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IT: not just about exports

Relevance of the domestic market goes well beyond margins

— FILE PHOTO

CHASING DOLLARS: A scene at a call centre in Chennai.

A FEW years ago at a conference in London, an Indian IT industry legend spoke about his company's intention to focus only on the overseas market as he said the domestic market was not attractive. This mindset of the Indian IT industry has continued to this day and most leading companies ignore the domestic market as reflected in the lower share of the domestic market in their revenue.

A common reason given for this lack of focus on the domestic market is the difference in margins between the domestic and the export markets. But is the relevance of the domestic market only about margins?

Home market crucial

A common feature of globally successful industries such as Japanese consumer electronics, German automobiles, Italian textiles, leather and home appliances, U.S. software products and its entertainment industry and French cuisine & luxury items is that their success was achieved on the back of strong and vibrant domestic markets. Highly demanding domestic consumers coupled with the desire to dominate the home market created intense competition among the local companies forcing them to develop innovation and consumer oriented behaviour as core competencies.

The battle-hardened companies which emerged from the crucible of intense domestic competition found it easier to adapt to global competition.

In spite of achieving global leadership, none of these industries had forsaken its domestic market.

A demanding domestic market can serve as an innovation laboratory for local companies to experiment with new products and business models at a relatively low cost of failure.[ It is not a matter of chance that the mobile phones available in the Japanese local market are at least a generation ahead of the phones exported by the same manufacturers.

While a sophisticated Indian IT market is still some distance away, the heterogeneous market structure has created numerous discontinuities which offer tremendous opportunities for innovation.

How do the citizens of the world's largest democracy receive efficient services from their government? Can an ERP solution be created for small enterprises at a monthly subscription of Rs.500? How does the small retailer get integrated into the supply chains of multiple FMCG companies to enable real-time information flow?

Addressing the unique needs of the domestic market represents not only a large market in India, but also a huge opportunity in the world' emerging markets which account for over two-thirds of the global population.

While the development of the domestic IT market requires collective action from all constituent stakeholders, Indian IT firms can provide the necessary impetus by pro-actively undertaking the following initiatives:

Invest in market development: Unlike the overseas markets, the domestic IT market requires demand stimulation. With market development efforts of individual firms focussed on quick paybacks and overlapping with efforts of other firms, collaborative market development can lead to better resource optimisation and create a force-multiplier effect. Towards this, IT firms should create a fund for industry level market development activities including research on user needs and business challenges, educating users on IT benefits, creating prototypes and frameworks of industry solutions and user skill development.

Collaborate with users: A deep and holistic understanding of local industry needs and IT adoption challenges is critical to develop products and business models which enable easier IT adoption among the users. Investing in creating partnerships with local industry clusters will enable IT firms to develop solutions that address real rather than perceived user needs and achieve economies of scale by addressing a larger consumer base.

Create a local service capacity: Growth in IT adoption in the domestic market will be driven by first time users with high support requirements. Availability of a `low tech-high touch' support is critical to make these users stay committed to using IT. Absence of a national programme of vocational training for IT service skills has resulted in a qualitative and quantitative shortage, especially in the smaller towns and rural areas. In spite of suffering from years of neglect, the ITI (industrial training institutes) infrastructure is well suited to develop these skills on the required scale.

Foster a partner ecosystem: Indian IT firms generally operate with a vertically integrated business model, preferring to do everything in-house. This inhibits local market penetration as the cost of servicing customers located in smaller towns and rural areas becomes unviable for the larger firms. To develop new market segments and provide high quality service to local users, they should invest in creating partner ecosystems and develop domestic market segments in partnership with local firms.

Commercialise domestic technologies: While prices of IT products have fallen recently, they remain high enough to act as a barrier to IT adoption especially when assessed from the TCO perspective. For developing affordable products using technologies suited to the domestic market, IT firms should collaborate with Indian research institutes to commercialise domestic technologies especially in areas such as wireless broadband, multi-media, man-machine interface, long-life batteries, solar powered hand-held devices and multi-lingual software.

Investing in the development of the domestic IT market is not about `giving back to the country' or good corporate branding.

A vibrant domestic market is an important lever for sustaining the competitiveness of the Indian IT firms and transforming India from a global services hub to a global innovation hub.

While many interventions and hard work will be required to achieve this, amajor hurdle will be overcome when Indian IT firms acknowledge the domestic IT market as, more than an outlet for their export surplus.

Rajdeep Sahrawat

Vice-President, NASSCOM
(Views expressed by the author are personal)

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