For years, small Indian software services players have been crying hoarse that Nasscom is interested in only helping the big guns of the software services industry. In recent times Nasscom has taken some steps to solve contentious issues in this space. So, have the problems been ironed out, or are wounds still festering? Srikanth R P & Stanley Glancy find out

Kiran Karnik

We all love stories of underdogs winning battles with the Goliaths of this world. But, at least in the world of business, the truth is that for every underdog like David who triumphed over a Goliath, a hundred or more bite the dust. Never to rise again.

In Indian software that sad picture epitomises the small and medium enterprise (SME) space. The much fancied Goliaths—the likes of Infosys, TCS and Wipro—continue to bag large outsourcing contracts, while the smaller players are left fumbling around for strategies to adopt in a game where size is becoming increasingly important. The flip side is that when a few Big Boys continue to keep bagging contracts, it leaves the Indian software industry more susceptible to a slowdown—because when giants fall, they fall hard.

To understand the dominance of the Big Boys in this industry, take a look at the following statistics: The big five of the Indian software industry (TCS, Wipro, Infosys, Satyam and HCL Technologies) account for a staggering 70 percent of India’s software exports. What’s more, the top 20 companies generate about 85 percent of exports.
While a few SME players could bear the brunt of the US slowdown that still shows no signs of going away, a significant chunk of the SME segment has been wiped out. It’s not that Nasscom doesn’t care—Nasscom president Kiran Karnik is clearly a man on a mission to not just lead India Software Inc to a $87 billion target by 2008, but also wants to ensure that SMEs play a key role in getting us there. With Karnik’s keen interest in using IT as a tool for development, it’s but obvious that he’s doing all he can to ensure Nasscom doesn’t remain a ‘Big Boys’ club alone.

Speaking to the media a couple of days ago, he again pointed out that the future lay with small firms that specialised in technology niches, whether in pure IT or in IT-enabled services. It’s obvious that this is something of a passion for him, and Nasscom has clearly got the ball rolling on initiatives targeted towards SMEs. But the question is, is it enough, and should things be speeded up?

SMEs could aim to start with components as opposed to full-fledged product suites, says Sunil Mehta

Litany of complaints
SMEs still have lots of issues that they say Nasscom needs to iron out. Says Pradeep Erinjery, managing director, Thirdware Solutions, “Nasscom has done a lot towards building the Indian software industry. But now that the industry has attained an image of being a global leader, the time is appropriate for Nasscom to focus on the SME segment. There have been some small but positive movements from Nasscom on this. For instance, recently, Nasscom has been sending a lot of industry reports, which are beneficial to small players like us. This would not happen previously. If the industry needs to grow, it is essential for SME players to contribute to this growth by way of their niche expertise.”

One of the sore points is the case of general trade delegations, which Nasscom undertakes to various countries. Explains Erinjery, “Instead of general trade delegations which are organised by trade bodies like Nasscom to countries like say, Italy, SME players can get a better opportunity if Nasscom organises delegations for niche segments like say, bioinformatics or ERP implementation. In this way, the biggest challenge for SME players, which is marketing their niche expertise, can be addressed.” Many SMEs Express Computer spoke to say that being a part of a large delegation effectively kills their chances of bagging any significant contracts if the Big Boys are also present.

Adds V S Girish, director-marketing, Nucsoft, “While Nasscom is trying hard, it has not been able to represent the complete breadth of the Indian IT industry. There are lots of niche players into various technologies such as Bluetooth, CDMA and mobile applications. But Nasscom is not doing enough to promote smaller, technology-focused companies. Instead of SME players being part of a large delegation, Nasscom should hold specialised events for only SME players where one can be assured of at least 10 one-on-one meetings that stand a better chance of translating into business.” In fact, this has been a common complaint from most SME players—that Nasscom has not set up focused groups for emerging technologies such as Bluetooth, for instance.

Additionally, many players feel that Nasscom should take some steps to inform SME players about the certifications required for quality processes and certifications. Explains Girish, “SMEs, unlike the bigger players, do not have the resources to hire a Big Four consultant like a KPMG or an Ernst & Young. Nor can they go through the lengthy quality process on their own. This is where Nasscom should step in to guide these companies in achieving quality certifications at a cost-effective price.”

