It is that time of the year when all market analysts don a purple robe and
attempt to do some crystal ball gazing. We will do nothing of the kind. Instead,
we will draw back from the happenings of this year and try to understand the top
five trends that would further precipitate into 2009.
Trend #1
More M&As on the anvil
Till Oct 2008, India Inc had finalized overseas mergers and acquisitions
(M&As) worth $26 billion. What made this commendable was the fact that this was
despite the global slowdown and not so buoyant domestic market. Of course most
of these M&As were in the non-IT industries.
In the IT spectrum, biggies like Tata Consultancy Services, Infosys
Technologies, Wipro Technologies and Satyam did venture out to buy smaller
service companies in Europe, Latin America and Asia. But, the ball for most of
these acquisitions had been set rolling well before the recession came to full
bloom. And since the domestic market was sluggish, these giants decided to look
outward for their growth.
Closer home, we heard about Avnet taking over Ontrack Solutions and the
creation of Avnet Partner Solutions-the solutions distribution arm of Avnet
India. While this was a case of an MNC taking over a solution provider, recently
Sunfire Technologies and Concept Information Technologies-two of Pune's leading
solutions providers (SPs)-joined hands to create a new entity-Green IT
Solutions. The reason was to leverage on each other's core competencies and have
better coverage throughout the country under a single brand.
This is why Kiran Kirtane of Concept Information Technologies had commented,
“Both companies have complementary strengths, and that's what prompted us to
merge. Sunfire is strong in virtualization, networking and data center
solutions, and has a strong customer base in ITeS and manufacturing, while
Concept has a proven track record in providing HPC and storage solutions in the
R&D, government and defense segments. The merger gives us comprehensive
technology skill-sets and a broader customer base.”
News of similar tie-ups will be heard in 2009 as SPs increasingly talk about
wanting to tap newer markets and customer verticals but lack the means to do it
independently. Of course, the nomenclature might vary. While most partners would
shy away from terming it as a takeover, the concept of consolidation will find
further roots in the channel community.
What is interesting is that an increasing number of partners are already
talking on these lines and there are several negotiations underway, though few
are willing to talk about it till the dotted line is signed upon.
There is no doubt that M&As are an inorganic way to grow. But this is one
path that needs to be tread with caution. Some of the companies which are
contemplating it are already working out their exit options. It is a little like
the pre-nuptial agreements made popular by the Hollywood stars clearly detailing
that in the event the union fails then how each of the involved parties will be
compensated.
Trend #2
Credit squeeze and more defaults
This one is the most unwelcome trend that is soon going to become evident in
2009. Already, rumors have started circulating in the channel grapevine about
increasing defaults.
There are several reasons why most cases of defaults will surface in 2009.
Most distributors and even SPs have extended flexible credit limits and period
to their customers. This was because in good times these customers were able to
honor their payments. Also, when the recession started taking ground, in a rush
to meet targets distributors had to push their customers to take as much
inventory as possible.
At the same time customers too started overdrawing on their credit limits in
a hope of liquidating inventory and being able to repay their creditors. It soon
became a vicious circle in which everyone was getting mired.
Now customers are finding it difficult to honor their payments on time, the
channel is thereby unable to repay distributors who in turn are finding
themselves in a cash crunch situation. Some distributors have started putting
some of their partners into a credit hold till the situation improves. But this
is more a knee jerk reaction than a solution.
Besides this, several corporate customers have tightened their budgets and
are postponing their IT acquisition plans. This puts more pressure on partners
to sell their stock to be able to keep their working capital going. This is also
why all the pending payments of 2008 will soon be due in 2009 and therefore more
instances of defaults will be evident.
Top 5 |
1. More M&As on the anvil
2. Credit squeeze and increasing defaults 3. Association work will suffer 4. Attrition rates will go down 5. Services will gain focus |
Saket Kapur, CEO of New Delhi-based Green Vision said, “There is no denying
that there is a slowdown in the market. Till recently the IT industry was
witnessing a growth of 40-50 percent. This growth now stands at about 25-30
percent. Since IT outsourcing is the major contributor to the economic growth,
there is an increased dependence on the IT industry. This aside there is
constant pressure from the vendors on the channel partners to make timely
payments. This need for speedy recovery is also leading to defaults in
payments.”
Trend #3
Association work will suffer
Associations were once the cornerstones of a channel community's well-being.
But in recent times, most of the 70 odd associations have remained a community
body on paper alone. Even among a handful of associations which are still
active, one will see decreased initiatives from their end.
This is because at a time of slowdown, the very members who constitute the
association's executive council and even the core member group, will be more
focused on keeping their business growing. They would prefer to focus their
energies on ensuring the growth of their own business houses.
