Another threshold

The large $2.2 billion IT services outsourcing deal announced by the Dutch banking giant, ABN Amro, marks a watershed in the development of the Indian IT industry. Two out of the three firms "" IBM, TCS and Infosys "" awarded the deal are leaders in the Indian software services space.

They have between themselves won a small part of the deal, $400 million, with the major portion, $1.8 billion, going to IBM. Still, this is a big day for the Indian firms and the software industry as these are the biggest orders that they have ever won.

The Indian software industry has thus crossed the $100-million deal size threshold, to come up right behind the global majors and ahead of the rest of the global competition. The gap between the Indian leaders and global majors is still large but if you look at the price-earning multiples (where the leading Indian firms score), there is no question as to whom global investors are betting on as tomorrow's growth champs.

There is every reason to celebrate what has been achieved so far, but the deal also etches the outlines of what remains to be done. The first task, and the easiest to achieve, for Indian industry leaders is to grow a lot bigger.

You need growing capabilities and a sustained track record to keep winning ever bigger deals. So far the top Indian software services firms have been able to upscale at exemplary speed and simultaneously maintain quality and delivery schedules, so one could conclude that further rapid upscaling should not be a problem.

But the deal also underlines that the Indian firms are still at or near the bottom end of the value chain. IBM will not just maintain the infrastructure (PCs, servers and network) but also roll out automated data centre technology.

Indian firms are also not in the business of making hardware, the PCs and servers, in which Taiwan and China lead. Further, Indian firms are till now nowhere in owning software products, the operating systems and enterprise solutions on which the world's IT runs.

Interestingly enough, the last week also brought good news in the last mentioned area. Two Indian start-ups, Ittiam Systems and Tejas Networks, have made it to the "Red Herring 100 Private Companies of Asia".

This list seeks to identify innovative technology companies and entrepreneurs "" companies like Google (the search engine) and eBay (the auction platform) were on the Red Herring list early in their lives. Ittiam has quickly emerged a global leader in the digital signal processing space and some of the latest portable media players in the global market have been built on reference designs entirely developed by Ittiam.

The other winner, Tejas, has emerged as a promising player in the optical network product space and is on its way to becoming an original equipment supplier to global telecom network equipment majors.

These companies show that after emerging as a technology service provider through companies like Wipro and HCL, Indian IT is now sprouting successful product companies.

Additionally, a more established technology company, Sasken, has just completed a successful IPO. Thus, Indian IT is doing very well. However, it should also have no illusions about the fact that it still has a long way to go to emerge as true global leaders.