Indian IT firms see demand for high-value apps
By siliconindia   |   Monday, 21 September 2009, 15:55 IST   |    1 Comments
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Indian IT firms see demand for high-value apps
Bangalore: Indian IT firms are experiencing more demand for building high-value applications from customers for upgrading or maintaining their business software, reports the Livemint. Enterprise resource planning (ERP) is a high-margin segment that includes consulting as a key component and commands at least 40 percent higher billing rates than development and maintenance services. This software is typically sold and maintained by firms like SAP AG and Oracle. Indian firms began acquiring ERP capabilities in the recent years to enter the league of companies such as International Business Machines (IBM) and Accenture. For example, Infosys Technologies and HCL, India's second and fifth largest software firms, fought a bid last year to buy British ERP implementation and consulting firm Axon Group. This impulse came during the slowdown, when firms in the U.S. and Europe, the biggest markets for Indian IT firms, reduced technology budgets and spent minimum on the projects for maintaining existing IT infrastructure to keep their businesses running. With the market showing signs of revival, firms such as British oil explorer BP and power equipment maker ABB Group have started to upgrade their business applications but prefer outsourcing the work to firms in low-cost countries such as India. "Clients are becoming more open to discretionary IT spending, especially in areas such as enterprise resource planning, in which deep spending cuts have already happened," said Harmendra Gandhi and Pinku Pappan, Analysts, Nomura Financial Advisory and Securities. By discretionary spending, the analysts are referring to the money that customers keep aside to spend over their planned IT budget. "Customers are also talking about some transformation of deals, apart from offshoring support and maintenance work. Thus, the propensity to spend out of the 2009 Budget is much more now compared with that a quarter ago," said Gandhi and Pappan. The shift to Indian firms was also motivated by price increases at their regular vendors. Germany's SAP raised its annual support costs to 22 percent last year of the license fee from 17 percent earlier, describing this would bring down the total cost of ownership of the license for the customers. "Firms had not factored in a hike in maintenance fee during the recession and are exploring outsourcing to Indian vendors, who can maintain at half the cost, but with the risk of losing support on upgrades from the vendor," said Asheesh Raina, Principal Research Analyst, Gartner. Firms such as Wipro, HCL, Cognizant and even smaller companies such as Defiance Technologies, the IT services unit of the Hinduja Group, say customers want to improve efficiency and integrate their business software with their core processes, not just to cut costs. It does helps that Indian ERP firms are cheaper by at least a third than Accenture or IBM. "Saving costs and capital continues to be the most important thing clients are discussing," said Sangita Singh, Head, Enterprise Application Services (EAS), Wipro. The company had one third of 26 customers added in Q1 belonging to the segment. "You don't have many companies spending $100-200 million on new licenses. It may be in the range of $50-70 million. The implementation business is three to four times on licenses," said Singh. HCL earns nearly a quarter of its overall revenue from business software projects. EAS projects accounted for 23.6 percent of its fourth quarter revenue of 2,908 crore, up from 10.8 percent a year ago.

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