Is it troubled times ahead for tech?

BANGALORE, INDIA: It seems to be a very shaky state of affairs for the global economy and technology in the high-tech industry. What worried economists six months ago, is having them in an outright panic with "economic rescue" plan that may be on the brink of a depression. 

A depression? That may be pushing it. But if you believe this has little to do with the tech industry, think again. That mess on Wall Street means it's hard to get credit--whether if you're a giant company looking to make capital expenditures like new server station, or a start-up looking to buy office furniture or put money down for rent. Wall Street has always been a cutting-edge technology buyer, and that spigot is all but shut off for now. Enterprises are announcing plans to trim or freeze spending, and private customers probably aren't far behind.

On top of that, venture capital spending is on shaky ground, mergers and acquisitions in tech are down, and successful initial public offerings on the stock market are as unlikely as they have been at any point since the dot-com bust. What more, after witnessing a steady increase in billing rates for the last few years, Indian IT service providers could face pressure on the pricing front as demand slows down amidst worsening financial crisis in the US, the largest service market.

Already, we're starting to see signs of growing problems. Rumors are spreading of growing layoffs in Silicon Valley that is already having a global affect, and since the third quarter just ended, it's a good bet that surprising earnings shortfalls could be the big news in the coming days.

Nonetheless, while many may fear a replay of the dot-com bust, what could happen to the tech industry over the next year will be different for a combination of reasons: This isn't a self-made disaster, there's not as much public money on the table, and the rate of spending for Web 2.0 companies has been relatively modest when compared to the wild gold rush days of the late 1990s.

Some analysts feel that the US financial crisis will impact in India after December. IT Secretary Ashok Kumar Manoli said that about 35 per cent of revenue of major IT industries comes from Banking Service Finance Institutions world over, with banks in the US having a major share. "It is too early to say about the impact of the crisis on this.”

CII Karnataka Chairman S Vishwanathan who is also the MD of John Fowler India said global uncertain economic conditions was bound to affect the domestic IT companies.

The sunshine industry of Indian economy the BPO firms will be hit by the current global economic turmoil over the next few months and now Nasscom have confirmed this fear as well. However the body is quick to turn this crisis into an advantage for the sector in the longer term.

The BPO-KPO sector in India is facing the heat of the US slowdown, particularly following recent events in the financial markets. Businesses of a host of small and mid-sized firms have taken a further hit in the industry since a major chunk of business comes from banking and financial services firms in the US.

According to a report released by Nasscom, the BPO and KPO industry together generated Rs 1,160 crore revenue and provided employment to 7 lakh people in 2007-08. The share of the US in the Indian BPO-KPO export market was 61 percent, making it the largest contributor to exports in the segment in 2007.

Read on… to explore what CIOs from top-notch companies have to say on the impact of the recession and its effects on their enterprises.

Satish Kotian, Head - IT at Dewan Housing Finance Corporation Ltd reacting to the present global financial situation says, "I do agree that with the global recession the first hit of cost cutting will on IT in any organization."

He says when we discuss about the cost we have to understand the component of the same like recurring cost and new investment. If case of recurring cost we have very less option, best thing we can to hard negotiation with service provider.

In case new investment I do agree that there will be rationalization, there will be revisit the existing policies. e.g. if existing policy is of replacement of Desktop / Lap top in 3 years this will pushed to next year or wait till get clarity on environment. In this environment upgrade market will open-up.

On the other side under recession / cost cutting we can push lot of hidden agenda, like deployment of open source application (Open office, Symphony etc).

"In my view if you able to convince the management that this is right time for investment on IT. In recession market bargaining power is tilted towards the buyer. It also time for getting buy in for lot of automation where organization can cut cost in the long run," says Kotian.

In our organization we will undertake following activities.

* Up gradation of system instead of new purchase wherever it is possible

* Deployment of open source e.g. open office, Symphony etc.

* Hard negotiation on recurring cost.

* We may not invest on new application development, but we have to invest on the support module to existing application software.

* Invest in applications for monitoring / Management infrastructure.

