IT industry gets caught in Indo-Pak crossfire

Even as the world tears its hair out over a potential nuclear carnage if India and Pakistan go to war, the Indian IT industry is expressing mixed opinions. While the software sector is more confident of riding out the storm, the fledgling IT-enabled services sector is running scared. 

Regarded for a while now as among the most dangerous of potential conflict areas, the conflict between India and Pakistan over the latter’s support to terrorists operating in the Indian state of Jammu & Kashmir has resulted in sabre-rattling by hawks on both sides for years. But the present impasse has definitely turned more serious and even threatens to ignite into a devastating nuclear carnage. While previous wars in 1948, 1965 and 1971 did result in a temporary adverse impact on Indian industry, the new conflict threatens to cause havoc to India’s IT industry, an industry which was non-existent during earlier confrontations.
While escalation of tension always has an impact on industry as a whole, the effect can be devastating for export-oriented businesses as compared to those that cater to domestic clientele. The IT sector in India is particularly vulnerable on this count, considering that its spectacular growth over the last decade has been largely dependent on the international market, rather than a strong and vibrant domestic market. Most industry leaders admit that if the current tough posturing and stand-off between India and Pakistan continues for long, it would indeed begin to affect India Software Inc.

The current border tension could not have come at a worse time for the industry, which touched $7.8 billion in exports this year, and was just showing signs of slowly recovering from the effects of the global slowdown and 9/11. Worse, this situation could be even more devastating for the fast growing $1.4 billion IT-enabled services (ITES) industry, more so because unlike the software sector, clients here are relatively new to India.

While most ITES players admit there has been no business loss yet, they are a bit apprehensive as to what might happen in case of a longer stand-off. Says Abhay Chauhan, director- business development, Transworks, “Though call centres continue to serve their current customers as per existing contracts, backed by well-designed and robust contingency plans, prospects in the pipeline may take a little longer to come to fruition, given the tension in the subcontinent.”

Rajeev Kamath, senior projects manager, Intelenet agrees. “Many US companies who are looking at outsourcing contact centre projects to India are in various stages of making their final decisions on who they want to work with as their vendors in India. The recent tensions will definitely delay, if not have an adverse effect, on their decision process.” Sunil Kakodker, vice president-sales and marketing, Tracmail, is even more forthright. “The situation has definitely had an adverse impact. The two events—first the Gujarat riots and now war fears—have both received global coverage and there has been a slowdown in client visits as a result.”

However, Kakodker admits that notwithstanding the threat of war, the overall interest in offshore outsourcing remains strong and it is still too early to gauge the long term impact of the war-scenario on business. Raju Bhatnagar of E-funds and Siraj Irani of WNS share the sentiment. But what could be a possible dampener to this optimism are the travel advisories issued by the US and UK, with other Western nations following suit, urging their nationals not to visit India in the current situation. Chauhan feels that client visits form an important part of the due diligence process in the signing of new contracts, and as client visits get delayed due to the travel advisories put out by the US and several European countries, so do the signing of new contracts. “US/UK travel advisories asking citizens to consider leaving and defer their travel plans to India, though not unjustified, magnify the impact of the current war rhetoric, and are bad for the economy,” he feels.

Bhatnagar feels that the travel advisories have put Indian companies in a piquant position, as they are neither willing to nor able to insist on personnel travelling to the subcontinent. Kakodker feels that a fair amount of confidence building will be required to overcome the negativity caused by this rather drastic measure taken by the US and the UK. The situation is complicated by the fact that the general level of awareness of geographical locations in this part of the world is not too good in the West. Therefore anything relating to India—whether it is the western border or the southern tip, is clubbed together.

The recall may affect ITES companies who rely on foreign nationals for training and other operating activities too. Irani however feels that this issue has been hyped far out of proportion. “Although some governments have urged their citizens to return, it is only a precautionary move to reduce any anxiety that they may have. Each individual should analyse the situation and base his decisions on that.” In fact, many foreign executives like Glenn Goodall, group director of Australian company Rentworks or Ron Cattell, CEO of Datacraft Asia, have decided to visit their Indian operations, notwithstanding the potential risk of war.

