Slackening of demand for information technology (IT) products from the US market is forcing Indian software companies to focus on their basic low-end services businesses overseas.
In the domestic market, these firms are banking on the government spending in e-governance projects and jobs in the telecom sector where networks are still growing or are being rolled out.
Top IT industry sources said software and services companies have quietly buried their plans to get out of the low-end services business. "The move into higher-end consulting services has faded because there is no market," the sources said.
"Manufacturing sector giants have slowed investments in IT projects, and so have the companies, because everyone is looking at cutting costs and reworking basics," they said.
The sources said till the revival of US demand, the domestic IT industry will grow at around 35 per cent, but will hack expenses and refocus on low-end IT services at rockbottom rates. Only a revival in the US or new contracts from Japan and Europe can push their growth rates higher.
The good news is the investment made by several state governments to set up e-governance networks. These include Karnataka, West Bengal and Andhra Pradesh.
"IT firms will be scrambling for these contracts to grow and as of now, payment terms look good," said the sources.
The growth in telecom networks, both private and government, in cellular and basic telephony, is the other piece of good news. "Restructuring is on in the cellphone industry and the larger companies are reworking billing and customer relationship services," the sources pointed out. The cellphone network of Bharat Sanchar Nigam is also generating new businesses.
"Across the board, new customers who pay for services are being added, so payments are secure," said the sources.
As for the US market, survey findings are encouraging. A recent Gartner 2001 IT spending survey said 56 per cent of 589 North American companies intend to increase IT spending between 2001 and 2002. However, there is likely to be little spending this year except in security systems and offsite data storage.
Some Indian companies are using the slowdown to invest in the future. Infosys has set up a leadership institute in Mysore for employees to pick up business management principles and leadership skills. "When better days return, Infosys can move into top-end services," the sources said.
Indian IT companies have cut outsourcing rates to retain business and maintain growth. Top Indian outsourcing companies which were charging $30 per hour for basic programming services in 2001, up from $20-$25 per hour in 1999. This year, the companies were charging $15 per hour, industry analysts said.
This has come as a bonanza for many US companies and bad news for the Indian counterparts. The big ones are investing on brand-building and internally, cutting administrative costs and reducing hiring. Salaries have been frozen and in some cases cut.
