Will SARS infect Indian IT?

As SARS rages through China and parts of South East Asia, the global IT industry is in the midst of another crisis. With South East Asia a vital cog in the global IT supply chain, what does SARS mean for the Indian IT industry, and what can be done to minimise the impact, if any? Gaurav Patra finds out

First the slowdown, then the Gulf War and now the dreaded virus called SARS (Severe Acute Respiratory Syndrome). Can things get any worse for the planet and the global IT industry, reeling from one crisis to another?

IT will be next after tourism and aviation; in some sense, IT has already been affected, in an ancillary way, through the fact that people will be reluctant to travel, says Partha iyengar

The outbreak of SARS has already forced some IT giants to cancel strategic events and launches in Asia. Intel cancelled its Taipei and Beijing Intel Developer Forum conferences slated for April and Sun Microsystems postponed its Shanghai SunNetwork 2003 conference. Motorola has also temporarily closed a factory in Singapore, after one of its workers was diagnosed with SARS.

Singapore’s BroadcastAsia2003 and CommunicAsia2003, slated for June, stand cancelled. Taiwanese computer giant Acer has asked its employees to avoid non-essential visits to plants in China. Compal, a major maker of notebook computers for both Dell and HP, has barred employees from travelling to Hong Kong and China until SARS is under control. And at the moment, that’s a distant possibility, what with SARS raging in China and Hong Kong and spreading to other countries as well.

Closer home, our very own Infosys has said that SARS contributed to worse-than-expected results in the quarter ending March 31. That, and a lower than expected future guidance, saw a bloodbath among IT stocks on Indian bourses. So, is this the beginning of another slowdown in the global IT industry? And more importantly, how will it affect the Indian IT industry?

Says Gartner research vice president Partha Iyengar: “IT will be next after tourism and aviation. In some sense it has already been affected, in an ancillary way, through the fact that people will be reluctant to travel. Currently, it is clients that are postponing travel throughout the region, often because connections require them to transit through an affected area, even though their final destination may be unaffected,” says Partha Iyengar, vice president, research, Gartner.

In the future however, it is likely that IT companies and their employees may simply start refusing to visit affected areas or cities, which will cause another layer of discontinuity in the IT supply chain. P K Gupta, director strategic development, intercontinental operations, Legato Systems cautioned that the SARS scare, if it continues for a longer duration, could cause serious manufacturing disruptions, schedule slippages and transportation delays that could affect the Indian IT industry.

Supply chain
SARS has struck the Asia-Pacific area the hardest, including countries crucial to the electronics/IT supply and manufacturing chain, such as China, Singapore, Malaysia, Taiwan, and South Korea. The Guangdong province in China, where SARS broke out first and which has been hit hard by the dreaded virus, is home to much of China’s electronics and IT hardware industry and the source for most of the world’s AC-to-DC power supplies. A number of Indian hardware players outsource semiconductors, power supplies, and other vital parts like motherboards from all these countries.

As far as India is concerned, while experts say the chances of the supply chain shutting down completely are low, SARS is definitely impacting logistics. The cause is a drop in the number of flights by regional airlines in Asia and the Pacific Rim countries. Most high-value electronics components move via airfreight. But regional air carriers are slashing schedules in an attempt to minimise a general slump in travel throughout the area.

“If flight levels continue to fall, major high-tech airfreight disruptions are likely to occur,” commented Gupta. And most susceptible to logistics disruptions are IT manufacturers who practice ‘just-in-time’ scheduling of parts deliveries. With Indian computer makers and hardware manufacturers dependent on suppliers in the Asia-Pacific region, this is definitely cause for concern.

“So far this has not happened to a large extent, as the key link in the semiconductor chain (Taiwan) remains largely unaffected and it is more or less business as usual there. The semi industry is also less ‘transactional’ and ‘travel intensive’ than project-driven relationships like IT services, which need frequent travel during the life of the relationship. Therefore, so far there has been no strong impact on the semiconductor- / components-driven part of the supply chain,” says Iyengar.