Though most players feel that currently clients from Western countries are only deferring their visits, and adopting a wait-and-watch policy for business, they do not rule out their moving to other territories like Ireland, Philippines or Mexico if the stand-off in India continues for very long.

Nasscom president Kiran Karnik feels that the situation would not be that serious for Indian software companies. This is because 60 percent of business that flows into the Indian software and service industry is repeat business and therefore these customers understand the Indian market and are engaged with Indian vendors for the long term. Added to this is the fact that there is a large base of Indian ambassadors abroad by way of marketing offices of Indian software companies, and a significant base of multinational executives working in India, updating their headquarters on the ground situation regularly. For prospective clients who have not travelled here or are unfamiliar with India, there is little one can do. However, those executives and companies that are already familiar with India are more confident about doing business here despite the prevailing tensions. Unfortunately the ITES industry has more of the former clients, who aren’t very familiar with India, while the software industry has more of the latter.

This confidence is keeping senior software industry executives like Satyen Parikh of Novell India from pressing the panic button too soon. “Though there might be some inertia in the momentum which temporarily caught on, such situations also give us the time to better strategise and carry out focused activities-when business momentum gets going again, we would be well placed.” The business impact if any, resulting from the present tension, might last only for the short term since India enjoys strong global brand equity as a cost-effective and quality outsourcing destination. Also, the industry’s fundamentals are robust with many global corporations already having established a significant presence in India and Indian vendors too bagging large multi-year, fixed price, long-term contracts, which are critical.

However, not everyone in the software industry too is willing to share such unbridled optimism. Says Vivek Dayal of Mphasis, “Heightening tension between India and Pakistan is a cause of concern and if the situation deteriorates it can impact business. IT investment decisions will be put on hold, resulting in longer sales cycles. We sincerely hope the situation settles down quickly enough so that there is no impact on business in the long term.” He also feels that the call centres operating from Delhi and adjoining areas need to closely monitor the situation so that they are not caught unawares. Agrees Mohan Reddy of Hyderabad-based Infotech, “We may see some projects taking longer to complete since certain areas like quality assurance which customers were supervising locally will now be managed remotely by them, which could lead to increased turnaround time.”

But Karnik stresses that the software industry in the past has withstood uncertainties such as the 9/11 attacks in the US or the December 2001 terrorist attack on the Parliament House. It has, as a result, built adequate processes in terms of disaster management and business continuity planning to cope with such situations. Even Parikh concurs that such events also result in getting top management attention on vital issues like disaster recovery and business continuity planning, which otherwise are ignored. In fact, Novell is embarking on a nationwide initiative of creating an awareness of disaster recovery and business continuity planning in the coming months. Adds Dayal, “The need of the hour is to ensure that we put our business continuity plan in place. We need to ensure that in case of an emergency we are in a position to move people and data from one place to another. We also need to instill confidence in our customers, both existing and prospective, that we are equipped to handle any emergency situation and that we have a well defined contingency plan of moving people and data onsite.”

Companies like Infotech are using their overseas subsidiaries in California, London and Stuttgart to give them additional options of data back up and business continuity outside India. This is true of even ITES players like WNS, which operates out of two cities in India. Says Irani, “That gives us a strong fall-back plan in the event of any disaster. Obviously, our focus is primarily our customers’ security and we have our contingency plans to ensure that all goes right. In the event a full-scale war breaks out and both our sites are non-operational, we have already identified a third city in very close proximity to our current sites with the capability of maintaining continuity of our business.” This situation has also accelerated WNS’s desire to move to South India as part of its expansion plans and even consider moving outside India as an option. All ITES players are also urging Nasscom to prepare a joint declaration by Indian CEOs as a comfort zone to their customers, that in any eventuality, they would stand together to offer their locations/support so that the image of India is upheld and customers do not suffer.

This article first appeared in Express Computer.