The India infotech story is not just about biggies like TCS, Infosys and Wipro. For innovation and growth, is it time to look elsewhere?CK Prahlad's prediction of 'the fortune at the bottom of the pyramid' is proving prescient in unexpected ways, as thousands of startups and small businesses ignite the product & process space
By Anand Parthasarathy
Bangalore, October 23 2016: The week gone by, saw the quarterly results season for Indian enterprises. This is usually a time of some confusion, going by the headlines in business dailies. They rarely agree on whether the balance sheets of leading Information Technology companies have been good or bad, a classic case of a glass seen as half full or half empty, depending on your vantage point and sympathies.
But this time around, there was near unanimity -- as the companies left little room for doubt: things were not too good for what the media in clichéd fashion calls Indian infotech's 'bellwether' companies --- in other words, the troika of TCS, Infosys and Wipro. All three high profile players reported a dull quarter. Lay readers who are hard pressed to navigate the financial jargon jungle and tell topline from bottom line, sequential growth from net profits, nevertheless heard it loud and clear: India's IT biggies were NOT happy. Their profits were down to low single digits, in the 3s and 5s and key customers overwhelmingly in the banking and financial sectors were apparently not renewing contracts for next year. The naive might be tempted to ask: you're all still profitable right? Nobody's losing money?
In fact Infosys which scaled back its growth targets, was simultaneously handing out big pay hikes to its top executives, 8 of whom would now take home a total of Rs 44 crores per annum. And Wipro which was said to have disappointed the markets with just 0-2% growth in the last quarter, simultaneously announced it was acquiring a cloud services provider for $ 500 million.
All this was enough to set off much wailing and gnashing of teeth by industry pundits -- at least one of whom ( at Bloomberg) thought it serious enough to start writing obituaries for the India infotech model and announcing the 'death of a tech star'. True, the days when India's top tech companies made obscene amounts of money -- and grew year-on year-at 15 percent or more -- by converting themselves into the world's back office are gone with the wind. And there are multiple reasons for this:
Over the last decade, other nations with similar demographics from Sri Lanka to Philippines, taught themselves the Business Process Outsourcing (BPO) game and competed aggressively dollar for dollar . A tech company owned by Sri Lankan Kris Kanakaratne -- Virtusa -- employs more people in India (in Hyderabad and Chennai) than it employs in Colombo or the US. Filipinos after years of contact with Americans during World War II and later, are better at mimicking an American accent than Indians -- and scooped up a big chunk of the voice -based call centre business.
But it is recent developments in the US and Europe that is at the root of the top Indian tech players' woes: American paranoia about Asians taking away their jobs is a cyclical thing, that happens every time the US holds its presidential election. Both leading parties milk the issue and rouse blue collar workers to righteous rage about 'foreigners' -- read non-white -- snatching their paychecks by bringing their rich talents to the land of hope and glory. This leads to a flurry of legislative proposals to restrict visas to tech workers or make them irrationally and selectively high priced.
This year, there has been an added complication: the somewhat bizarre economic and world view of one of the two presidential candidates has made banks and big biz press the pause button on new spending or renewal of outsourced contracts, till there is some clarity on who will emerge victorious. This particular issue will be resolved, on November 8. But whipped together, these short and long-term uncertainties are responsible in large measure for the temporary woes of our bellwether beauties. By this time next year, it's a safe bet, they'll be back to business as usual, albeit not to the halcyon years just before and after Y2K.
Writing off the Indian model of It services at this point, is a mite premature. Indeed, like Mark Twain's oft-quoted quip after he read his own obituary in an American newspaper, while hiking in Europe, Indian IT might be tempted to say: 'Rumours of my death are an exaggeration.'
However there is a grain of truth in what those readying graves for India infotech are saying. The top Indian tech players ( and one must widen the definition to include HCL, Cognizant and MindTree) with a few notable exceptions have been content to make money, the way it worked well for them -- without investing sufficiently in product and process innovation. The old model, harnesses India's strength, affordable man power, but the shifting goalposts of technology is rapidly rendering this model irrelevant. Countries, not blessed with rich human talent in large numbers, are motivated to find solutions within technologies like Artificial Intelligence and Robotics. They will never render human hands superfluous, just as no number of smart classrooms will ever make the human teacher obsolete. But they will and indeed are already raising question marks about the Indian BPO and services business seeming mantra: if it ain't broke don't fix it.
This very American saying is past its expiry date -- and the Big Three or Big Five Indian tech companies may have to innovate and deploy increasingly automated processes if their attractiveness is not to wear off -- five years from now.
The fixation with the biggies is questionable in an environment where innovation is alive and kicking in tens of thousands of small businesses and startups. The late CK Prahlad's prediction of 'the fortune at the bottom of the pyramid' is proving prescient in unexpected ways, as thousands of micro and small enterprises ignite the product & process space. These small players arguably have a better feel for what innovation the masses in India will embrace. Never a day passes when the media does not report the launch of a service or a device which we embrace with our canny sense of what makes for paisa vasool.
Every mainstream, big budget launch of a useful service is matched by a Lilliputian launch that testifies to the Indian embrace of jugaad or frugal innovation. Reliance Jio and its nationwide disruption of the mobile phone-based data services business makes daily headlines with its teething troubles. It takes a vigilant local paper to report on Syed Khadar, a tea stall owner in Karnataka's Bellari district who invested in an Internet connection and a wireless router in hi shop. If you buy a cup of tea for Rs 5, he gives you a free coupon with a password which brings you 30 minutes of free Internet surfing on your phone. ( 'Chai pe data', Bangalore Mirror, Oct 21 2016).
India is the only major geography where prepaid mobile phone users exceed post paid connections. And these small users in their millions have discovered free communication, using that very Indian tool, the missed call. Some years ago, another chai-wallah in the Chikpet cloth market near Bengaluru City railway station, saw a way to grow his business. He had the mobile numbers of all the cloth merchants in the vicinity on his phone. All a shop owner had to do was send a' missed call' and the tea guy was at their door within minutes with his kettle and paper cups. Today major banks advertise, asking customers to reach value added services through the same missed call.
The Segway battery operated personal transporter was a rage five years ago -- and can be had in India for something over Rs 1 lakh. Last week at the India Gadgetz Expo 2016, I took a ride in a desi clone called the Irrway, zipping along at 15 kmph. It sells for less than Rs 40,000. It may be reverse engineering rather than an invention. The question to ask is: Is it what India needs?
Large numbers of US credit card users still manage with old style swipe cards. When they do get chip cards, they find many Point of Sale terminals are not equipped to scan the newer cards. Contrast this with India, where within the space of one year, an RBI mandated change-over to 2-factor authentication for card payments was achieved by every single bank and card company -- and chip cards are now the norm.
Last month, India leapfrogged into the next era of mobile payments when many banks rolled out cards using Near Field Communication Technology where you could 'wave and pay' using card or mobile phone. Only a handful of nations have moved to this new contactless payment era.
With close to 1.1 billion holders, Aadhaar is now the world's largest digital personal ID archive. The challenge in such techno-rollouts in a massive user base like India is formidable -- but it happen on a bedrock of what one might call appropriate innovation.
No, the tech star that is Indian IT is not dead. It has just shifted a little bit -- from the airconditioned captive R&D units of MNCs to the garage and shack operations of a million earthy, motivated startups.
This article appears today in Asian Age