Looking beyond the obvious:
Now, with clients tightening their purse strings and becoming more fastidious about who to work with, the Indian Software industry could be set up for it's first real shakeout. The Masters of the Universe are realizing that they are mortal after all, and companies that were used to 100 % growth are waking up to the reality of 40 - 50 % growth. Looking beyond the bad news, the US slowdown could actually help the Indian Software industry build risk free business models and rational business processes.
The silver lining in the scenario is that business models of Indian Software companies are changing; business processes are becoming more rational with new markets emerging like Europe and Japan and attrition rates in India dropping. Most software companies opted for off-shore business - work for International clients done out of development centers in India - as this model generated more revenue as compared to the on-site mode. Yet organizations maintained a significant onsite presence as it helped them win more contracts from existing customers as well as find new customers. In 2000 - 2001 WIPRO generated 53% of its revenue from its ODC, Hyderabad based WILCO 70% and Infosys 51%. Due to low operating costs in India with regard to ODCs, Wilco's Managing Director sees quantum of offshore work jump to 70% over the next 18 months.
The slowdown has made the companies realize that "focus does not pay" and it is necessary to offer broad - based services. The choice of the right industry segments (vertical) could still be tough! Market trends now focus on R & D and consulting as the highest profit - margin avenues. Companies continue to look at domains like insurance, financial services, manufacturing and government. However, Telecom remains the highest paying vertical. Companies in this sector are continuously re-inventing to stay ahead of competition.
The simplest way to "de - risk" business is to diversify geographically. At present Europe accounts for 25% of the software industry's revenues and Japan 5% seem to be ideal candidates for geographical diversification.
The present market situation has made companies realize that to keep their bench strength minimal, they may be forced into taking on work like low-end coding and processing that they would otherwise have refused.
Thus, even as companies prune down costs, the software market will keep an eye open for mission critical high end business, the kind that will provide a buffer against the next slowdown!!!