Dynamism is hardly in short supply in the technology industry today, where numerous undercurrents of change are at work simultaneously at any particular time, as every player looks for ways to expand business and most importantly, stay relevant. At the macro level though, one is accustomed to buzzwords, which catch popular imagination, get used and overused, but also define the shape of things to come.
For Indian, as well as global IT players, the inevitable shift towards Asia Pacific (A-Pac) and other emerging markets is one such paradigm that has been talked about too often. For obvious reasons, it started with the recession in the west. And to be true, the A-Pac market is indeed showing a lot of potential for IT business from the growth perspective. But how big is it really? And how are Indian IT players leveraging it?
Firstly, it makes sense to understand the potential in terms of numbers. Forrester Research projects that total global IT product and service purchases (government and corporate) will account for $1.84 trillion in 2012, out of which a huge Rs.1.087 trillion will come from IT consulting & system integration, software and IT outsourcing. Total IT product & service spending in A-Pac will touch $503 billion by 2012, growing at a CAGR of 7.6 % (2007 taken as base year), which will amount to 27.4% of global IT spending in that year. For comparison sake, IT spending in US is projected to be $658 billion in 2012; growing at a CAGR of 4.5% since 2007 and accounting for 35.8% of global IT spending. Western & Central Europe, meanwhile, will fall behind A-Pac and have IT spending of $420 billion by 2012, a CAGR of 0.09% and contributing 22.8% of global spend. In an exclusive interaction with 4Ps B&M, Infosys CEO Kris Gopalakrishnan comments, “The impact of consumers in Asia and the impact of technology, mobiles and the digital revolution in the region are particularly significant. These are creating a perfect storm of opportunities, even though we are emerging out of a downturn.”
So that means that with their stupendous record in US and Europe, Indian IT players should be getting a huge share of the Asian IT space as well, right? But if you look at how A-Pac figures in the revenues of Indian IT players, there is still some way to go before reaching that objective. Only TCS really treats it as a geographically separate revenue head (excluding India) among the top 3. Even then, it accounted for 5.24% of its revenues in FY 2009-10. When you look at Infosys, they club emerging markets into India and Rest of World (ROW), which together contribute only around 10.6% of global revenues. Wipro, on the other hand considers any market other than US, Europe and Japan as ROW, which contributes some 14% of its total revenues. Even Cognizant denotes non-US and European markets as others, and the not so significant others represent 2.4% of its total revenues as per calendar year 2009 figures.
The obvious question is, what is holding them back? For starters, it is obvious that they felt the need to expand in Asia Pacific slightly late. As US and Europe were providing a huge chunk of IT spends, little need was felt to serve markets like A-Pac. Nishchal Khorana, Head, ICT practice, Frost & Sullivan, comments to 4Ps B&M, “A-Pac began as a derisking market for Indian players. Now, it is turning into more of a strategic geographic market.” Meanwhile, American giants IBM and HP have been better off, since both lead the A-Pac market. Springboard research projects IBM as the leader in APeJ (Asia Pacific excluding Japan) with a market share of over 10%, while HP has a share of just under 10%. Other major players include Accenture, Fujitsu (when it comes to Japan, Fujitsu is the leader by miles), NEC, CSC, Hitachi, LG, Samsung & NCS. Girija P. Pandey, Chairman, TCS Asia Pacific Pte Ltd. comments, “What is really required at the moment is for companies in Asia Pacific to understand the brand of Indian IT and what Indian IT can do. That only comes with time. We took 30 years to build US as well.” Clearly, Indian IT players have their work cut out in terms of tapping this market. So, how should they go about it?
Some of the key markets that Indian companies are looking at are Australia, People’s Republic of China, South Korea, Singapore, Japan and Hong Kong. Firstly, it is about understanding diversity in these markets, which Indian players should be quite comfortable with, considering the diversity they face back home! The fact is that while the A-Pac as a whole becomes a sizeable market, it consists of multiple markets of various sizes and different dynamics. Firstly, the diversity is visible in the regulatory environment. Singapore, for instance, is extremely welcoming, while the regulatory requirement in China is still quite arbitrary, as per Nishchal. The concerns were highlighted in 2009, when China brought Microsoft under the ambit of its antitrust law, which was meant to bar dominant companies from selling products at obviously high or low prices. Interestingly, Chinese premier Wen Jiabao promised to remove trade barriers to Indian IT firms recently, which could pave the way for IT exports worth some $100 billion in the next five years. Protectionism is a fear that foreign IT players will always have when it comes to China. Australia, on the other hand is getting more friendly towards IT companies, but there are still concerns of jobs going overseas that are highlighted in political circles. Countries like Malaysia and Korea are, on the other hand, looking for investments and collaborations by Indian players. But in South Korea and Japan in particular, the tendency is to have more work done locally. Conglomerates like Samsung and LG try to meet their IT needs internally.
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Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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