Home India 2006 The IT imperative for Indian companies

The IT imperative for Indian companies

by david.nunes
Rangu Salgame Issue: India 2006
Article no.: 2
Topic: The IT imperative for Indian companies
Author: Rangu Salgame
Title: President, India & SAARC and Managing Director of South Asia
Organisation: Cisco Systems
PDF size: 312KB

About author

Rangu Salgame is the President of Cisco Systems, India & SAARC and the Managing Director of South Asia, encompassing Singapore, Indonesia, Malaysia and the India region. Prior to joining Cisco, Rangu spent four years advising and managing venture capital backed companies. He was the President & CEO of Edgix, a content delivery network (CDN) infrastructure company, with operations across North America, Latin America and Europe. Prior to Edgix, he was the founder and President of Verizon Communications’ data solutions subsidiary, as well as Vice President of Enterprise Marketing for the company. Before joining Verizon, Rangu was a Management Consultant at Coopers & Lybrand, now PWC/IBM. Rangu holds an MBA from The Wharton School, University of Pennsylvania, an MS in engineering from Virginia Tech and a BE from MS University of Baroda, India.

Article abstract

India’s economy, its GDP, is growing rapidly. The increases in productivity and the increased business confidence are due in good part to the growing use of information and communications technology. India’s thriving business process outsourcing industry, for example, sets a pace for all of India to follow. Unfortunately, India invests less than 1 per cent of revenues, compared to an average 8 per cent for its peers and competitors, in IT. This raises serious questions regarding the long-term sustainability of India’s growth.

