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Building On Basics

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Positive Angle: Outsourcing contracts for IT infrastructure such as servers are now being bagged by domestic companies (Pic By Subhabrata Das) Homegrown IT firms may be the favourites to bag global software outsourcing contracts, but when it comes to IT infrastructure, they have been laggards in bagging even deals emanating from India. Whenever companies outsourced IT infrastructure (which includes hardware such as servers, storage boxes and high-end security or customer relationship management or ERP software), they rarely trusted domestic IT firms. Even domestic firms were more focused on small but high margin, low-hanging fruits in the western markets rather than making serious bids for business within India. As a result, big-ticket deals in the league of the $750-million outsourcing contract by Bharti went to IBM. It also bagged similar deals from Idea and Vodafone-Essar in fiscal 2008. Flashback to 2004, and HP and Accenture bagged large contracts from Bank of Baroda and Dabur. But with the West going through a recession and deals harder to come by, this trend is set to change as Indian companies fight aggressively for domestic deals. In August 2007, TCS kicked off the aggressive run by bagging a Rs 574-crore outsourcing deal to manage call centre and administrative work for BSNL, beating MNCs such as IBM and HP. And 2009 has taken the story forward. In March, Wipro bagged a Rs 1,200-crore contract from Employees’ State Insurance Corporation (ESIC) for computerisation projects, fighting off rivals such as Capgemini, TCS and IBM. Recently, HCL Technologies bagged a Rs 393-crore outsourcing deal from National Insurance Corporation (NIC), beating HP, Accenture and Infosys. HCL will provide end-to-end outsourcing — including designing and maintaining future IT requirements. And in January, Infosys bagged a five-year contract worth Rs 250 crore from the income-tax (I-T) department to set up a business process outsourcing (BPO) unit. In the past six months, domestic firms have grabbed nearly 72 per cent of all domestic IT infrastructure management contracts as against barely 15 per cent earlier. Spin Of The Lucre Since early 2000, most outsourcing contracts have been for project-based work such as Enterprise Resource Planning (ERP) implementation, rather than comprehensive outsourcing initiatives. In addition, while some Indian providers such as TCS, Infosys and Wipro have become leading global suppliers of outsourcing services to companies such as Bank of America, they have so far overlooked the local market. One of the reasons was the comparatively lower margins of 8-15 per cent in Indian contracts as against an average of 10-18 per cent from foreign contracts. “For global companies, it was the chance to be present in these markets from the nascent stage,” Edge Zarrella, global head of IT Advisory, KPMG, told BW recently. Now, faced with fewer contracts from the West and rapidly thinning margins from existing contracts, these margins seem lucrative for Indian companies too. During the BSNl deal, TCS chairman and managing director S. Ramadorai had said that margins in Indian outsourcing contracts were getting lucrative. “Nearly 11 per cent of our revenues come from the domestic market, something we cannot ignore anymore,” he said. Storage and Security Concerns The primary reason behind this focus on IT infrastructure management is that it is the second fastest growing segment (see ‘On a new high’) of the market after ITeS where domestic firms already have a firm footing. In 2008, the IT services market (that comprises largely of IT infrastructure) grew 23.1 per cent. This year, the growth is being projected at 19.3 per cent. In 2008, the growth in IT infrastructure was driven by information systems outsourcing (32 per cent), network (23 per cent) and application management (20 per cent) and desktop management (22 per cent). {mospagebreak} Riding on the growth in the past four years, Indian enterprises have been upgrading themselves to compete in the local and global markets. “The Indian CIO today is faced with many challenges like globalisation, need for 24x7 support, compliance, robustness, agility and dwindling skill sets,” says Anil Jaggia, chief information officer (CIO) of HDFC Bank. Other firms have to outsource because they are struggling to find the talent. “We have to look at outsourcing as in the past few years talent has been going to IT companies rather than to our sector,” says head of one of Dena Bank’s IT departments. A recent report by security software maker Symantec points out that Indian firms have to gear up for virus attacks, data loss and virtual environments (offices across the world with similar look and feel without having to invest in them coupled with mobile work environments). These factors are driving Indian enterprises to re-evaluate their disaster recovery plans. “Enterprises should identify, classify and prioritise critical assets for preventing this,” says Anand Naik, director-systems engineering, Symantec. A February survey of Indian chief information officers conducted by research group gartner points out that IT budgets across all sectors will grow by 5.5 per cent in 2009. Mark McDonald, group vice-president, Gartner, believes, “Growth will be in areas such as virtualisation, storage and unified communications.” Steven Leonard, president, APAC and Japan, EMC, says, “With increasing focus on regulatory compliance, areas such as storage and security would see a higher adoption.” New Opportunities As business complexity increases, more IT infrastructure is being spawned, throwing up fresh openings. For instance, Hindustan Motors, Sundaram Clayton, Intas Biopharmaceuticals, Sutlej Textiles & Industries and SKH Metals are running SAP applications on DB2 9 as their database platform, which is not only cost effective but also secure and scalable. And Accenture, Bristlecone India and Sify Technologies bagged their contracts. Another new trend in storage is ‘storage virtualisation’. Hu Yoshida, vice-president and chief technology officer of Hitachi Data Systems, says, “on an average, there is only 20-30 per cent utilisation of existing storage. Virtualisation of assets will increase storage utilisation during tough times.” Improvements in networking, such as cheap bandwidth, low-latency connectivity links, and secure WAN optimisation are some of the factors driving the networking industry. Companies are looking at a combination of IP-based and Ethernet technologies for their networking needs. IP telephony, network security, storage networking and Wireless LAN will see higher adoption in India, according to Blair Crump, worldwide president of Verizon Business. Companies such as Ford India, Dr. Reddy’s Laboratories, Tata Group, Mahindra & Mahindra, Larsen & Toubro, Gas Authority of India (GAIL), Indian Oil Corporation (IOC), Taj Group of Hotels and Hindustan Unilever are using these technologies. Adversity too is breeding new opportunities. In times of growing terror threats, the Indian security market is witnessing an uptick amidst global recession. Entering the Rs 2,000 crore market is HCL Security, a 100 per cent subsidiary of HCL Infosystems, which has introduced the concept of a ‘Safe State’. Safe State is an architecture that leverages technology to build a security framework that will safeguard life, infrastructure and society. As the economy slows down, virtualisation is gaining acceptance. “Desktop virtualisation is a greenfield opportunity for us,” says Souma Das, area vice-president, Citrix India. Indian companies are still adopting technology in bits and pieces. But industry watchers believe that use of technology to drive down costs and increase productivity can boost the economy as well. But there is a big question mark over who will adopt this school of thought to increase IT investments in a slowing economy. venkatesh dot ganesh at abp dot in (Businessworld Issue Dated 17-23 March 2009)