57

Pick up any internationalbusiness magazine and,chances are, you will find afeature showcasing India’ssoftware prowess or salut-ing the Indian software

engineers’ technical proficiency. But is allthat hype and hoopla justified? Check outthe statistics.

Indian software exporters togethercommand just about two per cent of theglobal spend on information-technologyservices, which research firm IDC believesis worth $ 450 bn. The picture is gloomierif we consider Business Process Outs-ourcing. Out of a global BPO pie of$ 773 bn, India’s share amounted to apaltry $ 2.5 bn in the year ending March 2004.

But statistics do not tell the full story.The gung-ho articles reflect the enthusiasmof most software-focused global analysts.They are highly optimistic about the Indiansoftware industry’s growth prospects.

Until recently the Indian software indus-try was just a low-cost option for low-endsoftware maintenance projects, a ‘body-shopper’ that would send across cheapprogrammers to US firms to take on workthat others refused — porting legacy appli-cations to newer platforms, routine mainte-nance of enterprise applications and otherdull or repetitive tasks. US companiesoffloaded low-end work to Indian softwarefirms because they offered cost savingsand labour arbitrage benefits.

But gradually things began to change.Indian software services grew in sophisti-

From providinglow-end IT services,the Indian softwareindustry has evolvedinto a sophisticatedhub of innovation.Val Souzadiscovers new,high-quality globaldelivery capabilitiesamong softwaremajors

UP THE LADDER

Infotech

it story with new dinodia image.qxd 5/6/2005 11:03 AM Page 57

5958

cation and a greater proportion of the workwas done in India. The concept of offshoresoftware services was born. Indian soft-ware firms began to acquire process-quali-ty certification and offered cost-effectivequality solutions. Then, at the turn of the century, came the Y2K software-bugissue and Indian software services’ expert-ise, which was widely used to sort out Y2Kproblems, catapulted it into the media glareall over the world. That was the turning point.

So, although India controls a minusculeshare of the global IT market on paper, itssuccess in the offshore outsourcing spaceis considerable. An estimated 30 per centof a rapidly growing offshore-servicesmarket is with Indian software firms, led byTata Consultancy Services, InfosysTechnologies and Wipro Technologies.From plain vanilla onsite application mainte-nance, Indian vendors have moved up intohigh-end services like ERP implementation,systems integration and even consulting.

In this evolution from low cost to highquality and then to outstanding processexpertise, Indian software vendors haveperfected what has come to be known asthe Global Delivery Model. This entails aspread across multiple global locations,enabling a service provider to leveragegeographical differences in cost, qualityand skill-sets, resulting in benefits to aclient that would otherwise have beenimpossible to offer.

When it comes to outsourced IT servic-

es and BPO, global delivery has evolvedinto a three-tier model with a combinationof an onshore/onsite component that’sclose to the customer; a near-shore compo-nent that does lots of the high value-addwork; and an offshore arm that executesmost of the high-volume but low-end partof the project.

This ‘disruptive innovation’, broughtabout by GDM has huge game-changingpotential and the Indians now lead thepack. Kris Gopalakrishnan, deputy manag-ing director at Infosys, puts it succinctly:“By making the GDM mainstream, we haveshifted the battle to our battleground. Frombeing rank outsiders, we have become heirto the new model of IT services.”

While perfecting global delivery, Indiansoftware services firms are addressing the need to verticalise and boost their salesand marketing efforts, while packing inspecific domain and process expertise

across the board. Consequently, they havebeen bagging IT consulting, smart-systemsintegration and even strategic consultingprojects.

“Unlike earlier years, Indian vendors arepushing the traditional boundaries of whatcan be done in remote locations,” saysJohn McCarthy, vice-president at USanalyst firm Forrester Research. “From justapplication development or maintenance,Indian organisations are now branching out into complex packaged applicationimplementation, database monitoring andmaintenance, and infrastructure monitoringand support.”

This service capability can be seenemerging even in new-fangled technologyinitiatives. A large UK retailer uses TataConsultancy Services as a key member ofits RFID (radio frequency identification)initiative. Besides, Indian vendors havesufficient references to show the complex-ity of work that can be executed using theGDM. For example, in a large project, TCSreplaced 300 legacy systems with anOracle 11i suite of financial, supply chainand order management systems at 70 sitesfor GE Healthcare. It managed the rolloutover three years, at the peak of which 300TCS employees managed eight softwarereleases.

Wipro demonstrated another big proj-ect leveraging global delivery when

it deployed an end-to-end integrated broad-band service delivery platform for 186K,part of the Lattice group. Besides thecomplexity of the project — involving multi-ple technology domains and 350 businessprocesses — Wipro faced an uphill tasksince it had to complete the project withina tight timeframe in 45 locations.