Ajay K. Dhir, CIO of Jindal Stainless Ltd in his comments on the US recession and its impact on his enetrprise says that the recession in the Industry is not a new phenomenon, and we have been seeing cyclical ups and downs in the last 26 years that I have worked in India and abroad. The reasons for recession may vary, and for an organization to ride through the troughs successfully, it needs intrinsic strength, embedded processes, fiscal prudence, long term vision and great leadership.

In our case, we as an organization, especially my function, we have processes in place for our budgets and spend monitoring. The IT budget (capex as well as opex) is planned for a three year window, keeping in view strategic as well as tactical objectives of the organization and aligning the IT vision with the same. The budget is discussed with our corporate management team and then presented to VC&MD for approval. Once the approvals are in place, the revenue allocation is done accordingly and the spend monitored. The IT budget is linked to EBIDTA and not just company turnover, hence it is more realistic and performance driven. If any correction has to be done due to market or industry dynamics, then it is aligned accordingly and spend rolled over to the next period. This way, we are able to keep our projects going as well, by keeping our ‘ear to the ground’ and eyes open.

Vinay Hinge, GM IT of Raymond Limited in his reaction says like our peers in Industry, we are experiencing constraints on spends and to conserve the cash as much as possible. Some of the initiatives we have taken are:

* Transforming Software Asset purchases in to “Rental” models: For example, we have recently converted one of our BI project (Product licenses +Implementation Consultancy) into a pure service model. We would be paying the vendors monthly rent for deploying his tools and expert consulting.

* In-sourcing  of services: Some of the business critical services, which were hitherto outsourced, are now being in-sourced with transferring people from partner to our payroll.

* Deferring of Projects: We are now doing more frequent reviews of our project portfolio and are delaying those projects which are not critical. At the same time, we are re-negotiating the critical projects with vendors for better terms and early delivery dates.

R.D. Malav, VP IT at Jindal Poly Films Ltd. says thet Jindal films has a major export share, and due global recession we are having big challenge to keep our top line and bottom line growth intact, which is very unlikely and change in growth rate is definitely impacting our IT Budget. We have already postponed new Capex for the year. and cutting on recurring expenses also. "Overall IT suffers, if business suffers," Malav reacts.

Ravishankar S, CIO of ING Vyasa Life insurance says that the market conditions, the rapid growth in the Life Insurance industry and the entry of several new players into this segment  require us to remain competitive by launching more innovative products and services - and do so speedily. At the same time we are increasing the reach of existing channels and developing new channels and partners. In this scenario, IT investments will remain critical in supporting these business initiatives.

IT spends in ING Life are determined and approved using strong governance structures such as the IT steering committee chaired by our CEO. These spends are based on our IT architecture blueprint and roadmap that is determined and updated periodically. We  seek inputs and guidance from our regional office in Hong Kong while making these investments. Our shareholders would like us to continue with our ambitious growth strategy.

Overall, this is an opportune time for all companies in the industry to review their costs including the discretionary spending so as to rationalize expenses.  However given the continued strong growth coupled with the need to need to enhance our product/service offerings, there is a need for us to continue to invest in beefing up our IT systems and infrastructure.  Hence we do not see any significant impact on the IT spends.

Daya Prakash, Head IT of LG Electronics Ltd says the electronic major is not having any impact as such as of now.

Nagaraj Bhat, Director, Global Information Services- India Delivery Center at Applied Materials says, “we track our global IT spending to around 3 percent of revenue. We have established a Project Portfolio Review Board (PPRB) represented by the Business Unit leaders  that is chartered to make decisions on projects that will be executed by the IT organizations.”

The process starts with Opportunity Assessment and the project would be classified as Enterprise Strategic, Legal/Regulatory/Business Continuity and Discretionary IT Spends. Discretionary Spends are reviewed relative to business conditions. Some of the IT Foundational projects aimed at improving end user productivity, service level enhancements and aligned to the three year architecture strategy and roadmap are given due importance in the prioritization process.

At Applied Materials, we have been making good progress on optimizing our spend in "RUN" and shifting the IT spend to "BUILD" so that we can self-fund some of our foundational projects. For growing regions like India, IT spends are increasing year over year consistent with headcount growth, new market penetration and value engineering activities. Applied Materials outsource majority of its global IT Infrastructure Sustaining Services and ADMS activities to few IT Managed Services providers in India and one of the push has always been to increase offshore/onsite ratio so that we can deliver more for less.