MSMEs Big Potential of Pushing IT Spending: NASSCOM Study

Nasscom has come out wiht a study pointing towards huge gap in IT adoption Micro, Small and Medium Enterpises (MSMEs). It has has also pointed the huge untapped potential. According to Nasscom the IT penetration in manufacturing sector is abysmal and SME companies hardly make any major investment in IT.

The IT adoption amongst SME & MSMEs is very high in financial and accounting domain but lag behind in areas of CRM, procurement, production planning and supply chain management. SME companies hardly invest in automation and IT solution for enhancing production efficiency. The study found that though rate of IT adoption was at 75% in finance & accounting amongst companies but it just 18% in manufacturing process and even lower rate of 16% in ERP solutions.

Such low adoption of new technology imperil the chances of gaining competitiveness not just domestically but also in global markets as a lot of these SMEs compete in export markets. According to the study Indian SMEs & MSMEs spent meagre 1% of their total revenue on IT adoption, which was way below the global average of 4.5%. Lack of IT spending is crucial challenge for government which wants to improve both efficiency and competitiveness of Indian manufacturing and make India leader.

The Nasscom study also highlighted both demand side and supply side issues resulting in poor IT adoption amongst SMEs. While lack of internal IT expertise, affordable solutions, complexity of adoption, and lack of service providers was the issue with demand side, the supply side constrains were lack of last mile connectivity, support costs & qualified systems integrators.

Will TechMahindra’s Satyam be Sundaram?

Tech Mahindra has finally emerged as new owner of Satyam, after competing with Satyam’s biggest strategic investor- L&T infotech. Tech Mahindra’s emergence as new owner of the beleaguered firm is good news for all the stakeholders of the firm, but how good is it for TechMahindra? The bidding details are yet to be out, which makes it unclear about how much liability TechMahindra is going to shoulder about Satyam’s past. But, as the bid price of other major bidders such as Rs 49 of L&T and Rs 20 of Cognizant suggests that TechMahindra has over-bid its rivals in its zeal to enter big league.

At the outset deals propels TechMahindra into league of big information technology companies with vast human resources and big clients. The huge clientele base of Satyam will raise the expertise that TechMahindra has, which at present is largely confined to telecom space at present. TechMahindra will also get it hands on vast and diverse human resource of Satyam therefore boosting its experience in handling large clients and big projects.

This vast human resource pool will also be TechMahindra’s challenge as most of its employees will see it as case of reverse merger and plump posting going into hands of Satyam employee because of their expertise. Similarly, some clients will be wary of new owners who have little experience in non-telecom based projects. How L&T plays with its stake in Satyam will also impact TechMahindra’s success on this deal.

Personal Computers Manufacturers Facing Tough Market Scenario

Personal Computer market in India is facing tough times as the Q3 FY09 sales have dropped by 19% and market is expected to remain muted with no growth for overall FY09.

Personal computer sales for the period Oct-Dec 2008 stood at 1.4mn units down from the 1.7mn units a year ago. Amongst the personal computers desktops witnessed decline of 15% while sales of notebooks declined by 30%. Desktops constitute 70% of the total personal computer market and remaining is held by notebooks. Branded desktops player constitute over 60% of 5.1mn unit desktop computer market in India.

Consumption of personal computers in Oct-Dec quarter was largely led by sectors such as Telecom, Banking, education and e-governance requirement of central and state governments. But, declining demand was witnessed from sectors such as Retail, IT and SME sectors.

As large percentage of hardware component is imported, rising rupee has deteriorated the margins of personal computer manufacturers. MNC biggies such as HP and Lenovo together with Indian major HCL constitute almost half of the desktop market in India, and are facing pricing issues.

Personal computer manufacturers are expected to face rough ride ahead as economic downturn has already affected the individual demand for personal computers, corporates on the other hand are trimming not only expenditure on IT hardware but due to low capex spending in the near future they have restrained the demand for personal computers.

Will Political Connection Save Satyam & Mr Raju?

SC has finally directed Andhra police to allow SEBI to question Ramlinga Raju. Andhra Police has been scuttling SEBI move to question Mr Raju for almost a month. Mr Raju’s deep connection with both the ruling class and opposition has given him enough time to avoid him falling into the hands of SEBI. Political clout has ensured Mr Raju a breather time, also he is under arrest on complaint filed by a shareholder. Mr Raju has been using this case to avoid falling into hands of central agencies. Andhra Police had raided and seized documents from Satyam’s office. No one really knows what is going to happen to the documents seized. Though, it would be really difficult for Rajus to destroy evidence of money siphoning between Satyam and other Raju owned firms.

