The state IT sector seems to hold promise of a better future provided the Govt pulls its acts together and private players survive the downturn
The year 2008 has not been a particularly good year for West Bengal. In addition to losing the Nano car project there have been postponements of several publicised ventures, shelving of hospital and education projects, and uncertainty in the fate of the huge Jindal Steel project. Power cuts have again surfaced, roads have started deteriorating, pollution levels continue unabated and bandhs/traffic dislocations have become common.
Amidst this rather gloomy backdrop the IT/ITeS sector in West Bengal seems to hold promise of a better future, provided the Government pulls its acts together and private players survive the downturn to move forward. The state had planned to climb up the national IT pecking order to the third rank from the current eighth position. The IT minister had announced a broad range of incentives and visualized progress through huge growth in exports, expansion of existing ventures, setting up of new projects, starting IT-hubs in satellite towns along with incubation centres and finishing schools, as well as vigorous participation in e-governance projects. Unfortunately, the sub-prime crisis hit the global economy and the moot question today is how much of that IT vision will become reality and how many of the IT/ITEs players will survive and grow in the state.
The players in this sector number around 500 and closely follow Pareto’s law – less than 20 per cent are large units that account for more than 80 per cent of total business and employment. Bengal has a collection of very prominent large players that includes IBM, TCS, Cognizant, Wipro, Cap Gemini, PwC etc. Discussions with them reveal that the economic downturn has indeed affected them seriously, although most have prepared elaborate plans for countering the problem and overcoming it. Currently 70 per cent of business comes from the US, and the dearth of new projects as well as cancellation of existing projects from the US has hit this segment badly.
Cost-cutting is taking various shapes such as cutting down on executive benefits, restructuring of salary by reducing fixed component and increasing the variable part (linked to performance),and as a last resort reduction of overall headcount in the organization. Since the most important market verticals – banking, finance and insurance – have been affected, there is a concerted effort to explore and develop other verticals. Geographic diversity is also being pursued by looking at markets other than the US, while senior managers have put on their thinking caps to innovate and add new value to their offers to customers.
It is the smaller units that are facing big-time crisis. Many of these units were set up during the good old days of high IT growth and were essentially opportunistic in nature, with little to offer other than low costs. As their customers try to survive, many of these vendors who are not seen as critical, are getting dropped. Consequently, it is a period of trial by fire for these units, and those who can innovate and develop something uniquely valuable to customers will manage to survive. It is also a period of reckoning for the real stars of the future. Around 10 per cent of the SME units are companies that have been built on strong technological foundation, who typically own a few patents, possess specialized offerings and operate in highly exclusive market domains. It is a period of growth for these organizations and they are taking the initiative to scale up operations by building complementary capabilities — either through executive recruitments or partnerships with large multi-locational organizations.
The overall picture that emerges from the IT/ITeS sector is that existing large players will consolidate operations and cut down internal inefficiencies, with business volumes stagnating in the short term. The long term view for these global players fortunately remains positive, and as their renewal strategies hold fruit, they are expected to continue in their growth path. Many of the smaller units are, however, headed for trouble and will either face an uncertain future or partner with organizations that can give them survival strength. From this chaotic background we will also see a few bright stars that will become national players rather than local, and emerge as great companies of the future.
As far as new IT ventures are concerned, the biggest impediment appears to be the negative perception that has gained ground after the original euphoria, and there is a case for drastic improvement of the IT ecosystem in the state. An analysis of the success of Silicon Valley, Boston Belt, Cambridge Valley or our own Bangalore shows that growth happened there because young people found those areas to be physically inviting and intellectually liberal, which was complemented and supported by the advanced infrastructure of education and financial sector. Ask young executives based outside the state where they would consider relocation – and while Delhi, Mumbai or Bangalore would be regularly mentioned, Kolkata would be extremely rare. In spite of various official claims to the contrary, Kolkata has very high level of pollution, transport is cheap but chaotic, unscheduled power cuts are common and the city is anything but pleasant to the eyes.
On the ‘ease of doing business index’ West Bengal is ranked quite low, way below the southern and western states. Availability of engineering graduates in West Bengal is 1/3 to 1/6 of that in Andhra Pradesh, Tamil Nadu, Karnataka or Maharashtra, while the state continues to be the front runner in industrial disputes. A big selling point of the state ‘ low cost of living’ is certainly great for retired people, but hardly an incentive for ambitious and growth-oriented people.
Lowering costs
The path to Silicon Valley from Sector 5 therefore lies in building a strong and creative partnership between private players and the Government. It is safe to predict that the overall IT/ITES sector in India will remain in a leadership position and grow, and there will be increasing competition from front running states to take a greater share of the pie. At the unit level most unfit players will be eliminated, while the fitter ones will prosper by achieving higher operational efficiencies, focussing on new verticals and new geographical areas, penetrating the domestic market, and participating in e-governance schemes. But marketing the state in the face of strong competitors will remain the biggest challenge for attracting new ventures and more investments into the state.
The IT/ITES industry is predominantly populated and led by youth, the engine of growth being the passion, creativity and innovativeness of trained young minds. Convincing aged industry leaders in chambers of commerce by statistics and presentations will have marginal effect in the long run—instead the attempt should be to create and sell the state to the youth as a ‘cool’ place, physically beautiful and intellectually stimulating. In the IT/ITES industry it is the young who lead the way; the old have no option but to follow.
No comments:
Post a Comment