The Hindu : IT SMEs take to productisation for survival

Online edition of India's National Newspaper
Monday, Feb 17, 2003

Business

Business

IT SMEs take to productisation for survival

SMALLER PLAYERS in the software export industry should get into niche products. These words of wisdom came from Kiran Karnik, President, Nasscom. Ask any hardware manufacturer however and the difficulties involved in product manufacturing in India start to unfold. Lack of requisite infrastructure, complex financial mechanism for garnering loan to inadequate government support and a disadvantageous excise/sales tax structure. All these drawbacks say manufacturers makes the sub-continent an impractical manufacturing destination.

Dismal state

Check these statistics and the overall Indian hardware saga starts to emerge. During fiscal 1999-2000, products contributed Rs.1,350 crores to the IT revenues, this was projected at Rs.1,500 crores for 2001-02 (Source: Nasscom website).

Now cut to Nasscom's reports on the Indian software and services exports' revenues for April-December 2002, Rs.34,000 crore was generated. Package implementation, onsite and offshoring services, ITES-BPO segments, network consulting and support & systems integration services have been mentioned. The presence of revenues from products however is not significant.

Both Mr.Karnik and Vinnie Mehta, Executive Director, MAIT have urged the Indian hardware industry to seriously contemplate developing products in the country. ''The government needs to facilitate and encourage this process by creating simple mechanism for quick access to low cost finance for product development and pilot production. The Security/collateral for finance should be technology material components,'' Mr.Mehta says on MAIT's webpage .

Puff of change

Notwithstanding these problems, the Indian hardware sector is witness to some interesting and welcome changes. R&D activity is shifting more to India with multinationals like Oracle and Intel outsourcing more research work here. Not surprising since Indian expertise in engineering is well known and it makes sense to use development centre located here for obvious reasons. "Our thrust will be on continued investments in India which goes beyond the design centre," Ketan R. Sampat, President, Intel India told The Hindu.

And this commitment is obvious given the type of ongoing development work at Intel's Indian centre. At present, the compiler lab located at Bangalore is working on a compiler for the next generation Itanium processor. This work is concurrent with Intel's U.S.-based development centre working on the next generation processor, according to Mr. Sampat.

Potential areas

Verticals which have seen greater R&D efforts include semiconductor design, hardware design, consumer electronics, medical electronics and automotive electronics. The Nasscom-McKinsey Study has identified the embedded software applications and products market has a high potential area for Indian companies, both for development and services. While the total embedded market is valued at $25 billion, applications amount to a $21 billion market and development tools and operating systems at $4 billion. The embedded applications market verticals comprises telecom, data communication and computing accounting for 34 per cent; consumer electronics, 20 per cent; industrial automation, 19 per cent and automotive, 10 per cent. Leading players like Infosys, Wipro, Satyam and TCS have ongoing projects in embedded software.

And the good news for SMEs

Embedded software and products market has requirements that can be fulfilled by this segment. Mistral Software has already created a `designed by Indians' brand to market its product re-engineering efforts.

"We have the ability to develop a (intellectual property) IP-design and market this, but manufacturing is just not conducive for Indian firms," says Rajeev Ramachandran, co-founder, Mistral Software. The company has used this principle to create re-usable IP which has enabled the company to achieve 100 per cent profits, this fiscal.

Customised PDAs (personal digital assistants) for verticals such as schools, hospitals, doctors, traffic police; re-engineering music systems including Karoake for integrating legacy and new components; navigational systems using GPRS and speech recognition software; telematics re-engineering for automotives. These are just a few of the product re-engineering projects at Mistral.

With over 30 customers and a focussed thrust on the embedded and telecom software areas along with niche work in wireless technologies such as Bluetooth, Mistral has a sustainable business model banking on IP products. "Three to four years down the line this will be the biggest revenue earner for Mistral," Mr. Ramachandran says referring to Mistral's productisation efforts.

The finale

Mistral has tied up with companies in Malaysia and Singapore to offer interested customers manufacturing facilities. The company is in discussions to manufacture customised PDAs for the e-learning space. As Mr. Karnik says, "Now is a difficult time for companies without specialisation. A lot of VC funds are going to companies which are doing product development". The bottomline: Indian SMEs need to realise the importance of productisation and specialisation to survive in an everchanging market.

Preeti Mishra

in Bangalore

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