Involvement of several Central agencies and state police has further complicated the issue. Several agencies, independent authorities and government ministries are looking into the case, which requires sharing of evidences. India is classic case of right hand not knowing left hand. Considering the fact that Mr Raju would use his political connections to prevent such evidences getting shared by different agencies, chances are there that some cases against him will be weaken in the court of law, the best place for our politicians and Mr Raju himself to absolve himself of some crimes. But, what is yet to be seen as how Mr Raju would evade the US watchdog – SEC.

Taxing IT to Avoid Financial Trouble

Satyam fiasco has brought out a big question on how to check the business models and financial reporting of the Information Technology companies. Most of the technology companies in India have been enjoying tax exemptions over a decade and have also got exemption for a few years more.

As these companies are not taxed, their financial reporting can easily be fudged by anyone. Any IT company, which does not pay any tax on its revenues, can overstate it to mind boggling proportion without even being worried about the consequences. A simple and symbolic tax could be answer to all such malicious activity as ones these companies would be forced to pay tax on revenue and disclose their financial statement it would become tough for companies to continuously over state their revenues for more than a year.

There is also need to check on the business models of the companies, most of them are under tax exemptions and are now pulling themselves under SEZ status, it has become difficult to keep a tab on their functioning. Government needs to bring in regulation for disclosure of forex revenue generated from such units and the banks where they are parked. This measure will effectively keep a check on the financial activities of such IT firms and will also discourage many fly-by-night operators from posing as Information Technology firms to manipulate their IT SEZ status for retail purposes.

“Service Sector To Push India’s Economic growth to 7.5-8% this Fiscal”

Chief Economic Advisor (CEA)of India expect the service sector to act as a stabilizer to the country’s economy, helping it grow by 7.5-8% in the current financial year. His views come amidst fear that even the service sector which has till now been relatively immune to drastic slowdown, will get negatively affected in a major way in the remaining months of 2008-09.

The CEA however admitted that even the services sectors like the other sectors has seen slow down in the growth momentum this year. He however believes that the cyclical decline for the services sector would be comparatively much less than the manufacturing sector.

Service sector is a major part of the Indian economy, with it dominating the economic scene especially in recent times. IT and IT enabled services (ITES) have been the cynosure of the country’s development, putting in on the world map. Such positive forecasts would do a world of good for the sector, even as the country tries to defend itself from the pains of global recession. But this has to be seen in perspective with global economic growth especially from US that has gone into recession, and which accounts for around 50% of the IT and ITES portfolio.

Avoiding Unemployment as Poll Issue

Employment has suddenly emerged as the issue that is jolting the confidence of both politicians and businessmen alike. The government once again caught off-guard, is in mood of denial as it did in case of credit crisis and economic slowdown. The government seems to not woken up to the reality or it’s the Prime Minister Manmohan Singh, who wants to divert the attention by making claims about the economic growth. Mr Singh once again in a summit last week said that India would achieve next year’s growth target of 8%, when a few weeks back they were claiming it would be 7%.

Rising unemployment rate during elections are major embarrassment to any government, UPA recognises this fact and thus avoid any talk on the issue to prevent its escalation in media. The government and PM has kept on making statements about India’s miraculous future growth despite global slowdown. Finance Minister has severely criticized reports on layoff by industry and suggested industry could manage downturn without downsizing. The government has been trying to hush-up the matter. It want to keep the issue of unemployment under carpet to avoid any further jolt to its chances of winning election.

Almost every sector in the industry be it retailing, technology, automotive, textiles and exports are under pressure to shed labour and bring down production to avoid any closure. Government has no business in directly supporting industries in this business cycle, it should have taken steps to boost economic growth but it has even failed on this count.

Axon accepts HCL’s higher bid over Infosys

Axon has opted to go for the higher bid of India’s fifth largest IT services firm HCL Technologies as against the earlier bid by the India’s second largest IT firm Infosys. This was communicated by Axon to the London Stock exchange, which said that, “The Board is pleased that HCL has recognised the quality of the Axon business and has announced its intention to make an offer. Accordingly, the Board has withdrawn its recommendation of the Infosys Offer and intends unanimously to recommend the HCL Offer when it is made.”

