Stung by U.S. slowdown, India's IT firms eye new export markets

[Frederick Noronha <fred@bytesforall.org>]

Stung by U.S. slowdown, India's IT firms eye new export markets

by Sumeet Chatterjee, India Abroad News Service

New Delhi, Jan 28 - Stung by a slowdown in the U.S. economy, a slew of
Indian information technology (IT) companies are changing strategies and
exploring new markets for exports to insulate themselves against a possible
drop in demand from U.S. clients.

"Though the U.S. will remain a dominant market for software exporting
companies, in the short to medium term export growth will mainly come from
emerging markets such as Japan, Germany, Australia and Britain," Amul Gogna,
executive director of Investment Information and Credit Rating Agency
(ICRA), said.

The U.S. accounts for about 60 percent of India's software services exports.
Some of the biggest clients of Indian software majors in U.S. include Boeing
Co., Cisco Systems, Nortel Networks, General Electric, Lucent Technologies
and RSA Security.

"The companies will have to explore new markets to ensure that their profit
margins are not affected in case there is a demand slump in the U.S.," Gogna
told IANS.

And the process has already started. India's biggest software developer by
market value, Wipro Ltd., last week opened a software development center in
Britain to service clients in the European region. The Bangalore-based firm
said the center would initially employ 50 software professionals.

Wipro had earlier announced the opening of an office in France to boost
business from Europe that accounted for 28 percent of its total revenue in
the nine months ended December 31, 2000. Sixty-four percent of the company's
total revenue came from North America in the same period.

The company's revenue for the nine-month period grew by 39 percent to Rs.
21.5 billion and the profit after tax grew by 121 percent to Rs. 4.5
billion. "At present, the market is quite skewed to U.S. We are going in
other markets to expand our export base," an official spokesperson of Wipro
said.

According to India's IT industry think tank National Association of Software
and Service Companies (Nasscom), India's software exports crossed $4.0
billion in 1999-2000 and are estimated at $6.3 billion in the current fiscal
year. Software exports are expected to grow roughly 50 percent every year to
reach $50 billion in 2007-08, it said.

J. A. Chowdhary, president of the Hyderabad Software Exporters Association
(HYSEA), said the slowdown might reduce the profit margins of companies
purely depending on "on-site consulting" model.

"As many Indian IT companies are now exploring other markets such as Europe
and Southeast Asia there might be an increase in percentage of market share
from these countries which may accordingly change the percentage of business
coming from U.S.," he said.

Chowdhary, however, said that the diversification of export market had
nothing to do with slowdown as the companies were already looking for new
markets to expand their business. "Our percentage of the global IT market
share is very small and we can provide a quality product at relatively lower
cost in less amount of time," he said.

According to World IT Services Association, global IT service spending is
expected to become $476 billion by the year 2001. "Around 25 percent of this
is expected to be outsourced and India's share is expected to be around 6.5
percent," it said.

Hyderabad-based software development major Satyam Computer Services Ltd. is
also looking at expanding its market in Europe, Japan and the Asia Pacific
region.

"We have reached a certain stage of infrastructure in the U.S. and now
looking to expand ourselves in other countries also," S.V.L. Narayan,
manager (corporate communications) of Satyam Computer, said adding that
expansion plans has nothing to do with a slowdown in the U.S. economy.

India's second biggest software developer Infosys Technologies recently
announced that its exports in North America have come down to 72.87 percent
of total revenue at Rs. 4.01 billion in the third quarter ended December 31,
2000, down from 78.25 percent in the corresponding period last year.

Its exports in Europe, however, increased to 18.33 percent to Rs. 1.01
billion in the third quarter period, up from 11.48 percent in the same
period previous year. Infosys posted a 136 percent rise in its revenues to
Rs. 5.51 billion in the third quarter.

"The European market for IT services is growing rapidly due to e-business
initiatives...and shortage of IT skills in European corporations. This
offers great potential for Indian companies with its vast pool of
mathematically inclined English speaking workforce," Gogna of ICRA said.

--India Abroad News Service