ChannelWorld.in, Strategic insights for solution providers

THE EARLY INDICATORS

So what visible signs are indicating a revival in the Indian economy? Anil Menon, VP, Software Group Channels, IBM India and South Asia, attributes this revival to multiple factors. As he points out, “GDP growth, investments in country, currency movement, and domestic demand and equity market, all have a strong role to play if we look at the market. We have seen a strong intent from the government to give a huge thrust to infrastructure which will help decouple the global economy and hence the domestic demand will pick up,” he says.

“First, there is a feeling that the pits have been touched and it is now a question of combating aftershocks rather than looking at another prospect of a major earthquake,” says Maninder Singh Grewal, MD, Religare Technova. CIO’s have moved on from the budget cuts and are reaching out to the new paradigm of being more business centric. “They have started looking at vendors and solution providers who can effectively evolve their products and services to meet this new model,” he adds.

Business sentiment and company results are the key indicators, says Nair at Avaya GlobalConnect. According to IDC India, the recently concluded general elections proved to be a distraction from the government sector’s minimal spending on PCs. However sectors like banking, e-governance, education and telecom remained stable. Though with the new central government settling down and the festive season starting earlier than usual this year, the coming quarter (Q3 09) presents an opportunity for vendors to spruce up their shipments performance.

India’s overall market for PC unit shipments in Q2 09 touched 1.765 million, recording a QoQ growth of 5.2 percent, indicating the market is heading towards a recovery; quotes an IDC India report. According to Kapil Dev Singh, Country Manager, IDC India, “The Indian PC market performance in Q2 09 has shown what may be termed as early signs of a revival. Demand was buoyant during this quarter on account of a higher off-take by the consumer and the education segment.”

Though the financial year 2008-09 registered a negative 7 percent in PC sales including desktops (-4 percent) and laptops (-17 percent), notebook sales for last four years have grown by a 100 percent each year, according to MAIT. “OND quarter impact after September 08 had its shares of problems in terms of cash flow and large inventory in channels. Most consumers and enterprises had a knee jerk reaction of halting purchases as it was termed a sentimental approach,” says Mehta at MAIT. Clearly, despite the drop in the yearly sales of PC shipments, the silver lining and an indicator of the upturn can be attributed to the rise in the sales in Q2.

“In the current scenario, Indian companies are looking at maximizing the existing resources and increasing their efficiency at minimum possible costs,” says Neeraj Singh, Head – Commercial Channel Operations, Dell India.

As Sandeep Parasrampuria, Director, Best IT World says, “It’s a revival more from a macro point of view of the Indian economy. The positive news from government end is driving the IT industry too.” Traditionally, the first two quarters of a fiscal year prove to be good for IT sales and we still have two months to go during this revival for it to reflect, he reasons out.

THE DRIVING FACTORS

There are many factors that have come into play in the last few months that now bode well for the industry. For Menon at IBM, stronger projects, like the national ID project, will unleash a huge demand for an entire ecosystem of big and small solution providers. The government is in effect increasing the entire landscape by stimulating its investments, spending and by the greater participation from states for IT infrastructure, he says.

Grewal at Religare Technova feels the catalyst for growth in India will be the government and education sector. Nandan Nilekani’s appointment to a cabinet ranking post to drive the universal ID is an indication of the determination of the government to drive growth in the IT sector, he points out. “Government initiatives are not limited to this; other major projects are in place to spur demand too. The demand for power and the 123 Agreement on nuclear fuel will spur utilities, and that again will be a major catalyst,” he says. In the private sector, the need to find customers and be more competitive, will lead to a renewed focus on infrastructure and productivity; all of which need the best IT infrastructure.

Simultaneously, the starting of the new sessions in colleges means a significant increase in the individual hardware spend, leading to demand for software and services downstream. “Colleges will have to have intranet, firewall and a robust It infrastructure and hence will find in-house IT models noncompetitive leading to more services and products .Sales would increase on a YoY basis but companies that have reduced their costs  and have reinvented their models will be the ones that will be market leaders,” he suggests.

BFSI, Service Providers and FMCG are doing well according to Nair of Avaya GlobalConnect. “BPO industry is doing well, thanks to the cascading growth from these sectors on the domestic front. In tough times, customers increasingly choose proven vendors and the best technology as they don’t want to end up taking chances,” he says. Other then these – pharma, healthcare and government sectors are looking up for us in general, he says.

“The value added services for subscribers through 3G and new operators will show strong growth. There is a consistent growth story in banking and insurance. Telecom is picking up due to the newly introduced 3G spectrum,” says Grewal.

Virtualization and storage consolidation are surely moving towards a market where they will be in a greater demand. “Thin clients (server based computing) too have the potential to get into the ‘high demand’ technologies,” says B Shankar at Ashtech Infotech.

Optimization demand for RoI, helping customers with integration issues and making the most out of their existing infrastructure is the way ahead to make inroads for enterprise customers, says Menon at IBM. On an upside, there is a strong acceptance for technologies like BI, analytics and data warehousing collaboration.

Contrary to most IT company’s fears of a much delayed recession and a tough 2009-2010 fiscal as well, the increased demand for IT lately is a welcome surprise, says Parasrampuria.

“Discussions have opened up with customers from the ‘near freeze’ situation almost a quarter ago. Also the deals are closed much faster than before now,” says Jaivinder Singh Gill, Executive Director – Relational Business, Lenovo India.