What’s worse is that many SMEs are shying away from joining Nasscom due to the perception that SMEs don’t stand to gain much by joining a large organisation such as Nasscom. Explains Akhil Shahani, managing director, Ajax Communications, “Most companies join an industry organisation for three main reasons: networking with peers and potential clients; increasing domain knowledge, and increased chances of getting business routed to them. Our company is currently a member of associations such as CII, TIE and IMC. We are not members of Nasscom because networking is already done through the other associations and they have more events and programmes; the very few Nasscom events, which take place are open to the public on payment of fees. One does not need to be a member of Nasscom for taking part. Besides, most information released by Nasscom is also accessible to non-members (either free through the website or on payment for the booklets). Plus, it is difficult for Nasscom to verify the background of every SME software vendor and hence it is difficult for Nasscom to recommend a particular SME company.” It must be mentioned to Nasscom’s credit that verifying of the capability of a company—has been the most important reason that has been stopping Nasscom from aggressively pushing the SME players.

While it is extremely difficult for Nasscom to verify the credentials of small companies, a ranking system if established can go a long way in addressing this concern. Says Girish, “In the West, they have the Dun & Bradsheet report, which is relied upon by all European and US companies. This report provides a detailed ranking of each company. Companies do business only with those who have been ranked in this report as they are aware of what quality standards to expect. Nasscom can deliver something on these lines.” Erinjery suggests an approach where focused groups could be formed, which can contain companies specialising in niche domains.

Adds Shahani, “If Nasscom wants more interest from SMEs, they should look at setting up smaller and frequent local chapter meetings, setting up a vendor-customer matching service, have delegations of smaller vendors going abroad and foreigners looking for specialised software firms coming here. Additionally, Nasscom should reduce membership fees for SME players.”

If the industry needs to grow, it is essential for SME players to contribute to this growth by way of their niche expertise, says Pradeep erinjery

Nasscom’s moves
To turn this lopsided tale around, Nasscom last year announced a special drive for the SME segment. While Nasscom had done a lot for building the credibility of the Indian software industry, the time had come for Nasscom to go beyond the obvious. The new focus on the SME segment would mean that Nasscom would aggressively push SME players who had a lot of potential, but who lost out either due to lack of funds or due to improper market focus.

To help the SME players carve out a niche identity of their own, Nasscom first made a comprehensive study of the successful SME players in India. There were some clear patterns that Nasscom could identify with most of the successful SME players. One of the most important reasons for success was the focus on geography according to one’s strengths. One other important reason was the company’s ability to differentiate with respect to the competition. Additionally, partnerships and alliances proved to be one of the best bets for SMEs for getting customer access in difficult markets.

Explains Sunil Mehta, vice president-research, Nasscom, “Nasscom feels that identification of a defensible niche is the first step for a small company to differentiate. In terms of verticals, SME players could target emerging or nascent verticals such as transportation, education, utilities and e-governance. In terms of technology, there are several niche technology areas such as embedded systems, GIS and Web services. SME players could also look at playing a big role in the products or components segment. Though a high-risk space, a product play is more suitable for a small player as it is truly scale independent. Companies could aim to start with components as opposed to full fledged product suites.”

This approach is seen in the Israeli software sector where a host of small companies concentrate only on niche technology areas—many of them today are world leaders in their niches, which are also highly lucrative areas. To tout the technology expertise of SME players, Nasscom is also planning to take a proactive stand in sending out newsletters to large organisations abroad about the technology strengths of smaller Indian players. This has resulted in a few small firms bagging orders from giants abroad.

So, while there are issues that are still unresolved, there are definitely some positive signs emerging from the focus on the SME segment. The recent market intelligence service where Nasscom identifies new business areas and technologies and forwards reports to small players has tremendously benefited SME players.

Going forward
Having done a superlative job in establishing India’s image as a country of premier software services players, the stage is set for Nasscom to bring the SME players into the limelight. That’s definitely a challenging task, considering that SMEs have long-standing issues with Nasscom. But the bright side is that the steps taken by Karnik and his team have already yielded positive results, which does indicate a better future. If Nasscom’s efforts yield results, the share of SMEs in the IT sector could well touch 25 percent by the year 2008, as envisaged by the Nasscom-McKinsey report. For India Software Inc’s sake, both Nasscom and the SMEs would be hoping this dream will come true.