Posted on 05/24/2003 10:08:37 AM PDT by swarthyguy
IT DOES not have the high-street resonance of a Nike, a Pepsi or a Windows. In its unglamorous but lucrative niche in the bank back office, however, FLEXCUBE is the brand of choice. According to rankings published in March by International Banking Systems, a trade journal, it is in fact the world's best-selling banking-software product. Its owner, i-flex solutions of Bangalore, is one of India's software success stories. Some even argue that it points the way forward for the whole industry: let it emerge from the shadows where Indian techno-coolies beaver away writing code that is sold in an American or European wrapper. The moment has come, runs this argument, for “made in India” software products to enjoy their day in the sun.
The notion has an obvious appeal to an industry that feels under threat on two fronts: from cost-cutting competitors elsewhere, eating away at its margins; and from a perceived protectionist backlash in America and Europe against the outsourcing of IT jobs to India. The seriousness of the bout of nerves afflicting the industry has been in evidence on the stockmarket. After Infosys and Wipro, two of the biggest Indian software firms, announced disappointing results last month—at least relative to some extremely bullish expectations—the entire Mumbai market suffered a nasty attack of the wobbles.
As for the rising tide of protectionism, some commentary in the Indian press saw i-flex itself as a victim, when the boss of its Dutch operation was arrested in London in March for alleged visa irregularities in Holland. This followed the harassment of some Indian IT workers in Malaysia, and the application of tighter visa rules in a number of countries.
This may well be the result both of over-reactions to the September 11th terrorist attacks and of unfortunate coincidence, rather than a global conspiracy against Indian IT professionals. But many agree that IT exports would be more secure if they relied less on outsourcing and were “products”, where the Indian seller owns the intellectual property, not just the brainpower-for-hire. Mixing his metaphors wildly, Rajesh Hukku, the founder and chairman of i-flex, argues that Indian firms otherwise risk being doomed forever to providing “the cheap labour at the bottom of the food chain”.
The success achieved by i-flex, however, may be difficult to replicate. It is thriving in a uniquely large IT market—financial services—partly because of its own unique heritage. It evolved out of Citicorp Overseas Software, a software-development subsidiary of the global financial superpower, which gave it a strong, worldwide launch-pad.
Just as i-flex was set up with capital from Citi, in 1992, its first offering was also a legacy from the parent: “Microbanker”, a “bank in a briefcase”. In 1998 it released FLEXCUBE, a more sophisticated back-office and transaction-processing system, which now has more than 120 customers in over 50 countries. In some, such as Kenya, where four-fifths of banks use it, bank-job advertisements demand familiarity with FLEXCUBE. But its client list also stretches to investment banks and the International Monetary Fund.
Although i-flex is much the biggest Indian “product” company, there are others. Its closest rivals are divisions of the big software-services firms. Infosys, for example, has its own banking product, Finacle. Other Indian firms offer packaged Enterprise Resource Planning and Customer Relationship Management software. But none is in i-flex's league. Some 65% of its sales (of about $100m in the final three quarters of 2002) are in the form of products—Microbanker, FLEXCUBE and Reveleus, a “business-information tool” for financial institutions.
Products, however, make up only a tiny fraction of overall overseas sales of Indian software and IT services. Last year, Nasscom, the Indian industry's lobby group, estimated that India captured just 0.2% of a global market of $180 billion for software products. It expects that to increase, but recognises the obstacles. The product business depends on heavy investment in sales, marketing and branding.
Those are areas where Indian firms have tended to be frugal, often for the simple reason that they have not needed to spend much. That may remain the biggest obstacle to the rapid growth of a products business: the continued potential, despite the current worries, of services exports. With the American economy still in the doldrums, pressures to cut costs and outsource remain intense, and, as yet, the fears of a protectionist backlash seem overblown. Indeed, almost all the big makers of branded software—Microsoft, Oracle, Adobe, SAP, Sun and so on—have a presence in India, employing thousands of Indian IT workers of their own or on contract from Indian IT-services firms. For many Indian firms, a products business would be a tasty addition to their regular diet. But only if it can be enjoyed without eating their clients' lunches.
US companies don't consider this a problem, because they have outsourced their customer support desks, as well as the software development. So when your Indian software product doesn't work, you get "help" desk service handled by people who are clueless about the product. There's no one to complain to - end of problem! Are you going to go out and buy American-made software instead? What American software!
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