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Adith Charlie

Thirty-five-year-old Subramanian ends up travelling about 15 days a month in the pursuit of new business for his IT company.

Nothing new for his family since Subramanian’s schedule has been hectic and erratic ever since he became part of a software behemoth’s sales team a year ago.

There’s one difference though: A year ago, he would be hopping across various continents to attend business meetings in Singapore, London and San Francisco. These days, however, he has places such as Gandhinagar (Gujarat), Hoshiarpur (Punjab) or Rajgangpur (Orissa) on his travel agenda.

At a time when IT outsourcing deals across the globe have largely dried up, rural India is beginning to throw up new software implementation opportunities for companies that have invested in these markets.

The market in the interiors of the country is definitely growing much faster than that in the larger cities, according to a senior official with a multinational IT firm with a significant presence in India.

And there are deals to be won in every sector — e-governance, small and medium businesses, co-operative banks, power projects, etc.

eWorld tunes in for more on the trend.

IT firms such as TCS, Infosys and Wipro have had presence in cities such as Ahmedabad, Visakhapatnam and Bhubaneshwar for the last three-four years now.

However, these centres were set up as low-cost bastions to service both international and domestic customers.

Since infrastructure and personnel costs tend to be on the lower side, overall operational costs can be trimmed by 20-24 per cent through having delivery centres in non-metro cities, believes Ameet Nivsarkar, Vice-President and part of the leadership team at industry body Nasscom.

Moreover, companies have often maintained that attrition rates in such cities are far lower than that in, say, Mumbai, Delhi or Chennai.

In smaller cities, the employee churn is in the 7-10 per cent range as against 12-15 per cent in metro cities, says Anurag Mehrotra, Vice President, Sales, Wipro Infotech.

The Bangalore-headquartered Wipro has delivery centres in tier-2 cities such as Mysore and Kochi.

TCS has presence in Bhubaneshwar, Baroda, Coimbatore, etc.

The shift of focus towards servicing companies that have operations in, say, Nagpur, Bhubaneshwar or Hoshiarpur is a recent phenomenon.

“Government incentives, increased investments and most importantly, the spread of IT beyond the tier-I cities in India, have paved the way for lucrative opportunities across India,” says Tom Kindermans, Senior Vice-President, SME, SAP APJ, in an e-mail.

Moreover, the advent of Unicode has given the necessary fillip to local language computing.

(According to Wikipedia, Unicode is a computing industry standard that allows computers to consistently represent and manipulate text expressed in most of the world’s writing systems.)

In the interior regions, IT firms are getting maximum business from small and medium-size enterprises and government IT projects.

By definition, many of the SME clusters are located in and around tier-two cities, be it Jalandhar (for sports goods), Nagpur (for powerloom and fabrication) or Coimbatore (machine tools).

SMEs in many of the upcoming cities are in the first wave of automation; the opportunity here lies in the implementation of ERP, CRM, inventory management, payroll management, etc, according to Diptarup Chakraborti, Principal Research Analyst with research firm Gartner.

Moreover, several State governments — be it Gujarat, Orissa or Maharashtra — have now accelerated the pace of awarding e-governance projects.

In 2005, the Ministry of IT rolled out a national e-governance plan (NeGP) that is to be implemented through 26 mission mode or large-sized projects and 10 components.

The total cost of the project, till 2011, is estimated be over Rs 23,000 crore.

Contrary to popular perception, several IT industry experts believe that software companies can get decent margins in their dealings with firms in this market.

“Margins are comparable and even higher in some cases vis-À-vis city-based firms. Moreover, competition in smaller cities is not as fierce as large cities and hence there is a good probability of making comparatively better margins,” says Mehrotra of Wipro.

In cities such as Delhi or Mumbai, many of the IT outsourcing deals that have an in-built hardware component become a headache for the vendor because of aggressive negotiations with client companies.

“Especially in deals involving computer hardware, metro-based clients will always pressurise vendors.

As a result many of the deals end up being margin-negative for the vendor. IT firms hope to make up for this through their service offerings and so on,” says Chakraborti of Gartner.

However, negative margins in deals involving SMEs are unheard of, he says.

“One could comfortably expect margins in the range of 10 to 15 per cent with SMEs,” says Chakraborti.

However, when it comes to government projects, margins are on the lower side compared to other domestic deals, largely due to the tendering process that is followed by most government and quasi government entities.

Other verticals seeing encouraging demand are manufacturing and professional services, says Kindermans of SAP.

“We also see growth coming from the retail, life science, industrial machinery, healthcare and education sectors of the Indian market,” he says.

SAP counts companies such as GNA Auto Parts from Hoshiarpur (Punjab) and Scan Steel Ltd from Rajgangpur (Orissa) among its domestic clientele.

Retail (mom-n-pop shops), tourism and co-operative banks are other areas that present IT automation opportunities for Indian IT firms, says Chakraborti from Gartner.

Companies that have an established core banking practice are keen to offer a toned-down version to banks in rural areas on a pay-per-use model, says a TCS spokesperson.

Going forward, TCS expects to venture into providing IT solutions in SME clusters around cities such as Nagpur and Jalandhar, the spokesperson says.

Sensing future growth in tier-2 and 3 cities, Chennai-based Ramco Systems is now keen to increase the number of partners that distribute its Web-based ‘OnDemand ERP’ solution, says Sunder Srinivasan, Senior Vice-President, India Operations and Business Consulting Group, Ramco Systems.

By March 2010, the company expects to rope in 50-60 new partners in the towns of North-East India and Western India.

In the next three years, Ramco expects 60-70 per cent of its enterprise sales to come from tier 2-3 destinations, he adds.

Similarly IBM India is keen to add to its network of offices in the hinterland.

“We are in the process of setting up offices every quarter. We have a leader who is driving geographical expansion across all our brands,” Sandip Patel, managing partner, global business services, IBMIndia and South Asia, had said in a recent interaction.

Currently, the ‘Big Blue’ has offices in 13 tier-2/3 towns across India.

Some analysts feel the large technology players are constrained by their size, which does not allow them to be nimble enough to cater to the needs of small and medium enterprises.“Many a time, IT firms look at SMEs as a homogeneous mass of companies and hence they follow the same approach for all companies.

Many firms end up implementing the same CRM or ERP programme for both a machinery company as well as a travel portal,” says Chakraborti. As a result, smallish firms feel that they are dealing with large firms that have a big brother attitude.

The “they are too big for me” perception that these firms have ought to be addressed first, feels Chakraborti.

Though the seeds of growth have been some sown, industry observers still feel that it will be a long-drawn process before operations in tier 2-3 cities turn mature for IT services companies.

“One must remember that companies need to have minimum scale and size of operations in order to leverage IT. A lot of this is not evident in rural India yet,” feels Nivsarkar of Nasscom.

However, given the kind of opportunities that this market presents, the consensus view is that it would very well be worth the wait!

adith@thehindu.co.in

More Stories on : Marketing | Software | Rural Marketing | SSI

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