Time to explore, open up new markets

The wave of consolidation, mergers and acquisitions across Corporate America is opening up new markets for IT companies.

The global economic slowdown started with the US, spread to Europe, and has now become a full-blown pandemic. It’s no longer a crisis restricted to Wall Street; its repercussions now reverberate across Main Street. The effects of this financial services-led slowdown have been exacerbated by faulty regulatory systems across the developed world and the greed of some banking chieftains has not helped. The immediate impact for the Indian IT industry and IT companies is slower decision making, deferred decisions and fewer new projects.

For the Indian IT industry, the slowdown could pare growth rates by around 3-5 per cent. Annual growth could slide from over 20 per cent to around 15 per cent this year. Besides the dip in growth due to the economic slowdown, the IT industry could also be hit by cross-currency rate fluctuations, which could knock another 3 per cent off 2008-09 growth estimates. Companies had already finalised their IT investments this year before the slowdown hit and so the impact could take some time to hit vendors both in India and globally.

We’d be foolhardy to believe that India and the Indian IT sector are de-coupled from the events unfolding in the US and now in Europe. However, I think the Indian economy will be less impacted by these global events, since it gets only 18-20 per cent of its earnings from the export market. While the growth rate could come down from 9 per cent to around 7-7.5 per cent due to the global meltdown, the local market needs to be developed quickly to cushion the impact for India.

There are other lessons to be learnt from the slowdown; one, it is critical to have a strong regulatory framework in place and stringent oversight to manage meltdowns. Then, it is important for companies and consumers to better understand complex financial instruments. It has become clear that laissez faire capitalism no longer works; rather, the present and future is about compassionate capitalism. The growth of the free market must be more inclusive.

Today, many companies have become globally recognised, and have geographically and vertically distributed revenues. To insure themselves, companies need to graduate from being just IT vendors to being trusted business advisors. Companies today rely on North America and, more recently, on Europe for a lion’s share of their revenues. But, they also need to explore Latin America and the potentially lucrative domestic market to insure themselves against future aftershocks.

Despite the shock of the slowdown, I remain a strong votary of the free market. We need to continue to encourage the free market and promote entrepreneurship. We need to focus on new measures to boost productivity and innovation to reignite growth. The US administration was forced to aid the struggling American economy, but I believe that we will see the bottom in the next couple of quarters.

Finally, I believe that there is an opportunity in distress for Indian IT companies. The wave of consolidation, mergers and acquisitions across corporate America is opening up new markets for IT companies, as these firms look to manage their disparate IT requirements.

—As told to Rahul Sachitanand