The Hindu Business Line : Software cos must reach out to newer markets: WEF

THE country's software companies must reach out to markets other than the US, develop competencies on specific domain areas and create intellectual property (IP)rights in order to tide over future challenges and emerge stronger, the World Economic Forum (WEF) has said.

In its information and communication technology (ICT) blueprint, the WEF, along with Confederation of Indian Industry (CII), has noted that the Indian infotech sector is very dependent on the US market and large parts of the world still remain under-exploited.

While the US accounted for 66 per cent of software exports in 2001-02, important markets such as France, Germany, Japan and China are yet to be tapped. According to a scenario envisaged in the blueprint, over the next five years, structural damage could happen to the industry in the event of changes in customer demand and geopolitical environment unless the industry diversifies its customer base to other regions.

Although a large part of revenue growth of the software sector in the next five years will be driven by traditional domains of custom application development and application outsourcing, it is imperative that India develops a unique competence in some specific domains. Otherwise, Indian firms would soon be competing on margins with companies from other lower-cost countries, the CII-WEF blueprint said.

Also, Indian companies tend to be small and, as a consequence, cannot benefit fully from economies of scale. While most of the leading companies are poised for rapid growth, few have invested in creating their own IP. In the absence of home-grown IP, the fundamental business model of revenue growth remains a function of the total number of employees.

Given the growth target of $ 77 billion in revenues by 2008, the ICT sector will face a shortfall of more than 2,50,000 knowledge workers in five years' time. "Tight labour markets will accentuate the annual increases in ICT employee salaries and decrease the competitiveness and margins of Indian firms," according to the blue print.

The blueprint also painted two scenarios for the sector over the next five years: The middle scenario sees the sector growing at a steady rate, especially in the area of business process outsourcing. The market opportunity is large and there is enough room across different IT service lines for Indian firms and for competing firms from other nations. Explosive global growth in BPO overcomes any weakness in traditional IT application and project outsourcing.

The high scenario envisages `innovative leadership' for the industry as the country would develop global excellence in selected domains of technology and process management and maintains a lead in these domains over both developed countries and alternate offshore locations such as China.

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