A good case in point here is Chetan Shah of Xpress Computers in Mumbai who
resigned from the executive council of Trade Association of Information
Technology (TAIT) after eight years of serving it. His decision was brought
about by a need to concentrate more on his own business. Shah said, “For a very
long time now, I have felt the need to spend more time in growing my business,
especially in the face of the current slowdown. I am sure there are people in
the executive council of other associations in the country as well who will
mirror my thoughts and understand my decision.” This is why as a parting shot he
advised that all associations should have one independent person who is not
affiliated to any company in the team to manage the back-end operations of the
body. “Such a person will have the requisite time to dedicate to discharging the
duties that an association demands,” added Shah.
Trend #4
Attrition rates will go down
This is probably the only upside to the slowdown in business. For once,
partners can rest easy that the attrition rates will plateau or go down. For a
long time now, SPs were at their wits end trying to retain manpower. In fact
several of them had blatantly stated that it was because of their attrition
rates which were ranging from five to 15 percent that their growth was stunted
during recent times when things were on the upswing.
Now, as the slowdown takes roots job opportunities are limited. Most
employees would rather continue having a well paying job than take chances of
jumping to a new opportunity altoÂgether. Another reason why job opportunities
are harder to come by is because most vendor companies, which used to poach
trained manpower from SPs , are now pruning their own stuff in a bid to stay
more competitive.
Others have put a recruitment freeze policy in place and are making do with
the staff they have on hand. One SP recently said, “I am a very happy man right
now. Where earlier I used to see at least one resignation a day on my table, it
has come down to one a week.”
But there is a downside to this as well. Though people will stay on board, it
is quite difficult to motivate them to do their best, especially in sales
organizations where the sales people have to get business from customers who are
not very keen on investing in IT infrastructure. Navnita Nair, Manager-HR,
NewWave Computing said, “In a recession, the challenge is not to retain
employees but to motivate them to perform their 200 percent to achieve results.
Being in a sales focused organization, the easiest thing for an employee to do
is to shrug his shoulders and say 'recession-no business'. The question here
is-what makes an excellent organization different from the others? Why do some
organizations withstand pressure, while others crumble? This is the time when
employees and employers have to understand that they need to think differently.”
Truly a time of introspection is coming!
Trend #5
Services will gain focus
Services, which were on the fringe of an SP's business area, will soon gain
more focus. At the time of slowdown the plain vanilla solutions will not find a
lot of favor with customers. What will set an SP apart is his ability to offer
solutions that are complex in nature, but offer good results, with minimal
management and better cost efficiencies.
This is also the time when companies that had invested in improving their
service skill-sets over the years will start seeing it paying back. Bengaluru-based
Future Businesstech had set up a full-fledged service center with direct
connectivity. Of its 150 employees, 100 are in the service department, which is
divided in after-sales service team and the pre-sale and deployment team.
Last year, New Delhi-based PC Solutions invested close to Rs 70 lakh in
upskilling it service team on advanced unified communication and other
skill-sets. And it boasts of a service to non-service team ratio of 82:18.
TECHNOLOGY |
Business efficiency is highly tied up in technology these days. So though companies are cutting a lot of corners to keep themselves profitable, they are still willing to stretch their dollar to invest in technologies that they feel will offer them better operational capabilities with minimal operational problems and enhance their overall competitiveness.
There are several technologies out there Green IT: This will be the most prominent Security: As online data increases and Data storage and management solutions: Data Cloud computing: The jury is still out on Unified communications: It was to be the Team DQC |
There are others who are now catching onto the trend and are investing in
beefing up their service capabilities. One of them is Bengaluru-based Binary
Systems which will soon have a remote management facility to support the gateway
solutions it provides.
In services itself, managed services will be the front runner. As corporates
try to put their business in order they want someone who will take the onus of
their entire IT setup with an airtight service level agreement. Most SPs are
already offering piecemeal solutions around this. But in 2009, a lot more will
join their ranks.
An interesting trend that will also come to the fore is distribution
companies offering solutions than products. These companies are clubbed under
the aegis of value-added distribution houses, a much-abused term that till
recently had no clear definition.
So earlier this year, we heard of South Africa-based Datatec Group picking up
a 50.01 percent stake in Bengaluru-based Inflow Technologies. Later Sunil Pillai
started iValue InfoSolutions, following funding from Singapore-based EGuardian,
an IT security products distribution vendor.
Close to its heels came the announcement of Ahmedabad-based Virtual NetComm,
once a distributor of brands like BlueCoat, joining hands with Singapore-based
MTech to launch a joint venture. Yet another company, started by ex-Ingram Micro
personnel, is waiting in the wings to take off as well.
Needless to say, services will be the big news of next year and those
partners who are focused on it will find themselves on safe shores when the
business is turbulent. And turbulent times they will be. So if you want to stay
afloat, start looking the services way.
Vinita Bhatia
vinitavs@cybermedia.co.in