The small and medium enterprises (SMEs) in the Indian IT space are confident of achieving 65 percent growth in the next two years, surpassing 43 percent growth rate posted for the last two years, indicates a study from Dun & Bradstreet (D&B). The study titled 'Emerging IT SMEs of India 2007', provides insights into 244 IT companies involved in providing software and hardware products and services. All the companies profiled were in the below-Rs 100 million-turnover bracket during the previous fiscal year.

The study notes that close to 53 percent of companies faced moderate problems in acquiring funding and 43 percent felt the proposed withdrawal of tax sops for the IT, ITeS and the BPO industry by 2009, will be significant in terms of deciding future industry growth.

Of the 437 locations, from which these 244 companies operate, Bangalore and Mumbai emerged as the top locations for operations. 18 percent and 17.6 percent of the profiled companies were operating from these two cities, respectively.

The overseas presence of 28 percent of the sample audience encapsulated the changing trend in the SMEs' perspective, which are now willing to cross borders to pursue growth. Companies with Rs 10-50 million turnover accounted for almost 50 percent of the profiled companies.

Solution providing is pertinent

The key findings of the study indicate that 33 percent of companies offered IT services as well as software products. Custom application development and IT consulting are the two software services. 36 percent of the companies are looking at tier-2 cities such as Nagpur, Surat, Guwhati and Chandigarh to develop centers; IT SMEs derive bulk of their revenues from the domestic market and only 35 percent of the companies are involved in exports. Exports are mainly to the APAC region; thus IT SMEs are fairly insulated from the rupee appreciation while
wage inflation, high attrition and withdrawal of tax sops remain topmost concerns for IT SMEs.

At an event to mark the launch of the book, 'Emerging IT SMEs of India 2007' in Bangalore recently, Kaushal Sampat, COO of D&B India said, "Despite the strong growth prospects, the IT SME sector is witnessing several challenges such as the acute shortage of skilled manpower, which is mostly faced by IT SMEs located in tier-2 and 3 cities."

Participating in a panel discussion on 'Emerging opportunities for IT SMEs in India,' at the event, experts from various industry verticals said that IT SMEs in India continue to grow faster than the industry as a whole, but still do not get their due.

The panelists at the event included Seshadri Shankar V, Strategy and Business Develop­ment, IBM; S Narayanaswamy, Deputy GM-SME, State Bank of India; Alok Bharadwaj, VP, Canon India; Suresh Elangovan, Founder, CEO and MD, Mindlogicx Infotech; Ravi Pradhan, Director-International Marketing and Sales, Trimax Computers. Supriya Shrinate of NDTV Profit moderated the panel.

Sharing his thoughts, Bharadwaj said, "IT SMEs in India are growing at a rate of about 30 percent YoY. This indicates that there is huge growth opportunity in the market and IT adoption is rapid within the SME space."

The government seems to be the biggest adopter of technology and has been one of the key drivers for the growth of IT SMEs in India in the last fiscal. However, the lack of visibility still remains a key issue of concern for most IT SMEs in the country felt Bharadwaj, who added that building values would help change that dynamic.

"IT SMEs have affordable as well as accessible technologies, applications as well as processes. The need of the hour is for them to use all of that to their benefit. IT SMEs must adopt to open standards so everyone can access them and also develop the ability to innovate because innovation is the key to growth," he added.

Agreeing with him was Pradhan who said that the next five to 10 years would see a rapid growth in the IT SME sector across all market verticals. "With India poised to become a knowledge super power, the focus would be on the domestic market and companies need to deliver technologies to more customers who cannot access it as of now. Knowledge delivery will be the key for growth of the IT SME, especially in the B and C-class cities of India," he added.

Emergence of new companies

Participating in the discussion, PN Venkateswaran, MD, Aliment Software Technologies said that new companies would merge in the India market in the coming years. "While the opportunities for IT SMEs to grow into large enterprises is huge, the challenges that they are likely to face are as many too," he said.

Talking about the various cause of concerns for the IT SMEs in India, the participating panelists felt that attrition, need for taxation based on company turnover as well as wage inflation were the key areas of concern that needed early solutions.

According to Narayanaswamy, funding was another cause of concern for IT SMEs in India. The best way to overcome that challenge was to take the aid of venture capitalist (VC) as well as private equity, he felt. "VCs and private equity not only provide the much needed capital to the SME but also a good client base as well as manage­ment bandwidth, corporate governance and the much needed professional guidance for an SME to grow," he added.

"Collaborating with bigger companies as well as with their employees and channel partners are another good option for IT SMEs to grow," felt Shankar. "While most SMEs are happy to collaborate, they probably would not know whom or how to approach in the larger companies," he observed.

"In fact, collaboration not only helps the SME but the large enterprise as well, since the large company stands to benefit from the availability of trained manpower, which is very crucial in this age of rapid attrition," he said.

Talking about attrition, Elangovan said, "Better salary is just not enough to cope up with attrition. The need of the hour is for the employer to create an ambience that encourages an excitement to work." He also felt that against the backdrop of unavailability of employable people, the industry must work together with the academia to provide people with the much required skill sets for employment.