Look East, says Nasscom

Look East, says Nasscom

New Delhi: Ninety percent of their export earnings come from the US and European markets, which explains why India’s IT sector has been hit by the financial crisis and the slowdown in these foreign economies.

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So its not surprising when Som Mittal, president of the industry body National Association of Software and Services Companies (Nasscom), says “I’m sure everybody is sharpening their pencil right now as Indian companies, particularly large ones, have fairly large cash reserves. This is the time to invest and you should see them invest around the world including Japan."

According to a report by Nasscom and PriceWaterHouseCoopers, the $108 billion Japanese IT services market is one that Indian companies should consider investing in. Currently $8.6 billion or 8% of total Japanese market is off-shored, with China having the biggest slice of the pie. India comes in at number two with a 13% share that is around $1.1 billion.

Japan is an island nation with an aging population and its need for skilled manpower will only continue to grow. Given this, it makes sense for India to strongly consider enlarging its share of the slice.

Of course, capturing a larger share will not be that simple. First, challenging China is never easy. Second, the nature of doing business in Japan is very different from doing business in western countries. According to Abhijeet Ranade, Associate Director at PriceWaterHouseCoopers, “it could easily take up to 12-18 months of relationship building, that the organization is worth having a partnership with is trustworthy, that it will deliver."

This emphasis on organic growth versus inorganic growth like acquisitions is important to note. With valuations becoming lower and the rupee depreciating against the dollar, one can see Indian IT companies going for acquisitions and stepping up investments. However according to Ambarish Dasgupta, Partner and Head Consulting Practice, PriceWaterHouseCoopers, “I’m not very confident about creating a market in Japan through the part of acquisition. Because I know, Japanese would be quite conservative about selling their companies off, unless they have a huge problem in surviving."

As the slowdown in the West continues, Indian IT companies would probably benefit greatly from setting their sights eastwards.