Spring in software

The quarterly results of software companies continue to please, indicating that the sector is experiencing broadbased buoyancy. Not only has Wipro kept pace with Infosys, Satyam (which is not considered a front rank performer) has put in better than expected growth.

This trend consolidates the recovery witnessed in the last financial year and indicates that the Indian industry has been able to handsomely weather the storm created in the US and other mature economies against outsourcing.

The earlier apprehension was that jobs are for real and when they go away, there is deep-rooted protest, approaching elections or not. The current perception is that such is the inexorable logic and compulsion over outsourcing, companies may try to hide what they are doing or tactically mark time at a given juncture, but outsourcing is here to stay and India is not just emerging but consolidating its position as a prime destination.

There are several reasons why the Indian software industry can feel positive about both the near- and medium-term future. One, the revival in technology spending in the mature economies is expected to continue. If the US economic recovery falters, Japan currently shows every sign of being able to carry the can. Technology spending is no longer a luxury and extravaganza but a necessity. New technology is being accessed to facilitate critical productivity improvements to enable companies in open economies to remain competitive.

What is more, to get a bigger bang out of the growing technology buck that company boards are committing themselves to, managements are increasingly being asked to script an India story. Plus, those seeking venture capital or private equity funding are finding that things go better with an Indian development operation.

Further, through the better part of the last financial year the best Indian companies fought off pricing pressure by pursuing volumes, but the easing of such pressure since the last quarter of 2003-04 has now given way to marginal improvements in price realisation. This recovery in pricing has been accompanied by a softening of the rupee, contributing to improved margins.

The best may be still to come. India's share of the global outsourced software business continues to be small and what is coming its way so far are the fresh jobs, not people for replacement. Those will begin to travel after November.

Thus, continued 40 per cent annual growth for a few years at least is being freely talked about. This is because in the last few months or so the Indian industry has been able to square the circle. It has simultaneously helped its clients reduce costs, pay its own employees better and still improve its margins a little.

This it has been able to do by improving its productivity through achieving greater excellence in its quality processes. This is seen in good part as the handiwork of its mid-level managers. The ratio of these managers to the staff supervised in India is way above that of the competition.

The Philippines, for example, is where it was five years ago, but India has moved ahead. Industry analysts see India being able to meet its demand for quality mid-level managers (an adequate supply of new entrants was never a problem) for two to three years. This is one of the key reasons for the present optimism.