Thursday, March 1, 2007

Global Challenges faced by Indian IT Product Companies

From 16 product companies five years ago to 250 in 2005-06: Indian software vendors have woken to the power of product in global market. Software product development is a significant area of opportunity for Indian companies. Many of them are developing world-class products, hoping to make significant inroads into the Indian and global markets. Though they face stiff competition from MNCs and local players across the world, Indian software product companies are working hard to make India a world-class IT destination, offering not just software services but also premier software products. Software product development comes with its own unique challenges and risks. Inadequacies at the front end of the product development process – where all products are conceived and defined – is one of the leading causes of product failure for IT products companies. Nonstandard zed processes and corporate structures inhibit the exchange of information between departments and across functions, geographies, and process stages. The result is inadequate up-front concept assessment.
NASSCOM data reveals that Indian companies developing software products have a minuscule 0.2 percent share of the $180 billion global market for software products. Software export revenues from product sales in India have remained constant at Rs 1,500 crore for the last three years. Product revenue accounts for only 3 percent of Indian software exports. Despite this, the significance of software products cannot be underestimated. The revenue potential of India’s software product is as high as $7 bn by 2010 a near 10-fold rise from current levels. However this is still a drop in the ocean as the global packaged software market is forecast at $350 bn in 2007 only. There are a few major Indian companies that are into software product development but there is still a huge market waiting to be tapped. From being a rent-a-brain service provider to the world, Indian software firms are slowly showing sign of shifting to branded products that could give them hot niche market and bigger earnings. Product development has a longer gestation period and requires huge investments. However, once a product wins market recognition it can be a tremendous revenue earner for the company that developed it.
The various challenges faced by major players in product sector are:
I. Competition with large MNCs: This is one of the major challenges as market is still not accepting the label “Made in India”. Also the MNCs know the culture, taste and demands of US and European market. Hence it’s difficult for Indian companies to compete with them.
II. Companies want to play safe: Indian companies prefer to provide service as the risk is less and ROI is fixed. Products are generally of long term and it’s difficult to guess the ROI.
III. Market change: Market is changing vary fast. There is a need to effectively track the market changes. Many times the original Architecture no longer remains due to such changes. Only the Architects know what they are building. To understand the architecture and applying market change is a major challenge.
IV. Investment: Product don’t have fixed customer in initial stage. It once the product is launched in market awareness spreads and actual ROI starts after selling that product. Hence it needs huge initial investment. Funding is a prime factor that enables enterprises to perform the entire set of activities required for successful product sale. Indian companies hesitate at the expense involved in activities that enhance value to the customer such as investment in automated processes, product delivery mechanism, enhancing product image through branding, advertising and more…
V. Cultural intelligence: Cultural Intelligence plays a critical role in a successful global entry for the Indian product vendors. When companies enter markets with alien cultures without insight into new culture, they would make a less than successful entry. Cultural Intelligence gives them an understanding of the culture of patterns, prospects and customers, offering deep understanding of market place.
VI. Company’s financial stability: This is important because these projects are long tem and generate revenue only after entering in market place. Hence any instability of finance can cause huge loss. Product require longer to build and needs deeper pockets, for a nascent industry in a developing economy, that has historically spelt higher risk for entrepreneurs- In middle class India, the appetite for risk is low.
VII. Branding: Branding is about creating value in the customers mind with a clearly differentiated image of the product. Once it comes to branding, Indian companies are not known to communicate consistently and effectively. Communication plays a critical role in informing customers and stakeholders regarding the products value proposition, and plays key role in product branding.
VIII. Developing a flexible architecture: This accounts for the changes for future needs. The product should be flexible so it can be customized according to customer need.
IX. Extensive Market Research and Analytics: Extensive market research and analytics helps to get in-depth understanding of what customer wants, what they are willing to pay, when and similar important details. Indian product companies score poorly in this regard affecting their success.
X. Managing people: Managing people is the most important aspect to be look forward when you are into Product Company. Normally projects in product companies are of larger duration as compared service company. In today’s dynamic environment people want to change on projects and companies at faster rate until and unless they are properly motivated and challenged by work, salary and relations.
The various challenges faced by new players resembles with the above. In addition they face some more challenges. Product companies generally start with few people having a concept in their mind. They start with a prototype and try to sell the idea so that they can generate the necessary capital for further development. But once they understand the market, market demand changes in that product. This is a stage where Product Company starts getting resistance from the market. They start with compromise and hope at least something nearby the concept will be produced. At this time they again have to consider their competitors, they have to grow. With growth, diversification original intent could be forgotten in the rush for growth, revenue, market share etc. The other major challenge for these product companies is to make a product in simplest form. “If you cannot describe your product in 3 slides, 3 bullets each, we won’t fund you”- this is what sponsors say about product.
The various solutions can be:
I. Innovation: In order to architect product it is mandatory to possess deep domain expertise of that sector, as well as a foresight to anticipate emerging trends. In addition to domain expertise, a successful product company should posses the capabilities to innovate, and have a strong technology vision for the market that it addresses.
II. Funding: Funding is the most important aspect as it provides platform for the whole life cycle of product.
III. Culture: before entering in any market first understands the market place and for this understanding culture is of prime importance.
IV. Continues Improvement: Product should be continuously improved so that we can compete with the large MNCs.
V. Change in Mindset: This is very important. If Indian mindset changes then only its possible that people invest in products. Otherwise Indian companies will tend to play safe in Service Industry.
VI. Think Big: It’s when you think big, you will able to target global market.
VII. Have a Flexible Architecture: Architecture should be simple and flexible. In short it should have facility for future changes.
VIII. Patience: To successfully market a product both in India and overseas, the company first needs to possess enough patience relevant in building end-to-end capability; not only industry and IT experts but also domain experts need to join.
IX. Right Marketing People: Having right marketing people who can understand the local market will let us know the exact expectations of the customers.
X. Managing people: As managing people is most important aspect for product company, it is important to motivate the people as well as to assign them challenging work so that their will be value addition in their skill. Also try and assign different roles to make the work interesting. Enjoy the milestones together so as to make them feel belongingness.