With 200 people deployed onsite, near-shore and offshore, Wipro executed theproject within just four weeks. Smallwonder then that Goldman Sachs, in itsrecent Global Assessment of OffshoreServices report, expects the presence andgrowth trajectory of the Indian softwareservices firms to continue unabated overthe next few years, making them a force toreckon with on the global IT map.

While the first phase of the Indian soft-ware services industry’s development sawcompanies engage in onsite software main-tenance contracts, the next phase tookthose contracts offshore with high-quality

Player Major Products Key Clients Revenue from sales of software products in

FY 2002-03 (in $ mn)

i-Flex FLEXCUBE Citigroup, IMF, North Carolina Department 62.5(Retail and Corporate Banking) of State Treasury

Infosys FINACLE (Core Banking, ABN Amro Bank Singapore, ICICI Bank, 37.7CRM, Treasury) IDBI Bank, Cosmos Bank, UTI Bank,

Punjab National Bank

Tally TALLY HDFC Bank, Great Eastern Shipping 20.83(Business Accounting Software)

Newgen OMNIFLOW, OMNIDOCS, OMNIEXTRACT, BNP Paribas, Citibank N.A., 5.1OMNICAPTURE, OMNIREPORTS Ford Motors, Global Trust Bank,(Document Management Software) ICICI Bank, Patni Computer, RPG Cellular

Kale VARIOUS SOFTWARE SOLUTIONS Continental Airlines, Kenya Airfreight 1.77(Cargo Solutions, Business Intelligence Handling Ltdsoftware, Passenger Solutions)

ESS MAKEESS ERP, EBIZFRAME GlaxoSmithkline Pharmaceuticals, Oscar 1.45(ERP Software) Equipment, West Kenya Sugar,

Graphic Systems Uganda

Ramco RAMCO e-APPLICATIONS US - BemisCurwood, Columbia Helicopters,(ERP Software) Hoosier Energy

RAMCO VIRTUALWORKS Europe - ETS, Swatch, Unisource(Platform for Deployment of Asia - Intel, ANZ Grindlays, ICI, Indian Airlines 10.41Enterprise applications)

Aditi Technologies TALISMA eCRM (CRM Product) Microsoft, Siemens, CitiCorp, Sony, Bowstreet 10.41

Subex REVMAX (Telecommunications software) CYTA, AmericaTel, Global Crossing, Sprint, Bharti Mobiles, Escotel, Birla AT&T Tata, Sonatel, Esconet Wireless 5.31

PROMISING INDIAN SOFTWARE DEVELOPERS

AN INCREASING THRUST OF INDIANSOFTWARE COMPANIES TOWARDS IPCREATION: Kiran Karnik

Source: Nasscom Strategic Review 2004

delivery being added to low-cost advan-tage. The third phase has seen Indian ITplayers innovating to deliver IT services byleveraging the global delivery paradigm.The fourth wave, which could become thedefining phase for the Indian IT industry, isupon us — that of intellectual propertycreation. Kiran Karnik, president of soft-ware association Nasscom, says, “Theincreasing thrust of Indian softwarecompanies towards IP creation and R&Dservices is a distinct trend.”

Statistics corroborate Karnik’s state-ment. Revenues from software exportsshow a change in the product composition.The contribution of the software servicessegment, which includes various servicelines such as custom application develop-ment and maintenance, has come downfrom about 65 per cent in Financial Year2002 (ending March 2002) to 58 per centthe following year. The share of R&D serv-ices, which includes product development,

design and embedded software increasedfrom less than 16 per cent to about 18 percent in the same period — a clear indica-tion that Indian software firms are gradual-ly climbing up the value chain.

IP licensing is an option being exploredby many Indian software firms, helpingthem to tread the middle path betweenpure services and full-fledged softwareproducts. The IP is in the form of software,embedded in various digital devices suchas mobile phones, cameras or MP3 play-ers. The IP owner licences the embeddedsoftware to device manufacturers andearns a royalty for each device sold.

Unlike full-fledged software products,which require a heavily funded marketingplan to succeed in the marketplace, IPlicensing can be used as a way to earnrevenues and to act as a major competitivebarrier, preventing other firms from target-ing a niche domain.

Some of India’s smartest software

PERFECTING THE GLOBAL DELIVERY MODEL: Kris Gopalakrishnan

Indian softwarevendors have

perfected what hascome to be known

as the GlobalDelivery Model

it story with new dinodia image.qxd 5/6/2005 11:03 AM Page 58

6160

firms, giants and start-ups alike, are activein the IP licensing space. Prominent playersinclude Wipro, Patni Computer Systems,Geometric Software, Sasken, IttiamSystems, Aftek Infosys and MistralSoftware.

Ittiam’s business model revolves roundIP creation. Srini Rajam, Ittiam’s chief exec-utive, says, “Within a short span, we havecreated more than 30 IPs in emergingsegments like digital video, wireless LAN,voice band modems and Voice OverInternet Protocol.”

