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Software update: Healthcare and Transportation - Views on News from Equitymaster

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Software update: Healthcare and Transportation
Aug 20, 2007

In our previous two articles, we mentioned about the BFSI and Telecom, and Manufacturing and Retail segments with respect to their need for technology and the growth prospects of IT companies therein. In this article, we put forward our views on the healthcare and transportation segment. Healthcare
Healthcare outsourcing is a fast growing market for Indian software companies and a great opportunity awaits them (especially for their BPO offerings) as far as this vertical is concerned. While the once booming medical transcription sector is looking down, outsourcing in imaging, disease management and claim processing are the new areas to look into.

The healthcare outsourcing market can be primarily divided into four major segments:

  • Providers (hospitals and physician groups);

  • Payers (healthcare insurance companies, third party administration);

  • Drug manufacturers (clinical research and bulk drug outsourcing); and

  • Pharmacy chains.

As per NASSCOM estimates, the revenue of medical transcription industry in India has dropped from US$ 38 m in FY02 to US$ 26 m in FY06, a decline of 9% per annum. However, a healthcare outsourcing opportunity worth US$ 800 m still awaits the Indian IT/ITES companies. The main reason behind India emerging as a favourable destination for medical outsourcing is the quality of the human resource pool. Indian software companies have the analytical thought process that is required to develop complex applications and manage complex process, which is of utmost importance for the healthcare BPO particularly. Also, they have an edge as they can offer a large number of value added services like diagnostic analysis by highly qualified medical professionals at a much cheaper cost.

Transportation
This is one vertical where the technology spending in coming years is expected to grow the fastest in the coming years. The transportation segment can be broadly divided into three sub-segments, namely:

  • Air services;

  • Freight, Logistics and Rail; and

  • Travel and Hospitality.

Companies in the transportation industry are now facing a more competitive, dynamic and demanding marketplace. Clients demand more choices and better service. To survive and succeed in this challenging environment, transportation companies must transform themselves into more active and approachable companies.

IT spending in the transportation segment will be driven by two issues that the transportation companies now face.

  • As legacy systems age, they become more complex and expensive for the company to maintain. It also requires constant attention that often leads to inflexible and very complex infrastructures. Companies face greater risk, as older systems grow increasingly inflexible and IT professionals skilled in the legacy system age and leave the active work force.

  • Older platforms and languages are increasingly more expensive and time-consuming to maintain and develop. Obsolete applications and methods contribute to slower market reaction times, and that wasted time leads to lost opportunity and lower profits. When applications are separated into functions, companies cannot gain a true end-to-end view of their customers or connect their processes in a seamless transportation environment.

Both the verticals mentioned above are fairly in their nascent stage in India and companies are increasingly trying to focus on the same, as the future demand is expected to be large. As of now, these two verticals contribute a little over 5% for Tier 1 IT companies with the exception of Satyam, which generates more than 12% of its revenues from these two verticals.

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