Axon also said that it gave Infosys a period of 60 hours to mull over the bid made by HCL. During the 60 hour period Axon is prevented from varying or amending its recommendation has now elapsed. In August this year, Infosys had announced a cash offer of 600 pence per share of Axon Group or GBP407 mn. But in September HCL rivaled the offer for 650 pence, 8.3% higher than Infosys bid and valuing Axon for GBP 441 mn.

Infosys however has said it is keeping its options open on making a counter-bid for Axon. Speculations are rife that the revised bid by Infosys may moderately increase in the range of 7-8% over the HCL offer; this counter offer can be expected when Infosys unveils its quarterly results on October 3.

Both the bidders are targeting European companies as they want to reduce their dependence on America, especially with the prospects of recession looming large in the US, and to increase our revenues from Europe and the rest of the world. SAP implementation and its importance has also been an important factor in this deal as Axon specialises in serving software developed by the German firm SAP and advise clients such as Vodafone and Barclays on implementation. If HCL is successful in acquiring Axon, it will be catapulted to the 12th position in terms of SAP implementation globally, while Infosys’ successful bid will make it the 10th largest SAP player. Among other things, the proposed purchase would be the biggest overseas acquisition ever by an Indian IT company.

Indian Techies storm the global IT design and development scene

Desi Techies aren’t just doing the low-end jobs for technology giants these days. Now, they are increasingly moving upwards for design and development role of information technology related products. Techies in India at Intel have fully designed Intel’s Xeon 7400 series microprocessor. This feat was achieved in just two years by Intel’s India development team of 300 engineers.

Yahoo India’s development centre created glue pages for yahoo search and have incorporated the product on yahoo India’s site. They plan to take this glue pages search option to the global after some amendments. Indians are now taking greater interest in product development after proving their skills in basic computing related work. This trend in not limited to some big MNC companies in technology sector.

Indian techies are also setting up small firms for product development. Their enthusiasm can be seen with Nokia Forum, which is developer community of telecom giant Nokia. Indians constitute largest number of registered developers with this community; in fact 140,000 Indian developers are registered on the site to create applications for telecom products.

Venture Capital Investment Grows Two-fold during Q2-2008 in India

India still far behind China

Venture Capital (VC) funds continued to show confidence in the economy and companies in India as VC investment doubled during the second quarter of 2008. The latest Quarterly India Venture Capital Report by Dow Jones VentureSource puts VC investments in Indian economy during the second quarter at $238 mn across 17 deals compared with $108 mn across 12 deals during the same period last year. The VC investments rose 120% y-o-y.

Category wise breakup of the investments showed that advertising start-ups got the biggest share of VC funds in the second quarter at $89 mn, and it accounted for nearly 37% of the total investments in the period. Second in terms of investment was the IT industry, which recorded three deals worth $33 mn during the second quarter, it was however a 55% decline from the $73 mn invested during the same period last year.

In terms of development stage, companies with active revenue streams attracted the most capital in the second quarter of 2008, as nearly $151 mn went to 10 deals for companies that were shipping products and another $4 mn went toward a deal for a profitable company. Just six deals, worth $83 mn, were for companies presently developing products. Another important aspect of the report is that the confidence shown by these VC funds in re-investing, there were as many as seven second-round investments out of the total deals. Among the companies invested, Laqshya Media, a Mumbai-based provider of out-of-home media advertising services attracted the largest VC investment of $70 mn during the quarter.

The VC investment in India looks paltry if compared with China, where the second quarter of 2008 saw venture investment in Mainland China surge to its highest level in five years at $1.37 bn into 71 deals, more than double the $662 mn invested in 69 deals during the same period last year. However one deal, an investment of $430 mn in Beijing-based Oak Pacific Interactive, which provides an Internet platform for Web 2.0 communities accounted for 31% of the country's investment total.

Automotive Engineering Offshore activity gaining ground in India

India is steadily gaining ground in almost all kind of outsourcing and offshoring services. Automotive engineering offshore activity is also gaining ground. Currently automotive offshoring has been a small component of engineering offshoring activity in India. As per one of the estimation global engineering offshoring activity amounts to $10-15 bn and India accounts for just around 12% of this market. The global offshore engineering spend is expected to grow to anything between USD150-225 Bn by 2020 and India could have around 20-25% share of this industry. Automotive offshoring is expected to contribute a big chunk of this engineering offshore pie.

