Back A tough nut to crack
Moumita Bakshi Chatterjee
| Indian software companies are finding it difficult to tap the domestic market fully. A slow decision-making process at times, preference for `all things global' and discounts offered by MNCs are seen as factors that make playing on home turf tougher. |
AT a time when Indian software product companies are making significant headway in overseas markets such as West Asia and Africa, back home, the $4.8-billion domestic IT market, with a healthy forecast of a 25 per cent growth in the current fiscal, continues to prove elusive for most players.
These home-bred companies feel that despite the advantages attached to choosing Indian vendors, including their deep understanding of the local markets, and assurance of strong onsite support, a slow decision-making process, temptation of the Indian buyer to opt for products offered by global companies, and sometimes huge product discounts offered by MNC players to grab significant chunks of market share, are factors that are cited as severe constraints when it comes to doing IT business in their own market.
"It is not unusual to find foreign players offering huge discounts to gain market share. Indian companies find it difficult to compete on this front, given the financial prowess of the MNC firms," says Diwakar Nigam, managing director of Newgen Software Technologies Ltd. The players feel this is because the global companies, while making inroads into a new market, may not be looking for `profitability on every sale'.
"Given their financial muscle, established foreign players can afford to take loss on sales to gain market share in India. Indian product companies, on the other hand, cannot do that," says Anil Bakht, Chairman and managing director of Eastern Software Systems (ESS).
In many cases where foreign joint venture partners are involved, particularly in the insurance business, the overseas firm may prefer to go with a more visible standard product from the international market rather than choosing a local one, says Nigam of Newgen.
"Moreover, the decision-making process in India is slow, especially when it comes to public sector undertakings. Even in the case of MNC banks, we have made extensive sales pitches to IT heads here only to be told that approvals are required from the regional office in the Asia-Pacific, and thereafter from the parent company," Nigam points out.
The Delhi-based Newgen offers solutions in Business Process Management and Workflow and Document Management Systems. At present, 40 per cent of the company's revenues come from the domestic market and the balance from West Asia, Africa, South-East Asia and Japan.
Some find these hard-hitting ground realities quite surprising, given the benefits that Indian IT product vendors can bring to clients in their own market.
"Indian companies are, in fact, in a better position to serve clients in the local markets, but given the hurdles, product become a tough business in the Indian market," Nigam adds.
Subash Menon, President and CEO of the Bangalore-based Subex Systems, is of the opinion that at the heart of the issue is Indian buyers' lack of confidence in Indian IT products.
"Unlike the services market, in the case of IT products, we think overseas products are better and it is true in case of technology products as well. The situation is different in countries such as China and Sweden, where local companies are supported to the hilt. Proximity to the market helps as vendors understand the local requirements better, and customers too can expect better support. Somehow that logic does not seem to apply here," he says.
Subex is in the telecom revenue maximisation space, offering solutions for fraud management and revenue assurance to telecom companies. At present Europe, West Asia and Africa account for the largest revenue chunk of 52 per cent, while 34 per cent comes from the US. The Asia-Pacific market contributes 14 per cent to the revenue basket; the revenue accrual from the Indian market is included under this.
"Then there is a general tendency to delay matters, a perception that the longer you take to close a deal, the better say you will have in haggling the price down," Menon says.
What makes things even more difficult for these players is the fact that the market is small and the competition within it, intense. "We believe in free trade as far as software is concerned and today all global players are present in the market. I feel that most of the issues for Indian players crop up from these two factors," observes Ashank Desai, Chairman and Managing Director of Mastek.
Large amounts of investment are involved in not only developing distinctive IT products but also marketing them successfully.
"Not enough venture capital is available for companies in the start-up phase in India. The amount of investment channelised at the start-up phase becomes critical in case of product companies," he says.
"Indian companies can have an edge over competitors even in the domestic market as unlike large companies they would get motivated by small orders. The answer to all the bottlenecks that currently exist lies in developing niche software that is specific to the Indian market, for instance developing Value Added Tax (VAT) software," says Desai. Both Newgen and ESS officials opine that the technical staff of companies — at times — tend to opt for a global product as deployment of a well-established solution adds weight to their profile and resume.
"Also, choosing global IT products is a risk mitigation step for an IT manager. For instance, if an Indian Enterprise Resource Planning (ERP) product fails to meet the performance benchmarks of a company, the decision maker may be fired for having taken the risk.
However, if an established ERP product fails to meet the company's target, who would blame his decision?" quips Bakht (ESS).
However, not everyone in the IT products business agrees that the Indian companies find themselves on the backfoot within the local territory.
"It is unfair to say that an IT manager opts for a global product as a thumb rule.
One has to look at all those things he is responsible for. The first thing that he has to see is whether or not a vendor is be viable and will be in business five years down the line. Otherwise, his Chief Executive Officer (CEO) will pull the plug on him" says Jitendra Jethanandani, Research Analyst - Gartner India.
Jethanandani says that irrespective of the vendor, the sales pitch involves giving case studies and establishing the credentials of the vendor in the customers' eye. "There is a checklist which includes functionality, support implementation, roadmap for product development, and scalability.
All decision-making pertaining to IT products ultimately boils down to this checklist.
Vendors that meet this check-list should have no problem in selling their products," he says, adding what matters to a client is whether a product solves his business needs, irrespective of whether it is sourced from an Indian or a foreign vendor.
"In fact, in the financial space, Indian solutions companies such as i-flex and Infosys have done well for themselves not only in the Indian market but even while competing with global products in mature markets such as Europe and the US," he points out, but admits that sometimes regional offices using a particular product may prefer to deploy the same platform across various branch offices in the region.
"Today, all major global players offer world-class support in India. Some even provide remote support to overseas clients, from India," Jethanandani observes.
Nasscom's Vice-President, Sunil Mehta, says that all the factors perceived as `hurdles' by the Indian product vendors would hold true in any evolving software market.
"All the emerging IT markets display the same behavioural characteristics. They have payment issues entailing delayed payment to small vendors.
You would also see that many companies, even small establishments, prefer to build their own software rather than procure a standard solution from the market.
They think their software requirements are unique. But all these are definitely not India-specific issues," says Mehta.
Picture by C. Ratheesh Kumar
© Copyright 2000 - 2009 The Hindu Business Line