India Trends - BUSINESS
Desi vendors rule accounting packages space

If there’s one segment where Indian vendors have made a mark in the software space, it’s in the financial accounting package segment. Srikanth RP & Stanley Glancy take a close look at this important market niche, and analyse the business and technical trends as well as issues faced by Indian FA vendors

It is that time of the year again. As the fiscal year draws to a close, corporates and even salaried individuals are running around frantically looking out for investment options which will help them save a significant part of their hard-earned revenues or incomes from the taxman’s net. Though chartered accountants are in heavy demand during these ‘taxing’ times, IT has ensured that even individuals can calculate taxes on their own. And as nearly every organisation needs a financial software package to calculate and manage their accounts, the demand for financial accounting (FA) packages picks up during this period. This demand has ensured that there are more than 300 accounting packages floating around in the country, all claiming to make accounting simpler. But in this maze of confusion, some brands clearly outshine the rest. Names like Tally, EX, Wings, Trio and FACT have emerged as clear winners, capturing between them almost 90 percent of market share.

And if you notice, these are all domestic brands. Even though the bulk of product revenues in the domestic software market is accounted for by imported products, in the accounting space it is a completely desi run. None of the international brands like Microsoft Money and Quicken, which have a major presence worldwide have made a dent in the Indian market. The reason for this is simple none of the international brands have customised their software to Indian conditions. Ever-changing tax laws and investment regulations have ensured the success of the local brands, which know the market like the back of their hands. Agrees Sumit Dey, enterprise-WRO, Vedika Software (developers of FACT), “The main reason why Indian companies have been so successful in the FA space is because they understand India’s complicated accounting conditions very well.”

Down memory lane

DEY of FACT says Indian vendors’ understanding of the domestic FA space has guaranteed their success

The FA package revolution started in the late 80s when India’s software market was in its infancy. Duties being high, the demand for PCs was low. And hence purchasing software packages was just out of the question. Though some financial accounting packages were available in the market, the clear verdict was in favour of customised accounting packages, which were developed by the user companies themselves. As the basic accounting principles and rules were the same in every user company, software companies sensed the huge potential in this segment and flooded the market with a host of products. This stage saw a deluge of players, with almost every software company developing an accounting package. But only a handful have made it to the top, and the rest are struggling. And for this handful, in the current sluggish market conditions, when product companies are struggling to generate revenues, accounting packages represent a stable revenue stream. Apart from say a Microsoft Word, FA packages are probably the only software packages which can be seen in almost every office across India, however small or large. Today, the Indian FA software market is estimated to be worth Rs 150 crore, growing at a CAGR of 28 percent.

Business trends

GANATRA of Trio believes that today the choice of a FA package is no longer restricted only to the accounts department

Adds Paresh Ganatra, executive, business development, Trio Computer, “Just as the PC was accepted as a part of office automation, financial accounting packages have become the accepted norm in maintaining accounts. A decade ago, the choice of an accounting system was left to the accounts department. But today it is the joint decision of a group of IT professionals, chartered accountants and heads of the various departments in a company. In short, a wider view and choice is available to the people involved with the system.”

But like any other industry, even this segment is witnessing considerable business consolidation. The 300-odd accounting packages are in danger of being wiped out, leaving only a handful to slug it out among themselves. Explains Ajay Gandhi, director, Wings Infonet, “The total number of vendors offering accounting software has shrunk, leaving only a handful of vendors who have a national presence. This trend will continue as user expectations on quality of software and support have tightened. Users have, with experience, become wary of street corner developers offering customised solutions. At the same time, we see vendors offering more robust, state-of-the-art features and functionality slowly moving towards enterprise solutions.”

Gimme more

The demands of the industry too have grown beyond basic accounting. For example, a customer is no longer satisfied with an FA package, which just does basic accounting. Explains Pramod Bhargava, country head, EX-business, TCS, “Financial accounting packages are moving towards total financial management. You find several financial applications now catering to more complex industry requirements like TDS, excise invoicing, payroll, cheque printing, inventory management and point of sales.”

GUPTA of Busy Infotech says FA packages are now expected to cover many more functions than merely accounting

Currently, besides the ability to do comprehensive financial accounting, an FA package is also expected to handle the following functions: multi-locational inventory management, sales tax and manufacturing excise registers, sales and purchase order processing, brokerage and royalty calculations, interest calculations and depreciation, bank reconciliation, cost centre wise analysis and production planning. Besides these functions, an Indian FA package has to be highly customisable too. Adds Dinesh Kumar Gupta, managing director, Busy Infotech, “The days are gone when organisations used to be happy with just ‘Books of Accounts’ and ‘Final Results.’ Today, besides routine accounting requirements, a financial accounting software is expected to handle complete supply chain management and organisation specific MIS.”

