Software Strength

The notion that it the software and services sector which will drive the growth of the Indian information technology industry is getting stronger day-by-day. Just witness the figures released by the vendors and the whole scenario becomes totally clear. Out of the Top 20 companies as carried in Dataquest's annual issue, only 12 have grown at a rate greater than 40 percent. Out of this seven are software companies, three are in the distribution business and only the balance two can be categorized as pure hardware companies.

More interestingly, the top three IT vendors in the same Top 20 issue were primarily software companies which grew by more than 40 percent. Even greater growth came from some other software vendors including Infosys, Satyam and Pentasoft with the last mentioned growing at an astounding 476 percent. This clearly indicates where the strengths of India as a country lay.

All these vendors get the major chunk of their business from exports which is just booming.

No doubt, the consistent 50 percent plus growth rate in software and services sector has become a regular pattern. Here it may be recalled that there was a fear in some quarters that with the Y2K as an opportunity coming to an end, there could be a question mark on the future growth. Euro conversion was supposed to become another el dorado but that does not seem to have taken off in the real sense. Still, there should not be a major cause to worry as the Indian vendors are scaling up their services from a predominant onsite to more of off-shore which is what was required urgently. Moreover, almost all the major software vendors are focussing on deeper penetration into the user segment in the US market.

Overall, it must be kept in mind that the main reason because of which software companies have scored so heavily in the Top 20 list was chiefly because the hardware industry as a whole didn't do too well which meant that almost all the hardware companies could not record more than an average growth. On the other hand, the software exports sector boomed which resulted in software companies recording excellent growth.

Is there a lesson for the industry? Yes there is. The hardware vendors need to realize that they must have their fingers in software also which can cushion any adverse impact in case of a recession. This doesn't mean that they should exit the hardware business. What they need to do is to look for a middle path.