindia in the past few weeks went out to talk to the senior management of dozens of medium and large IT services companies in India. When we asked them the currently very fashionable question of how the slowdown is affecting their company, the answers were surprisingly unintelligent, and mostly exchanges ended up in our being asked back, “You are based in the US, and are in the thick of things. What is your perspective on the issue?” Our straight, but not so simple answers, dear friends, are embedded in this issue.

There is a sustained obsession among people both within and outside the IT services industry in India with 'moving up the value chain into software products.' Each time there are signs of any kind of slowdown in the growth of the industry and even otherwise, these people cry hoarse about India not producing branded software and claim that this will eventually bring about the Indian IT industry's downfall.

This has become the most fashionable statement to make about the industry, especially by the press, including Jason Pontin, editor of Red Herring. But nothing could be further from reality! He is harping on this when US-based, supposedly cutting edge product development companies with massive marketing muscle, like Cisco, Intel, Computer Associates, Oracle, and dozens of others are announcing slowdowns in their medium to long-term business outlooks. If this is the scenario among such companies - which are closest to the global marketplace and have the best talent, including a lot of it from India - there should be an even more drastic impact on India-based product companies, if there were any.

As IT spending gets slashed, the effects will be felt by both product and services companies, and we dare say the effects will be more adverse for product companies, while good services companies, which offer increased value at the same or better price, stand to gain, for the same reasons as enumerated above.

So in our view, Indian software companies do need to rise up the value-chain, but not necessarily by beginning to create branded products. Then how? Our answers to these tough questions is in this issue's cover feature.

At the same time, there is no doubt that the cost of software development in India too has increased dramatically, decreasing the cost effectiveness of Indian companies. But on a macro level, this is a demand and supply situation! When jobs begin to get cut, salaries are bound to stabilize, or even reduce, maintaining India's cost effectiveness. Due to the slowdown in demand for professionals, those with a few years of value-added experience will find better opportunities, and will retain their upward mobility. At the same time companies are already beginning to take a hit to their profits and cut their prices instead of giving up business by being uncompetitive. This will result in an overall improvement in quality for the entire industry, naturally improving its business prospects.

The power of intellectual capital is supreme. During any storm, it is this that stays on top. The Indian software industry has shown enough of it over the years, and has enough lying latent that will sustain it in the future.

This entire analysis puts the Indian software industry in a very favorable light - growth will come its way. But this presumes consistence performance and quality on its behalf. What we have seen till today was simply Act I of the saga of the Indian software services industry. Growth has come easy and to anyone who put IT somewhere within its name, regardless of his or her original line of business. In Act II, which is starting just about now, the men will be separated from the boys, only value combined with cost competitiveness will survive, and the industry will have to create new business opportunities for itself rather than rely on the well beaten and dying strategies it has followed until now.

IT consulting as we know it is dead. Long live the Indian software industry. Yogesh Sharma Editor Write to: yogesh@corp.siliconindia.com

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