New markets

As FA packages move on to handle a multitude of functions, packages offering only basic accounting functions are on their way out. And almost all players in the market are going aggressively after the SMEs who contribute a huge chunk of total IT spend in India. Adds Sumeet Chowdhary, marketing manager, Navision India, “While larger companies use finance modules of standard ERP products, a majority of users in the SME sector still use standalone packages that are homegrown, or low-end products with limited functionality and reporting capability. One trend we see in this sector is that they are looking at solutions that can integrate with the inventory, purchase and sales departments. We feel that companies that have been using standalone financial accounting systems will now migrate to the integrated solutions as they are realising the shortcomings of standalone products.”

While enterprise players like Navision are looking at the SME sector, players like Tally, who have already seen huge success in the SME segment are now going all out for targeting the enterprise segment. The company is betting big on its latest product, Tally ees 6.3, which the company claims is a breakthrough in enterprise systems. Explains Bharat Goenka, managing director, Tally Solutions, “Tally ees 6.3 extends a company’s capability to integrate and manage information across different software applications, across branch offices, with managers on the move, and also with business partners like customers and suppliers.”

Another interesting trend is that the advent of ERP solutions has made the FA market more mature and has in fact grown the SME segment. Explains Bhargava, “A direct benefit that most accounting software vendors have derived is that SME segment customers are looking at low-cost alternatives to ERP solutions. In terms of requirements these customers would like to get as close to an ERP solution in terms of automating their important processes. Through the add-on modules that EX has to offer, we have succeeded in offering solutions to our customers that gives them the immense benefits of automating their processes. 90 percent of EX multi-users sold in the SME segment are integrated with add-on modules. The strong development partner programme has also helped in linking EX with ERP applications and other legacy applications that the customer may have.”

Integration

As accounting packages have information which needs to be linked with different solutions like ERP and SCM, integration is a key issue. Almost all the FA packages have the option of exporting all reports to either ASCII or MS Excel format. Also, keeping in line with industry trends, major FA packages have started providing the option of allowing all data raw or processed to be exported in the XML format, which has become an industry standard for exchange of data across different applications and platforms. Tally, for instance, offers protocol support for HTTP, FTP, SMTP, ODBC, and data interchange formats like XML and SOAP, besides PKI enablement for electronic signatures.

Recognising the ever-growing need for add-on modules, some players like EX have created an OLE (Object Linking and Embedding) layer on all their applications. Says Bhargava, “This layer contains validation rules for financial data to be updated in the EX database besides allowing for seamless integration with the add-on modules. The benefit that the customer derives from this is that the database is updated only after validation by the OLE layer, thereby maintaining the integrity of the database.”

EX has also tied up with key partners for developing add-on modules like TDS, payroll and cheque printing. EX is also using ADEX, an analysis tool which is a part of a larger tool called MasterCraft (developed by TCS) to capture business processes. Apart from this, the development team for EX is using the COM model to build applications, which allows EX to create each business process as a separate component and package these components into an integrated application.

Issues and Challenges

Besides combating competitors and the economic slowdown, makers of FA packages in India have to face one more critical threat in the form of piracy. Almost all vendors have been affected by piracy. Explains Bhargava, “Piracy remains the single largest threat. If the piracy in the overall packaged software market is estimated at 60 percent, in the accounting software market it is as high as 80 percent. One of the strategies we have adopted is to price our offerings competitively. A case in point is the EX Personal Accountant, which retails for just Rs 2,450. This strategy has helped us create a user base of over 60,000 in just two years.” Others like Tally’s Goenka are scathing in their indictment of the government when it comes to its role, or rather the lack of it, in controlling piracy.

Explains Goenka, “Piracy is a huge revenue loss, as we estimate that for every legal copy of Tally sold, there are about 10 to 30 pirated copies sold. When the government talks about making Karnataka a zero-piracy state, they only talk about the software created by multinational software vendors like Microsoft and Oracle, but neglect homegrown companies like Tally. Also, their anti-piracy checks are mainly at the premises of big companies, whereas most piracy happens at the SME and SOHO level. From our side, we do send an intimation threatening legal action if we hear of anyone using a pirated version, but honestly, all this is ineffective without aggressive government support.”

While India’s FA brigade fights a losing battle against piracy, the mood of the FA industry is perhaps best summed up by Gupta of Busy Infotech, “The scarcity of revenue generation is due to easy availability of pirated copies of almost all popular accounting packages. The situation has come to such a pass that the greatest competition today is not from a fellow product vendor but from low priced pirated versions of products.” However, the fact that the FA brigade has survived critical issues like piracy, besides making their own mark in the domestic market shows this industry segment’s resilience in combating obstacles. And when these critical issues are indeed addressed, the sky could be the limit for India’s homegrown brands.