Time to spend more on IT

BS OPINION

A Nasscom-IMRB user study says that spending on IT "" software and hardware "" remains below one per cent of turnover for most Indian companies, which compares poorly with the developed West.

A McKinsey study put IT spending at seven per cent of operating expenses in the developed world. If Indian IT is a tiger abroad and a lamb back home, a Gartner-Dataquest survey of December 2002 explains why.

It is the result of weak domestic demand for IT services, which makes domestic vendors look for higher margins abroad.

To be sure, it is not unusual to find countries selling more of their products abroad than at home "" the Taiwans, Singapores, Thailands and South Koreas of the world come to mind "" but it is rare to find an economy that is potentially continental in size doing the same.

In some ways, therefore, the extraordinary success of India's software exports industry is a tribute not so much to our visionary business leadership but the lack of it. Our software engineers are building the competitive strengths of rivals abroad.

What could be more short-sighted than that? This is not to suggest that software exports ought not to be a priority for India. Rather, it is a wake-up call to Indian businesses.

If they don't use Indian IT prowess to build their own competitiveness, they will have only themselves to blame when global firms beat us at our own game in the near future.

The Nasscom survey brings some heartening news as well. It reports that Indian companies are investing in IT not just incrementally, but strategically as well.

Some 36 per cent of the companies surveyed said they were getting solid returns on investment (ROI) in IT. Most of the rest said while they had no way to quantify the benefits, the ROI was apparent to them.

The Gartner-Dataquest survey estimated the size of the Indian IT services market in 2001 at $1.3 billion, and projected it to more than double to $3 billion by 2005.

Another study by research firm IDC, which adds hardware and other IT elements to its estimates, puts the market at $5.52 billion this year.

It expects the overall market to more than double to $11.5 billion by 2005. While all these numbers are cause for cheer, given the historical gap in spending levels we have to run even harder to avoid falling further behind.

However, one need not be too pessimistic on the actual numbers. One reason for the huge share of IT in western corporate expenditure is its high cost.

But manpower costs are lower here, and Indian firms need not spend as much as their western counterparts to obtain the same productivity benefits.

But this is a trick western companies are learning, too. They are steadily beating down the costs of Indian vendors and setting up shop here.

Sooner or later, the gap between domestic and international costs of IT services will narrow. Indian companies which plan to invest in IT had better start investing before it becomes too costly to do so.