Indian Software Companies move up the Value Chain

Kavitha Rajasekhar
For long the cheap development base to feed overseas software requirements, Indian IT start-ups are fast coming of age as they take the elevator to the top of the value chain.
The juiciest morsel in the software food chain is the products market-the optical networking products market alone will be worth $40 billion by 2003 according to industry estimates-and Indian companies, particularly start-ups, are sharpening their knives to carve out a big piece for themselves. ``The market is seeing three significant changes-service companies are moving up to offer high-end sophisticated solutions and services, companies are getting into products, and start-ups are going heavy on Web-enabled products,'' said National Association of Software and Service Companies (NASSCOM) chief Dewang Mehta.
Start-up iLantus Technologies for instance, although an integrated infrastructure and security management services company, has a product-focused development centre as part of its strategy to combine services and product development. While India was bound to face challenges from other countries-China, Philippines, Ireland and East Europe that are putting strong strategies in place-its track record would help it hold on to its position in the international markets, according to Jawahar Bekay, Co-CEO of Planetasia.com & director of NetBrahma & Microland. Microland's Net Brahma has specific plans in the areas of IP networking, protocols and voice/date convergence aiming for OEM products for the next generation Net infrastructure. 15-20 per cent of the revenues are expected to come from products starting in the second year of operations.
Had India tried to play the products game three years ago the efforts would have failed but now the IT services operations have built up a strong base for companies on products, he said. A Nasscom-McKinsey report recently put the total software earnings for India at $50 billion by 2008 of which $8 billion will come from products alone (see chart). Though the balance is currently tilted towards the services segment, the growth in product activities would see significant revenues coming in contributing up to a quarter of total revenues by 2005, up from 10 per cent now, he added.
According to BPL Innovision chairman and CEO Rajeev Chandrasekhar, India could have the ``real chance'' of making significant inroads in the global products market especially in the Internet/convergence/telecom products segment. And, with improved connectivity and broadband in place, the country would see tremendous technology upgradation on the home ground.
While earlier most Indian companies stayed away from products for want of resources to make a global marketing success (more so because the development business afforded sizeable margins on relatively lower investments), now, younger upstarts are latching on to global partners with technology and strategic marketing alliances to showcase their products the world over.
For example, start-up Tejas Networks India Pvt Ltd promoted by industry heavyweight Sycamore Networks' Gururaj `Desh' Deshpande will leverage Sycamore's market reach in certain regions to gain global access for its products in the optical networking space.
Targeting a growth rate much faster than that of a service company, Tejas was looking at getting maximum return on investments with product focused operations, according to its managing director Sanjay Nayak.
Although India was slow in hopping on to the productisation bandwagon, domesticsoftware companies having got their act together are moving in for the bigger kill: e-enabled products.
Bangalore-based Subex Systems Ltd managing director believes that there is now a need to move up the value chain for Indian companies especially in the Web, e-commerce and telecom segments.
Subex therefore was going heavy on its product Ranger-a telecom fraud management system-and expected revenues from product development to grow exponentially in two or three years with a revenue mix of 30-40 per cent from products and the remaining from off-shore/customized solutions, Menon said.
Getting into niche product spaces is also another strategy that start-ups are taking to quickly. The 18-month-old Impulsesoft Pvt Ltd has the distinction of being one of the few Indian companies wholly focussed on building wireless/Bluetooth OEM products and solutions PCs, Notebooks, PDAs and cellphones for OEMs.
Similarly, Integra Microsystems Pvt Ltd with its WAP server product Jataayu, has placed itself among the few companies in the world to develop a WAP server. Now spun off as a separate subsidiary-Jataayu Software India Pvt Ltd-the company has ambitious plans in the WAP segment.
Talisma Corporation, the parent company of Aditi Technologies, says its eCRM product, Talisma, has already established itself in the global eCRM market that's worth $2.3 billion.
According to the companies' country manager Rekha Menon: ``The product-to-services revenue mix at Talisma Corporation is about 40:60 in favour of services but the ratio is likely to reverse in the next few years.''
Another ambitious products player Celstream Technologies Private Limited is looking at at least 50 per cent of its total revenues from software products.
Celstream managing director Brijesh Wahi said the company would focus on enabling innovative interaction in the New Economy with its products in the New Media and Next generation communication markets.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.