Software firms must focus on high-end products: Karnik

Monday, 21 April 2003, 07:00 Hrs
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NEW DELHI: Indian IT firms must focus on developing high-end software products to reinforce the Made in India brand globally, says the chief of the industry's premier umbrella group.

The development of mission-critical finished software products that carry higher profit margins is the way forward for local technology companies, said Kiran Karnik, president of the National Association of Software and Service Companies.

"Clearly we are moving out of the only services model towards a service plus product model," Karnik said.

"The interesting part is that those who are evolving new products have a lot of background in services segment. So the expertise in services is being effectively leveraged in the creation of new products.

"Already in the banking sector, which is where most of our services are deployed, we are beginning to see Indian companies becoming world leaders," he noted.

"For example, I-Flex's (a mid-size Indian software company) banking product has become the number one in the world, which is a great achievement for a company of that size."

According to Karnik, software services will continue as a high volume business segment with continued growth.

"But over and above that we want to add this new layer of products. So we are going to see more companies entering the product space. We are actively promoting that. We need to do more but we have already made a good start," he added.

Although India has a vast pool of technically qualified professionals, the country is still treated as an electronic housekeeper to the world with most of the companies focusing only on the services part.

Experts say Indian software service companies, which have thrived for years writing cheap code for U.S. and other overseas clients, must develop products for sustained growth and offset the impact of stubborn pricing pressures.

Wipro Technologies on Thursday said pressure on prices would continue to damage its margins in the months ahead, pulling down its share price 8.25 percent to its lowest level in nearly four years.

The revelation from India's most valuable software company by market capitalisation came few days after Infosys Technologies, the largest listed software maker, shocked the market last week with a tepid forecast.

Karnik said the focus on development of software products play an important role in ensuring the growth of a company.

"We are looking at generating a substantial portion of our targeted $50 billion export revenue by 2008 from the products segment. We are looking at a very high growth for products.

"The margin in the development of products tends to be higher and it will also help the companies to position themselves as intellectual leaders in the global marketplace.

"This will, in turn, help our services business because once we begin to establish the Made in India brand, then I think it will get us more customers for services also."

On the outlook for India's software exports growth, the chief of Nasscom said opportunities for Indian software makers lurk even in the recession although the annual growth rate would not be as high as a few years ago.

"Despite having weathered two difficult years, not just in terms of global recession but also in terms of other difficulties like terrorist attacks on the U.S., we are still logging a growth of around 30 percent.

"I think we should be very happy with our performance. Our long-term goal of achieving $50 billion by 2008 calls for a 30-32 percent year-on-year growth. So we are okay though we are a little behind that.

"And once the world economy begins to go upwards, we will have at least one good year between now and 2008 that will take us above the growth rate we have had in the last two years and that will be good enough to get us to the target."

After logging a year-on-year growth of over 50 percent on an average in the five years up to March 31, 2001, Indian software and services exports have slowed down significantly in recent years.

In 2001-02, software exports logged a 29 percent growth to $7 billion as clients in the U.S., India's prime software export destination, cut back orders. In the fiscal year that ended March 31, it is estimated to grow by around 30 percent.

"In 2002-03 we should be close to a $9-9.5 billion industry. With that kind of base you can't expect a 50-60 percent growth. It was possible when we were a $1-2 billion industry," said Karnik.

"But 30 percent, plus minus something, we are self-confident of achieving. That would take us to where we need to be."
Source: IANS
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