As per another recent survey by Frost & Sullivan, Indian automotive engineering service outsourcing industry is expected to clock a 32% growth by 2012-13 and is likely to generate USD 2.2 bn in revenues for the country in next two years. The report also emphasized on spin-off of automotive engineering services from IT sector to realize better growth opportunities.

Leading global automakers like Toyota, Daimler-Chrysler, Fiat, Ford etc source components from India. Both Toyota and Volvo source gear box for the automobile range from India. Daimler-Chrysler not just sources components but also uses IT services for integrating electronic gadgets in their cars. In fact Daimler-Chrysler sourced USD125 Mn worth of such components and software from India.

Power Sector Tops Investment in H1 2008

Realty surprisingly makes it to the second spot

A study conducted by the Associated Chambers of Commerce and Industry of India (Assocham) has put the power sector in the country in the numero-uno position in terms of investments received in the January-June 2008. The power sector received investments worth Rs 1,959,13 cr in the stipulated period, accounting for almost 31% of the overall investments in the corporate sector. Power majors like Tata Power, Sterlite Industries, Jindal India Thermal Power and Lanco Group are among the corporates that have lined up big investments in the sector.

Second in line in investments was the realty sector, a surprising fact, even after interest rates have spiraled high, and there are reports of slowdown in demand for real estate. The sector attracted investments worth, Rs151,000 cr for the next two to five years. Omaxe, Uppal Group Developers and Mahindra World City, were among the major companies unveiling their investments in the sector.

Others in top five in descending order were the steel sector with investments of Rs 1,086, 09 cr, retail sector with Rs 8,92,00 cr, and followed closely by the telecom sector with Rs 8,91,00 cr. Steel sector saw investments majors like Vedanta Resources, Tata Steel, Bhushan Steel and JSW Steel, the retail sector growing at an estimated 25%, saw investments by corporate retailers and real estate developers like Reliance Retail, Parsvanath Developers and Videocon Industries, while aggressive marketing and falling tariffs by major telecom players like Reliance Communication, Aircel and Quippo Telecom Infrastructure contributed to the boom in the sector.

Oil & Gas, Automobile, IT, Construction and Manufacturing and Ports & Shipping were the remaining sectors that made it to the list of top ten with investment figures ranging from Rs 30,000cr to Rs 90,000cr.

Indian Consumers now to Access IPTV for Entertainment

Setting the path for consumers in India to get access to television content over broadband internet, the government approved guidelines for allowing broadcasters to share their content with Internet Protocol Television (IPTV) providers. The present norms allow broadcasters to share their channels only with cable and direct-to-home platforms. IPTV service will not be costlier than DTH or cable providers as the government has also made it clear that that IPTV provider would get channels from broadcasters as per broadcasters’ rates fixed by TRAI.

IPTV is a new platform for delivering television content using an IP network and high speed broadband technology. The rapid development in telecom technologies along with increasing digitalisation of broadcasting is driving services like IPTV. For consumers, the move will mean access to interactive content on what will be a two-way link, enabling services such as video on demand, time shift TV, group-gaming and interactive advertising.

The decision to amend the laws is likely to benefit telecom players such as Bharti Airtel, Reliance Communications and BSNL. MTNL had already started offering IPTV services in Mumbai and it would have first mover advantage. BSNL has also entered into a tie-up to make a foray into IPTV service.

Internet service providers (ISPs) whose net worth is more than Rs 100 cr will also be able to offer the services. However, only two or three ISPs would be able to offer this service, as only those many have net worth above the prescribed limit. Broadcasters would however benefit to great extent as the current cable and DTH platforms are struggling to carry more than 200 channels, while there are 360 channels with down linking permission waiting on the anvil, which will be benefited by IPTV. The IPTV platform also presents cable operators an opportunity to move closer to complete digitization and also offer a service with potential for higher billings per customer.

Telecom Regulatory Authority of India (TRAI) had submitted its final recommendations for IPTV to the Information and Broadcasting (I&B) Ministry several months ago, but it got approval only now. The other recommendation to increase foreign direct investment (FDI) in IPTV services to 74% as opposed to the current 49% in the cable sector has still not been approved. The regulator also authorized the department of telecommunications (DoT) to permit any telecom licensee to provide IPTV services. Any cable operator registered under the Cable Television Network (Regulation) Act, 1995, also does not need an additional license for IPTV services.

