INDIAN SI: Local Origins, Global Aspirations

In search of better margins and exciting business opportunities, Indian systems integrators have started venturing into overseas destinations. While they have begun in a very humble manner, all signs are there for this trend to become more significant in the near future.

This is a story which will take quite some time be fore it can start making
headlines, like the way news related to Infosys or Wipro make recently. It is
about Indian systems integrators truly coming of age. And how!

For starters, they are going global now by offering infrastructure management
services and various other IT solutions in countries outside of India.

SIs today are no longer content with the fringe margins that they have to
work on in India, have seriously started to explore overseas opportunities.

Hence, one is not surprised to find some leading names in the SI space
setting up operations on foreign shores. And if the current strategies of some
of these SI organizations are anything to go by, this trend will only become
more significant in the days to come.

Also noticeable is the fact that these global ventures of Indian SIs is not
restricted to just one geography. US, UK, Middle-East, Africa, Singapore,
Malaysia and other South East Asian countries are some of the places where
different SIs have set up their operations.

A NEW TREND BEGINS

According to Dataquest, the total domestic hardware services market, which
comprised of FMS, AMC and so on, was

Rs 2,263 crore in 2002-03. Compared to this the exports in this segment were a
meager Rs 30 crore. While on the other hand, software services exports were a
whopping Rs 45,750 crore.

Some SIs realized that there was an aberration here and decided to take their
skills abroad as well. While not all were met with success in their first
attempt, they did manage to sow the seeds for others to follow in their wake.

"We first ventured into Australia by partnering with a local firm there.
However, the support that was extended by them was hardly sufficient to work on
a profitable business proposition. Hence we tracked back," remarks Nitin
Shah, MD, Allied Digital Services.

But Nitin realized where he was going wrong and instead focused on other
geographies where dynamics were different. His perseverance paid off and just
last year he successfully set up a JV in Yemen and another one with a Sri Lankan
firm recently. In fact, now he has once again taken a trip to Australia to get
his equations right this time and set up Allied’s presence there too.

"The biggest advantage that an Indian SI is able to offer to overseas
clients is cost-effective labor and technical skills which are at par with the
best available in the industry," says Alok Gupta, Director, Samtech Infonet.

Samtech too has presence in US and Singapore with 20 and 25 clients
respectively. His company not only offers systems integration services but also
sells its own software product built around human resource management.

Among other SIs who have set up overseas presence are Visesh Infotecnics,
Lauren Information Technologies, Connoisseur Electronics, Netlink, Dynacons and
of course the tier-1 players like Wipro Infotech, Tata Infotech and CMS. Many
other SIs like Omnitech Infosolutions and Ontrack Solutions are currently
evaluating the option of an overseas presence.

WHY GO GLOBAL?

Better margins. That’s the single-most important reasons why SIs are
seriously looking at opportunities abroad. Further, according to some SIs,
competitive landscape in certain geographies are also far better than what they
encounter here.

"As far as our business is concerned, it’s the increased level of
margins because of dollar-billing and the rupee-dollar arbitrage that plays to
our advantage," remarks Alok.

SIs also realize the fact that while service level agreements (SLAs) are far
more stringent in other countries, the market dynamics don’t force them to
work on single-digit margins. Typically an SI having an overseas operations
prefers not to work on margins less than 25%. "If we do so, it wouldn’t
justify the investments and efforts that we put up there," explains an
integrator.

Another reason why SIs look at opportunities in foreign shores is that they
are able to get good references from their existing principals, most of whom are
anyways MNCs. So if a key HP or IBM partner does decide to offer his services
outside of India, there are good chances that the vendor companies would offer
some support to the SI.

ADVANTAGE INDIA

For Indian SI organizations, there are quite a few advantages they can cash
on while setting up a venture abroad. First is the very credibility that gets
attached to the Indian IT industry. "In places like Middle-East and Africa,
you are looked upon with high respect if you are from Indian IT industry. That
plays to a great advantage for us," remarks Nitin.

Second, with companies in US and Europe trying desperately to bring down
their costs, services offered by Indian SIs come to them as a more
cost-effective option. In fact, some overseas clients are even looking at remote
infrastructure management alternatives. "By getting their infrastructure
managed remotely, clients in countries like US, can save a lot. In fact, we are
also contemplating offering such services to some of our customers,"
informs Alok.

According to him, the rupee-dollar exchange rates also offer a distinct
advantage for Indian SIs to set up overseas operations.

UNDERSTANDING THE DYNAMICS

While there may be opportunities for an Indian integrator in other
countries, he needs to first get a good understanding of the dynamics in that
country. And these dynamics may not be just about pure business. It could be
related to the way government machineries function there, economic landscape and
social norms. So typically what business approach may work in one country, may
not hold good for another.

To further explain this point, lets take the comparison between United States
and Middle-East. In Middle-Eastern countries,

businesses largely work on relationships and personal contacts. While in US, it
is largely your technical capabilities and cost-advantage that works in your
favor.

An SI cannot think of going all alone in a Middle-Eastern country. He would
need to get into a JV or a partnership agreement with some influential local
business house. It makes sense for an SI to tie-up with a cash-rich party (even
if he is not into IT) to handle the monetary risks.

While in US, a tie-up should be more strategic and competence-oriented. So
for an Indian integrator trying to set up a venture in US, finding a partner who
already has a good client base, would be the most sensible thing to do.

Further, SIs should also not make the mistake of going it all alone, even if
they have large cash reserves. It always makes more sense to get a local party
to take care of financing. This could also be in the form of a venture capital
funding.

And most importantly, its highly advisable that an SI does a comprehensive
market research in the country it wishes to expand into.

Carrying out these groundwork becomes extremely critical in deciding how
successful the SI’s venture is going to be.

GOLDIE