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Small tech firms eye niche areas; plan may not work short term

Small tech firms eye niche areas; plan may not work short term

Hyderabad: Even as large software firms such as Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd battle a tough market in the wake of global economic slowdown, some of their smaller rivals are looking to specialize in niche areas, sometimes focused on a particular business, in an attempt to avoid competing directly with large firms that are no longer unwilling to take on small contracts, and at low prices.

Analysts, however, are not sure whether this strategy will pay off in the short term as the economic crisis has hit companies across businesses and specialization means lower flexibility.

This in turn could affect the ability of small and mid-sized software firms to operate under prevailing market conditions.

Mastek Ltd, a Mumbai-based mid-tier software solutions firm is concentrating on high value deals through its intellectual property driven enterprise solutions and greater customization to win clients.

“We would like to be the dominant players in the niche areas that we focus on," said Mastek’s chief executive Sudhakar Ram.

The company says it has acquired expertise in and built intellectual property (IP) backed solutions, and is focused on business in three areas, insurance, government and healthcare.

“We don’t want to be all things to everybody. We have a clear focus and strategy in place," added Ram.

Zensar Technologies Ltd has been aggressively pursuing new business with a pricing model where its revenue from a client is based on the savings it can deliver to them.

The company says it offers to bring about a saving of 10% in any process chosen by the client, within the first ten months of the engagement itself.

“The 10/10 formula has been pilot-tested and we are confident that this will provide significant value to our customers," Zensar chief executive Ganesh Natarajan said.

He added that the company plans to focus on niche offerings in less explored businesses such as education, government and utilities.

Zensar is also testing the waters in the relatively less explored South African market.

ITC Infotech India Ltd, another mid-sized firm is focusing on media companies.

“While geographically we would remain focused on the UK and US markets, we are constantly on the look out for niche areas in verticals such as manufacturing and retail," said ITC Infotech managing director Sanjiv Puri.

And Hyderabad-based Cambridge Technology Enterprises is steering clear of direct competition with large companies with its focus on customized application development in some areas, and for some clients.

“Custom application development has been working for us and we are confident that the niche areas that we operate in, within verticals like government of manufacturing will see us through the current crisis," said Ramesh Reddy, chief financial officer, Cambridge Technology.

“By choosing customers having revenue within the $300 million and $3 billion revenue range, we try to stay out of direct competition with larger IT players."

Sid Pai, managing director of the Indian arm of global outsourcing advisory firm TPI Advisory Services, is sceptical about the plans of these firms. “While they don’t have much of a choice, besides specializing more, the bottom line is that every sector has been hit. Given the kind of margin-headwinds we are seeing, tier 2 players (the smaller companies) are probably better off settling for potentially lower margin deals of longer term," he said.

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