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E-comm: Can it shield Indian companies? - Views on News from Equitymaster
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  • Feb 21, 2001

    E-comm: Can it shield Indian companies?

    This time when HLL surprised the markets with better than expected results the markets rejoiced. According the company, supply chain management had played an important role in the improvement of the company’s performance by helping it cut costs. HLL is expecting a vast savings in inventory costs with the use of IT enabled supply chain management.Did not the whole software story begin with this?

    The whole software frenzy began with one a single objective in the mind of corporations to improve organizational efficiencies. It started with an inward focus. Companies automated all their systems with enterprise wide softwares like Enterprise Resource Planning systems (ERP). This improved margins but it did not stop there. Then the focus then shifted to cutting costs externally. This meant using information technology to create an efficient logistics and supply chain mechanism. And the race to get e-enabled began.

      Dec-00 Sep-00
    Infosys 28% 31%
    Wipro 16% 15%
    Satyam 31% 27%
    HCL Tech 51% 46%

    All the major software companies derive a huge chunk of their revenues from e-commerce. These companies provide solutions right from consulting to technology selection to solutions to implementation. With organisations yet to be e-enabled there is a lot to be done out there.

    So how do organisations behave in the wake of an economic slow down. The companies would look to cut cost to maintain their operating margins. This would mean increase in efficiency of operations. And supply chain management could be the answer the companies would be looking for. Therefore, there might be a possibility that the companies might ramp up spending in this area.

    Break up of IT spend in the US
      1990 2000
    Hardware 50.3% 42.9%
    Personnel 37.1% 28.2%
    Outsourcing 5.3% 8.4%
    Software 7.3% 20.5%

    Instinctively the companies would cut expenditure in areas that constitute a chunk of the expenditure. The other important consideration while cutting down the expenditure would be the criticality and impact of the spending. If possible get things done at a cheaper price.

    Indian companies are seeing customers pushing a lot of work offshore to avail cheaper billing rates. Market research suggests that the Internet-specific investments by U.S. corporate will rise to nearly 26% of their total IT spending in 2004, up from just 15% in 2000. The total spending on Internet technologies and services was US$ 49 bn in 2000. If the tech-spend across the industry grows by just 8% in FY02 and the spending on Internet technologies increases to about 18%, the figure jumps to US$ 63 bn. Considering the fact that software exports to the US for FY01 from India are expected to be around US 1.8 bn there is a huge market for the taking.

    If companies need to worry about something it is the fact that US companies have become a lot more cost conscious. Wild billing rates are just not entertained anymore. Also, with dot-coms fast disappearing software companies will be looking for business from more corporate clients who would look at more realistic billing rates. The fact remains that improved efficiencies is what companies are looking for and they will buy provided the price is right.



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