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IT enabled services: Branding is the key. - Views on News from Equitymaster
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  • Mar 16, 2001

    IT enabled services: Branding is the key.

    IT enabled services is anticipated to be the next "big" thing in the Indian IT industry according to NASSCOM. This sector will grow at a CAGR of 47% to the size of US $ 19 bn (Rs 855 bn) by 2008. Currently the size of the sector (FY00) is a small US$ 0.5 bn (Rs 24 bn). This translates to the fact that the sector will have a 21% share of the IT industry in 2008. Another very interesting projection is that the CAGR of 47% is greater than the 39% growth for the whole IT industry. The question is - Are the growth rates possible? If not what could be the possible causes that they might not be achieved?

    Let us take a case study to understand what could be the possible deterrents. The medical transcription business was the rage until sometime ago. But then all of a sudden everybody stopped talking about it. The hype was gone. What happened?

    When business started to flow from abroad everyone jumped into the medical transcription business. These players were inexperienced. The human resource was not qualified enough to meet the business needs as a result the quality suffered. With business evaporating this in turn put pressure on the realisation of the companies and the companies found profit suffering. As a result the growth of the industry suffered.

      Mid 1999 End 2000 Change
    Medical transcription centres 1400 70 -95%
    Medical transcription training institutes 200 40 -80%

    Source: Itspace.com

    The whole premise for the rapid growth of the IT enabled services industry in India is

    • Availability of cheap manpower
    • And the knowledge of english

    What about domain expertise? One point that emerges very clearly from happenings in the medical transcription business is that domain expertise is critical for success. Therefore, if there is to be an IT services revolution there should be enough domain expertise to deliver quality?

    The entry barrier into the sector is low. This means that the competition is going to be intense and the margins will be under pressure. Therefore, with low margins it might turn into a volumes game. Size would be critical. The question is with the tech melt down much of capital can the companies raise?

    Further, we have neighbors that can beat us in cheap labour any day. Where they lack is the knowledge of the English language. Though domain expertise is going to be an equally strong entry barrier the access to capital might be much easier for the industry there.

    Coming to the positives for the IT enabled services sector the cost of bandwidth will certainly reduce in the future and availability of human resource will improve too. These factors that would stimulate the growth of the IT services industry in the country.

    Lessons in history should have taught us that the west does not compromise with quality. Cheap labour cannot be a USP (Unique selling point) for India Inc. It has to be quality work at competitive (read cheap) rates. Therefore, there has to be a conscious effort on part of the players in the sector to offer high quality services. This certainly did not happen in the medical transcription industry. The days of easy money are over, if anything is to make money it will be quality work.



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