Agrees Vinnie Mehta, executive director of MAIT, “Till date, SARS has had no effect on the domestic IT market. There have been no reports of any factories in South East Asia being closed because of SARS, and neither has there been any drop in production. So, in the short term this is not going to affect the IT supply chain. Many projects can withstand hardware delays for a few weeks. But, if this persists for long time and freight business gets affected, then yes there is a problem.”

Mehta also says that Indian firms can source equipment from European manufacturers. But he cautions that while this possibility exists, it may not be a viable one. On the flip side, though SARS is definitely something you wouldn’t wish for your worst enemies, there might be an unexpected bonus for India, thanks to the virus. “China accounts for 80 percent of the world’s PC manufacturing. I don’t want to be sound cruel, but the point is that if SARS persists for long and the whole of South East Asia gets affected, then people may consider India as an alternate and most logical base for hardware manufacturing,” adds Mehta.

According to Vinnie Mehta, till date, SARS has had no effect on the domestic IT market and in the short-term this is not going to affect the IT supply chain

Software scare?
Although SARS won’t have any impact on the domestic IT market in the short term, it might affect Indian software companies who have an eye on the Asia/Pacific market to some extent. On the offshore services market out of India, the short-term impact will be delays in closing of deals, especially for those who are dependent on travel to India as a final step to closing a deal, or even as an early part of the sales cycle. As those trips get delayed, the sales cycle gets delayed. “However, this concern should wane. As long as India remains more or less SARS-free (the World Health Organisation certified India as SARS-free on May 1), without any major city shutdowns, coupled with education of clients and prospects by the IT services companies that restrictions on travel to China/HK/Singapore do not have to include India, and that are ways to get to India without transiting through these affected countries, then the impact will not be that great,” explains Iyengar. As this process starts to take hold with some time lag, as is the case with every issue of this nature, the travel related impact should start tapering off.

Technology panacea
Whether it’s the economic slowdown, the Iraq war or SARS, companies have to carry on with their day to day business activities. And in a situation like this, it is technology that is going to play a pivotal role in coping with the disruptions. Companies can lower SARS infection risks by encouraging employees to telecommute using VPNs and by substituting remote videoconferencing and collaboration tools for business trips. Recently, IDC Singapore put all presentations on the Web and provided passwords to those who did not participate in its Storage Vision seminar, which was held on April 24.

Besides, it would be only prudent for Indian companies to be prepared for any disruption in their operations due to the flu-like disease’s quarantines, travel restrictions, and possible supply-chain interruptions. “I don’t think any company in India has really made any realistic BCP (Business Continuity Planning) plans for major disruptions, and it is high time we did so. It is one thing to plan for external emergencies/dependencies, but quite another to plan for situations where your employees cannot make it in to work, because of city quarantines, or even home/location quarantine. How they can ensure that the ‘work will get done’ in these situations will be key to avoiding disruption,” says Iyengar.

Although web conferencing and collaboration are considered to be alternatives, these are not complete solutions. Besides, it is realistically possible for employees to work from home in wired-up Singapore, where videoconferencing from home isn’t a pipe dream, but in India, where most homes still depend on unreliable, low-bandwidth dial-up, and where broadband too is a much misused term, it remains to be seen if collaboration through technology is possible if SARS hits hard. Mercifully, we don’t seem to be anywhere close to facing this horrifying scenario.

However, what Indian companies can definitely do is to immediately monitor and segregate their developers coming/going to high-risk areas, or quarantine them for some period. Some experts feel that a process that says that every employee travelling through an affected area will have to be in quarantine for a specified period to ensure they are not affected, before they are allowed to rejoin the workforce, might not be such a bad idea.

In conclusion, if the impact remains as it is today (India is on the periphery of the problem and not directly impacted), there will be a return to business as usual, as clients get more comfortable with the situation and find ways to circumvent the issues in adjacent regions. There will thus not be an enduring impact in that case. However, if in the next six months India becomes a major SARS affected country, there will be a marked impact, both from the lack of confidence of the outside world in India’s ability to contain or manage the crisis (thanks to past bungling, be it of the plague crisis a few years ago, etc), as well as the unpreparedness of most companies with local BCP measures to ensure that business can continue in any situation.

Mercifully, we don’t seem to be anywhere close to facing this horrifying scenario.