ROADBLOCKS

The SMB space is fractional and some sectors have shown growth, but while the Indian economy moves in that direction for the major part, it remains insulated from global cues. The negative global sentiment means that most SMBs are in a wait and watch mode, says Grewal. “The SMB segment has been hit hard by this economic crisis and has faced challenges in accessing funds. It is a wrong perception that it growing better than the enterprises,” agrees Singh at Dell India. SMB business though will continue to grow in the country, since many of them are looking at reducing costs and a lot of technologies can be brought in to help reduce these, he adds.

According to MAIT, SMBs are still in the challenged zone. “We are requesting the government to create easy financing schemes for them as they are conservative in IT spend. Vendors need to map the value chain, study vertical and plug small players into bigger picture. Another way could be the customizing for different scales and peculiar deployments, as vendors cannot push standard packages,” says Mehta at MAIT. Impact of this revival on IT sales will be moderate over the next year or two. “Order booking and profit growth over the past two quarters can be one indicator. SMB is yet to pick up, as SMB growth still lags in the market. Credit availability still stands as an issue for SMBs,” says Nair.

The IT hardware industry in India is in a state of crisis as sales have dropped off significantly in the last 18 months, says Singh at Dell. He adds, “Honestly, we are not seeing any revival in the marketplace as yet, though many enterprises believe that the worst could possibly be behind us. Telecom industry continues to do better than the rest of the industries in these times. There will be a slight slowdown in the IT budgets in the enterprises segment in India but they still have to spend on IT.”

B Shankar, Director, Ashtech Infotech says, “In our opinion the demand is still not the way it should be. The current situation still does not qualify to be called a revival. Having said that, the verticals which continue to invest are education, telecom, BFSI, and media and entertainment; hence we are trying to focus in these segments.”

In contrast, while the SME segment has responded positively during the second quarter of the current fiscal, the large and very large enterprise segments are still waiting for cues of a sustained global economic recovery, says an IDC report.

According to Shankar, “While ‘first-time-buyers’ market and new investments by some SMB customers is getting us business; the large buyers who generally execute a very high repeat and refresh budget, and who invest in new technologies, are not investing as much.” We are yet to experience the true revival of the economy from this perspective, he suggests.

THE EVOLUTION

As revival dawns again and the shadows of the worst economic crisis since the Great Depression move away, the road ahead will demand a change in the way business functions. With the evolution of new technologies, we will have to find ways to inculcate them in the traditional paradigm. Green IT will continue to be important as enterprises and consumers alike, recognize the need for power efficiencies. “A key trend is also moving towards flexible computing that offer customers the flexibility to deploy solutions outside of the traditional computing models,” says Singh at Dell India.

According to Avaya, it is difficult to crystal-gaze the future. “I think enterprise customers will move away from brand-based buying unless necessary, as IT sales will have to focus on measurable business value,” he says. The IT landscape will move from ‘brand-based selling’ to ‘specification- based selling’. The future is for those who balance innovation and discipline in execution.

The emerging segment of mini notebook PCs is enjoying a newfound base among home users, as shipments doubled in Q2 from Q1 sales, according to an IDC India report. Sumanta Mukherjee, Lead PC Analyst, IDC India says, “With more vendors slated to enter this space and with the launch of Microsoft’s Windows 7 OS lined up for October 2009, the India Mini Notebook PC space could see a lot more traction in the forthcoming quarters.” On the overall PC sales numbers, an optimistic Mehta at MAIT says, “There is more hope as we are expecting a 7 percent growth for PC sales in India this fiscal year as compared to the negative 7 percent decline last fiscal. Desktops should grow by 2 percent and laptops by around 25 percent, says Mehta at MAIT.” Parasrampuria though is a bit concerned about the forthcoming period of November to March as it is usually a lean time. “We are keeping our fingers crossed but ensuring our sales pipeline is in tow with partners and enterprises,” he says.
Virtualization and consolidation are the obvious winners, while OCS and unified communications are really in the initial stages and a major spend on these will only happen in the next year. “While these will be the drivers, service providers must start looking at how they can drive business transformation in the segments they are in. The model for a pure play IT sales organization is not viable anymore,” says Grewal of Religare. More customers are asking for server and storage consolidation solutions currently, followed by a lot of interest in UC technologies, says Singh at Dell India. Technologies like contact center, mobile and wireless computing, UC and virtualization are doing well, agrees Nair at Avaya GlobalConnect. “Wimax and 3G will help create more services and act as the gravitational factor for investment in IT. Virtualization and cloud computing are in the experimental stage, which larger enterprises will adopt, later leading to a trickle down effect,” says Mehta at MAIT.

In the post recession period, the ways of business have seen a transformation, and evolution has become the key to survival. Solution providers have been forced by their customers to ensure that ‘more than ever’ gets done by ‘lesser’ resources deployed on IT. “More customers are coming back and questioning RoI of proposed solutions and scrutinizing every line item of the calculations,” says Singh at Dell India. Solution providers now have to take a different approach of proposing a solution, one that not only has a reasonable ‘acquisition cost’ but also offers absolutely great RoI for enterprises to go ahead with the investments, he advises. As Nair at Avaya concludes, a solution provider who moves closer to ‘customer’s customer,’ understands business needs and pain points of customer, and most importantly one who moves faster than the competition, will win the deal in the end.