The content transmitted on IPTV will come under regulation by multiple agencies. While, the ministry of I&B will ensure adherence to the programming and advertising code, the ministry of communications and information technology and DoT will monitor the Internet content as per the IT Act of 2000.

With 40 mn landline connections capable to deliver IPTV, the future looks bright for the service. According to a December report by industry body ASSOCHAM and consultant Ernst and Young, IPTV will garner one million subscribers by 2010.

Corporate India leads in Web2.0 Acceptance in Workspace

Indian corporates seem to outsmarting the rest of world when it comes to the use of technology in workspace. India Inc is not only becoming tech-savvy but it’s now also Web2.0 savvy. Though, India Inc is not in favour of social networking sites as only 22% of them find it important tool in office space as per a McKinsey Survey (Building the Web2.0 Enterprise), whereas 31% of corporates in China, 35% in N America believe it’s a useful tool.

However, India Inc leaves behind rest of the world in its acceptance of Blogs and Wikis. Surprisingly, 46% of corporate India finds blogs as useful tool in comparison with 37% of corporates in N America, 35% in China, while Europe is far behind with only 28% finding blogs as useful corporate tool. Similarly, India Inc finds wikis an attractive knowledge tool, which can be gauged from the fact that wikis have become extremely important tool for public information in India and is very popular with public.

The most astonishing outcome of the survey is the popularity and acceptance of videosharing and podcast by corporate India. Considering the fact that broadband use is extremely scarce in India and is mostly limited to corporate offices, still companies in India believe in using videosharing tools for corporate videos. Also, ipods in India are not much used by the population but still Indian corporates find podcast as useful tool is extremely surprising. A 23% of corporates in India find podcast useful tool compared to just 20% of N America, which is home of ipods, and a similar 20% corporates in Europe.

Cognizant Second Half Guidance Shatters Indian IT Sector’s Growth Prospect

Cognizant technologies’ lowering of its guidance for next half of the year is causing shivers to the Information Technology industry in India. Cognizant Tech cuts its second half growth by almost 5%. The company made it clear that it was anticipating slowdown in receiving business from clients more specifically from healthcare sector.

Though, healthcare as a vertical contributes less than 3% of the Indian IT exports, but the concerns remain at the macro level as BFSI has already taken a beating, more such verticals falling prey to the US slowdown will add misery to the smaller players in the industry.

Also, the hoopla surrounding the IT industry that any bad news for US economy would translate into more offshore work would not entirely come true. Cognizant’s guidance reveal that as the economic scenario worsen, more and more companies might be unwilling to start new projects. The company has also stressed the need to focus on managing the expenses and increasing utilization of resources, thus indicating that in near term most of the companies in IT industry would be paying attention to remain efficient to retain profitability rather than generating higher growth from new projects. The only positive outcome of Cognizant’s guidance was for consulting and knowledge process outsourcing business as company intended to expand its service offerings in these areas, a large chunk of it may come to India.

Will Indian students get laptop for $100?

The government of India in tandem with two leading research institutes in the country is working on developing a laptop that will cost $100 (Rs 4000). This news had earlier caught the eye of almost all over the world, after it was published that the laptops will cost only $10 (Rs 400). However, this was later rectified by the government. This numeric error although an embarrassment for the Government, but it doesn’t overshadow the aim of the initiative, which is to give Indian citizens as much access to computers and the Internet as those in wealthier countries. At the moment only 4.38 mn Indian citizens have access to broadband internet, woefully low as compared to the country’s population of over 1.13 bn. Along with the low-cost laptop, the government also plans to give free bandwidth to every Indian for educational purposes.

Research work toward the development of the low-cost laptop is being done at the Indian Institute of Science, Bangalore and the Indian Institute of Technology, Madras. The government has not yet disclosed any information about the laptop's features and technical specifications, nor has it said whether the price would include a government subsidy.
India is not a part of the 'One Laptop Per Child' (OLPC) program after officials pulled out saying that it was not practical to hand a laptop to every child. The HRD ministry in 2006 had rejected the OLPC model terming it as quite expensive. The OLPC project was a $50 laptop which is yet to be delivered. However Reliance Communications has launched a pilot OLPC program last year.