Full Article

India is on the cusp of what many predict to be a decade of growth. For India, 2005 was the year when the promise of a better tomorrow began to be realised. Business confidence levels rose to an all time high as did the SENSEX capital market index, and the attitude towards the future was highly positive. India, today, is exhibiting a sense of self-confidence not seen before. It is one of the fastest growing economies in the world and the growth is sustained and broad based across a range of sectors. The economic outlook is buoyant and businesses are looking to the future with optimism. The last few years showed signs of the building momentum. Factors such as WTO (World Trade Organisation) membership can create new opportunities and open the Indian players to global competition. The robust growth of 8.1 per cent in gross domestic product (GDP) in the first half of fiscal year 2005/06 showed this, and the second half of 2006 is expected to sustain the same growth rates. It is, therefore, no surprise that India was the cynosure of global attention at the World Economic Forum held at Davos, Switzerland in January 2006. How can Indian companies sustain their momentum long enough for India to realize its global promise? A recent McKinsey research report showed a direct correlation between GDP per capita and labour productivity. India’s current GDP of $440 per capita ranks it among the poorer nations. A series of Net Impact studies confirm the direct correlation between productivity gains and the use of technology-driven business solutions. The first Net Impact Study in 2002 showed that, through the use of Internet business solutions, organizations across the United States, United Kingdom, France and Germany realized a cumulative cost savings of US$163.5 billion, mostly since 1998. In the USA alone, the adoption of Internet business solutions has already yielded a current, cumulative, cost saving of US$155.2 billion. The adoption of Internet business solutions in the United Kingdom, France, and Germany resulted in a current, cumulative, cost savings of US$8.3 billion at the organizations deploying them. We believe that the rate of growth of these savings has continued unabated in the three years since this research, further reinforcing the strategic importance of IT investments to accelerate productivity and quality. Unfortunately, Indian companies on the whole invest less in IT than their global counterparts. Indian companies spend less than 1 per cent of their revenue on IT, compared to peers in the developed world, where the average spending on IT averages around eight per cent of revenues. According to a study conducted by Nasscom last year, the country’s IT spending is the lowest, in relative terms, among the 30 countries on its list. More revealing is the fact that in terms of domestic IT investment, India ranks lower than countries such as Colombia, Chile and Turkey – countries that are clearly not as visible as India in the global IT space. While the low spending on IT in the past was not of serious concern, its consequence in the present competitive scenario can be disastrous. Three sectors of the Indian economy where near-term IT investments are likely to be very critical for sustaining the current GDP growth momentum are: 1. The export-oriented services sector that remains the main engine of India’s GDP growth; 2. The traditional industries that are now looking to unlock their hidden value and become significant contributors to the Indian economy; 3. The infrastructure and other domestic services sectors needed to support any GDP expansion. In keeping with the upbeat Indian economy, and largely responsible for its growth, is the export driven software services sector. With a forecast of US$23.4 billion in revenues from the export of software and services during fiscal ’05-’06, the information technology (IT) sector is now one of the biggest export earners for the country. In fact, the 2005 Nasscom-McKinsey report postulates that the offshore IT and BPO (business process outsourcing) industries have the potential to contribute US$120-150 billion to India’s GDP by 2015, or 12 to15 per cent of India’s GDP. At these growth levels, the software services industries could generate direct employment for over 4 million individuals and an additional 12-15 million new jobs will be needed, indirectly, to offer support capabilities. To achieve these lofty goals, India’s CEOs will need to take a hard look at their IT vision and significantly expand their IT spending if they wish to derive the productivity returns and added value needed to sustain their business competitiveness. Domestic rivals Indian industry has to look beyond the domestic rivals, as competition now comes from the best-in-class global companies. With the government opening sectors to foreign direct investment (FDI), the best global brands are excited about the potential of the Indian market and are intent on establishing their presence in the country. Success in business today requires a global strategy and Indian companies are in fact looking beyond the domestic market to make a mark in the global market place. To succeed, however, they need to, among other things, bring their systems and IT infrastructure on par with their global counterparts. In the post-WTO world, the market has suddenly expanded for Indian firms. Nevertheless, to succeed, each company will have to compete in all spheres including technology. For instance, the much talked about textile opportunity will only come alive if our players can provide world quality material and, at the same time, be able to match competitors in IT infrastructure. A small-scale textile manufacturer in Coimbatore and an automobile component maker in Pune can now aim to be global suppliers to Wal-Mart and major automobile manufacturers in Detroit. However, when Wal-Mart recently reached out to India to select potential suppliers, only those who were electronically ready were allowed to participate in the preliminary round of discussion; the mandate to be IT enabled is clear. Indian companies across myriad industry verticals such as retail, biotechnology, pharmaceuticals, manufacturing, transportation, FMCG, energy and utilities, among others, stand to benefit significantly by investing in strong IT systems. How? Investment in building a strong and agile IT infrastructure translates into efficient business processes; the supply chain, distribution, sales and support, customer contact, and time-to-market are just a few areas that can exploit IT to increase efficiency levels. The good news is that some of the leading industries are starting to heed this new IT imperative. Select banking and manufacturing leaders have learned the need to invest in IT early enough and are among the largest and most prolific users of information systems in India. The State Bank of India and Mahindra & Mahindra are apt examples of how IT investments have helped make Indian companies globally competitive. Automation in the banking sector, for example, has come a long way in the last two decades. Today, the core banking capabilities of many of the Indian banks are on par with their international counterparts. By connecting branches across the country, these banks have ensured that their customers can enjoy the conveniences of “anytime, anywhere” banking. Investing in a strong IT infrastructure should therefore be a top priority for every CXO. Companies with efficient IT systems in place are now able to react quickly to changes in the business environment and can thus compete effectively. With ‘Brand India’ growing in popularity, the Wal-Mart kind of opportunity is just the beginning of what promises to be a deluge of global business orders. The best way to capitalize on it is to make a planned investment in IT. Indian enterprises need to strategically build their IT infrastructure to enable a strong supply chain, distribution and customer support network. An effective supply chain, for example, brings innumerable benefits such as improved delivery, reduced cycle times, cost controls, and improved product quality. Today, IT readiness translates into business readiness and this will increasingly be the case in the future. In closing, we believe that an agile IT infrastructure is a prerequisite to success, not only because the business demands it, but also because companies now have to deal with a rapidly changing market scenario. While a clutch of Indian corporations have embraced IT, the vast majority con-tinue to be laggards, mostly investing in IT in reaction to competition. Understanding the importance of having a well defined IT vision, will help Indian companies who want to achieve global success be nimble enough to match or even better their competitors across the world. We propose a proactive approach based upon the understanding that IT does matter, especially when focused by measurable productivity goals, coordinated with business process re-engineering and supported by formal performance measurement programs. Within just one critical business function, customer service and support, organizations that leveraged IT to transform business processes saw some impressive results against their competitors.

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