India’s tech industry relieved as ‘Year of Satyam’ blows over (Flashback 2009)

BANGALORE - It’s a year Indian IT sector would like to forget for more than one reason. Even as the industry was braving a global meltdown, its reputation was hit early 2009 when Satyam Computers founder B. Ramalinga Raju confessed to a $1.4-billion fraud.

As the year progressed, the top 20 firms managed to survive the slowdown since the middle of 2008 by tightening their belts and exploring new geographies, but small and medium vendors took the brunt, leading to mass layoffs and dwindling compensations.

But 2010, they hope, will bring the much-needed respite.

“It has been a year of shock and awe, as it began with the world looking like coming to an end. But as the months passed, the world changed and the market became more competitive,” said T.V. Mohandas Pai, director of IT bellwether Infosys.

“Hope and growth are coming back as we enter 2010,” Pai told IANS.

The tech industry shrugged off the Satyam fiasco as a one-off scam. The government intervened to pull it out of a financial quagmire and minimise its impact on exports and the Mahindras bailed out the Hyderabad-based firm by acquiring it.

But for the industry as a whole, the global recession and slowdown posed a challenge that saw vendors pulling all stops to stay afloat, even as downsizing at corporate houses overseas presented new avenues for outsourcing.

“Though the year gone by was challenging, it was also satisfying by many counts,” said Suresh Senapaty, chief financial officer of Wipro, among the top three IT exporters in the country.

“Given the overall economic climate in the background of the global financial crisis, we revisited our business model fundamentals and fine-tuned it to the changing customer needs,” Senapaty told IANS.

After a compounded export growth of over 30 percent since the dotcom bust in 2003-04, the software sector saw export growth plunging to 16.3 percent (to $46 billion) last fiscal as against 27 percent (to $40 billion) in 2007-08.

Now the industry’s representative body, National Association of Software Services Companies (Nasscom), estimates exports growth to fall further - to between only four-eight percent this fiscal at $48-50 billion.

To ensure growth, albeit in single digit, even the biggies were forced to adopt multiple survival strategies to retain customers, moving to fixed costs and bundling software services with back-office operations and remote infrastructure management.

“Market fundamentals have changed. Only those who invest in sales, innovation, domain expertise and value creation will succeed. No easy pickings,” Pai said.

Multinationals that set up captives to leverage the cost arbitrage and skills of home-grown techies concentrated on consolidating operations.

At the same time, bellwethers TCS, Infosys, Wipro and HCL, which built cash reserves in boom times, bought out a few captive units or back-office operations of global firms in India and overseas.

MindTree Consulting chief executive Krishnakumar Natarajan said while 2009 was a challenging year, the Indian IT industry adapted well and transformed the way in which it did business.

“In the medium term, the prospects of our IT industry are good, as we see demand picking up and discretionary spending coming back. To sustain growth, we may have to re-look at our business models,” Natarajan said.

Added Pai: “Though the Indian IT industry is well-positioned to dominate the world once recovery begins, it has to restructure as its offerings are going to be commoditised.”

With the worst behind and signs of demand for outsourcing and offshoring from the US and European markets, which account for about 80 percent of Indian software exports, picking up, the IT industry is gearing up for a gradual recovery in the new year.

“If we entered 2009 with extreme uncertainty, we enter 2010 with cautious optimism. Agility will be key to all stakeholders. The focus will be to strengthen the fragile economic recovery in 2010,” said Senapaty.