India's Next Step

First it became a hub for IT services. Now, India stands to become a major force in the software industry, too.

Paul McDougall, Editor At Large, InformationWeek

August 5, 2005

7 Min Read

Having established its reputation in India and Europe as a software provider and services partner to help banks migrate legacy systems to Web-based platforms, Polaris has plans to increase profits. It's "going full force" into the U.S. market, Kaushik says, hiring bankers in the United States to bolster its sales and marketing. "We need people with executive-level knowledge of the industry," he says.

Like other foreign software vendors that saw big opportunities in the United States--SAP among them--Indian companies increasingly want to turn their local successes into a greater U.S. presence. That includes business-process and document-management application vendor Newgen, which says it has a 40% share of the Indian market for software that connects workflows. The company wants to partner with vertical-apps developers in the States to aim its offerings at health care, financial services, and the government. "People take us more seriously now because many of these enterprises have themselves gone to India for services," says Sanjay Kalra, VP for business development.

While he's focused mostly on large companies, Kalra believes the low price of the company's various business-process modules, which cover functions such as invoicing and accounts payable, also could appeal to the small- and midsize-business market. "Even a company with only five or 10 people in accounts payable could break even on our product in a year," he says. "They could get rid of three people." That raises the specter that low-cost automation will join outsourcing as a threat to U.S. jobs--again, thanks to India.

But that may be jumping the gun. While the comfort level with Indian IT expertise has greatly increased, and the cost savings of using lower-priced software is attractive, going up against name-brand players in more established Western markets won't be easy. Newgen offers a lower total cost of ownership, Kalra says, but he concedes that the U.S. market for the software his company sells is mature.

The United States is Final Quadrant's key to growth, Gupta says.Photo by Pablo Bartholomew/Getty Images

And there's a good chance that promising Indian startups will get snapped up by big Western companies anxious to stave off competition. "They're wary of India becoming a disruptive force," Texas Pacific's Paul says. Oracle's decision to buy out Citibank's stake in i-flex is a case in point. I-flex's products include Flexcube banking software, the Revelus business-analysis application, and the Daybreak consumer-lending application. They're used for corporate, consumer, investment, and Internet banking, as well as asset-management and investor services. Oracle plans to align i-flex's product-development, sales, marketing, and service operations with its own.

Another potential stumbling block to India's growing stake in the commercial software industry is the competition for talent. While Indian technical schools are churning out more than a half million programmers per year, that's barely enough to meet the growing demand for workers in indigenous services firms and the foreign multinationals that also are tapping the country's IT workforce. By some estimates, Oracle employs more than 5,000 developers in India, and IBM has unveiled plans to hire about 14,000 programmers there. With all that competition, "it's hard to hold good employees," admits Tim McMullen, VP for products and alliances at Talisma. To compete, Talisman pitches its product focus. "We're not a body shop; we offer a path that we think is more interesting," he says.

Even so, only a small percentage of the talent pool of IT workers in India has experience building or managing software companies. That may be changing, as India's tech economy grows, and many ex-pats return home from the United States to take advantage of India's nearly boundless opportunity for top-gun tech entrepreneurs and MBAs. "It's a reverse diaspora," says Sierra Atlantic's Hebert, a former Oracle CIO.

Though he made the move earlier than some, Anuj Gupta exemplifies the trend. He spent several years in the United States in the telecom industry and in the late 1990s, with the Indian tech market booming, returned home to pursue his entrepreneurial dreams. With a partner, Gupta launched Final Quadrant Solutions Ltd., which offers an "ERP-in-a-box" system for travel agencies and resellers to connect with global distribution services such as Sabre. Customers include a number of midsize European travel agents and brokers, but Final Quadrant, too, has its sights set on the expansive U.S. market. "It's key to our growth," says Gupta, whose company's annual revenue is about $3 million.

Final Quadrant plans to recruit independent software vendors to sell its technology in the United States, and some influential backers could help it develop a foothold. Ronald Rose, CIO at discount travel reseller Inc., is on the company's board of advisers. "It's very smart, very innovative," Rose says. Priceline likely will give Final Quadrant's technology a long look at some point, he says.

But it's more common than not for Indian software entrepreneurs to lack such influential backing and the financing they need. "The VC ecosystem in India needs to develop the way it did in Silicon Valley," Paul says, to provide a nurturing environment for growing companies. Yet Gupta is confident that "the bottlenecks are being resolved," and he may be right. Last month, the Indian School of Business hosted a conference in Hyderabad aimed at connecting U.S. venture-capital firms with Indian software entrepreneurs.

Talisma, which former Microsoft executive VP Pradeep Singh founded in the late 1990s, is backed with funding from Oak Investment Partners. Annual revenue for the company is less than $50 million, but it has big plans for growth. It wants to use some of its VC funding to add capabilities, such as voice over IP, to its CRM software through internal development and acquisitions, McMullen says. And its sights are set on in-country business as much as on the North American market--specifically, on the service providers in India who've taken over operations, including call centers, for major multinationals.

China is another natural market for Indian-made software. Earlier this year, the prime ministers of the two countries met to forge closer ties that could hasten the region's emergence as an IT powerhouse and center of innovation (see "Tech Powerhouse," April 18, p. 20; That was followed last month by ministerial meetings aimed at developing a free-trade accord that would make it easier for Indian software companies to export to China.

The market for software with "Made In India" slapped on the box is just getting started, but there's no telling how far it can go. Backers are thinking big, though. Says Hebert, "It's inevitable that there will one day be an Indian answer to SAP."

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About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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