Sasken is one of the first in India tohave adopted a hybrid business model, inwhich a company derives about half itsrevenues through IP licensing and the otherhalf through design services. Significantly,Sasken is one of only two independentsources for ADSL technology (a method formoving data over regular telephone lines) inthe world.

Besides ADSL, the company has sever-al IPs in the 3G mobile telephony space andis ranked as a leading independent providerof protocol stacks conforming to 3GPPspecifications.

Not so long ago the names that came tomind while speaking about successfulIndian software products were Flexcubefrom i-Flex Solutions or Finacle from

Infosys. Today, the picture is different —there are several more companies and aslew of new products. Ramco Systems iswell known for its enterprise resource plan-ning products and Talisma, for its customerrelationship management.

Subex is a leader in the niche ofrevenue-maximisation software for

telecommunications firms. In India, almostall GSM mobile telephony players useSubex’s software. Globally Subex issecond only to Hewlett-Packard in thiscategory. While HP has an installed base of69 networks, Subex follows closely with67. Its clients include some of the biggesttelecommunications players, such asSprint, AmericaTel, Escotel and GlobalCrossing.

Kale Consultants is writing its ownsuccess story in the travel industry, as isNewgen in document management andCompulink in project-management soft-ware. Although none of these companiescommands clout that’s comparable withglobal software product players likeMicrosoft, Oracle, SAP or Siebel, a begin-ning has been made. Indeed, a few yearsago, it would have be preposterous topredict that i-Flex would one daycommand the number-one position in the

world for its core banking software prod-uct Flexcube.

Having mastered the software servicesgame, Indian players are capitalising onopportunities in the product space. Forexample, Zenith Infotech, whose domainexpertise was known to be restricted to thebanking segment, was quick to spot anemerging opportunity in the remote infra-

structure management tools space — asegment dominated by firms such as HP,IBM and Computer Associates. Within justtwo years the company signed on 300customers in India and overseas with itscost-effective product offering.

Players like Zenith and Subex haveinspired several new entrepreneurs in

various segments — many of whom werebrought up to believe by industry analyststhat a product play was simply out of reachfor Indian software development firms.Yearly revenues from Indian software prod-ucts have crossed the $ 300 mn mark.That is a big achievement for a recentlydeveloped category. It’s not unrealistic toexpect many exciting developments in theproduct sphere in the near future. It wouldtake a couple of big product successes tochange the image of the Indian softwareindustry forever.

Hardly a week goes by without anannouncement of some global softwarefirm moving some of its R&D or softwareproduct development activities to India.Meanwhile, homegrown firms are joining inthe fray too, making Bangalore and otherIndian cities hotbeds of research in chipdesign, embedded software and other digi-tal innovation.

The innovation is evident in the effortsof relatively unknown companies, whichare challenging traditional ways of ITdeployment. Ramco Systems, a relativelysmall player in the ERP space comparedwith giants like SAP, sought to redefine themarketplace with a revolutionary newarchitecture called VirtualWorks, whichallows customers to first define businessprocesses and then create suitable applica-tions using automated code development.This is a far cry from traditional practices,in which a business process had to bechanged to suit a system. Most analystshave hailed Ramco’s architecture as revolu-tionary and believe its model will be the

norm for future enterprise applications.A tiny start-up, Powai Labs, is making

waves in the high-end Electronic DesignAutomation tool space. The firm’s producthelps chip designers to lower the cost ofverifying and validating designs by animpressive nine-tenths. Not surprisingly,Powai Labs already boasts a client list thatincludes three of the top five silicon designcompanies in the world.

DiviNet Access Technologies has devel-oped an indigenous network architecturethat enables applications like video-on-demand, interactive education, interactivegaming and online shopping. Wireless Novais one of only three firms in the world tohave developed technology that enablesInternet access and data transfer over ordi-nary electricity lines.

The laundry list of innovative compa-nies is long and impressive and the worldhas high expectations. The next razzle-dazzle technology may be created inBangalore, according to software guru EdYourdon. “… Bangalore also has some veryhungry, very ambitious entrepreneurs…thenext generation of Indian IT professionalsfirmly believes the US no longer has amonopoly on innovation.” The Indian soft-ware industry is rapidly coming of age. Getready to watch the sparks fly.

Indian organisations are now branchingout into complex packaged applicationimplementation: John McCarthy

INNOVATION IS THE KEY TO MOVING UP IN THE SOFTWARE SERVICES GAME: Software professionals at work

DINODIA PHOTO AGENCY

CREATING INTELLECTUAL PROPERTY: The challenge in the software business

The next razzle-dazzle technologyin software may

be createdin Bangalore,

according to anexpert

it story with new dinodia image.qxd 5/6/2005 11:03 AM Page 60