Preparing for consolidation of the IT industry

The Indian IT industry market, just like the global IT market is full of start ups- brilliant minds, entrepreneurs, fast buck seekers, frustrated IT professionals fed up with routine tasks etc etc. Many of them fail, others give up unable to take the pressure of building a company, some continue and overleverage themselves getting into severe debt, a few succeed and build an Infosys.

In the hugely competitive IT industry opportunity and technology growth is being matched by numbers of entrepreneurs. In such a scenario, the big will eat the small fish and the law of jungle will prevail.

As India develops and more opportunities for better employment and business become available in diverse sectors the fittest will survive. Consolidation is inevitable. Some of this will happen naturally often the big guys will force this to happen through poaching of the best in a company, outcompetiting the smaller companies with niche technologies and using their brand as a sledge hammer to secure business.

Survival will require companies:

To build durable assets
To focus on sectors and technologies
Resist over leverage pressures
Hold onto quality manpower by adopting people friending practices

 

Brand building for mid sized companies and startups

Brand building is at the heart of expanding a corporate business. More often than not companies look to only business growth to increase top and bottom line.

Focus only on top and bottom line often leads to managers seeking to cut corners to improve project profitability. This opportunistic model of growing a business rarely leads to long term and sustained growth.

Brand building is all about building customer trust. Trust generates repeat business. Companies that feel for their customers and go the extra mile are able to win customer trust and build their brand.

Brand building entails taking a company's value system to the market. If the company ethos is to make a fast buck this will rarely lead to building the brand. Often company's seek brokers to fix deals for them. Word travels and impacts the brand leading a company to either stagnation or downward growth path.

Company vision and ethos are not just holy statements that are put out on the front page of a company web site but it is a window to the entrepreneur's thinking.
 

Why start ups are unable to grow

I notice a lot of start ups desperately looking to establishing themselves and make a mark for themselves. The entrepreneurs invest a lot of their time, treasure and energy into making their companies successful.

Finance seems to the most common perceived challenge to start up growth. They look to Angel investors, friends, relatives to support them in their formative stages. While the need for money cannot be wished away, I believe that there are other more important contributory factors. Let me list a few of them:

1. Inability to keep cost under control
2. Absence of long term vision, strategy and plan
3. Focus on immediate revenue gain
4. Unwillingness to invest time and energy on building the brand name of the company
5. Resorting to short cuts, using brokers to win jobs etc

A start up who takes care of not committing the above mistakes repetitively has a greater likelihood to grow and mature into a full fledged sustainable business.

 

Why companies stagnate

Companies that start quite well, often have a mid life crisis and start stagnating. Growth rates drop, operational performance gets impacted due to lower margins and reduced cash flows.

The response to stagnation and reduced cash flows is often cost cutting, reducing bench strength, hiring new managers, firing below par performers, restructuring operations, strategy sessions, hiring consultants etc. But stagnation continues.

Growth is a function of leadership. Owners and CEOs often refuse to accept that the problem lies at their doorstep.

Possible solutions could be to find a guru or a mentor who works with the CEO or the owner and has in confidence discussions with him. Close door sessions, heart to heart talk, honest conversation is a good way to restore owner confidence.

More mundane solutions could be working a new business acquisition strategy, improving delivery processes, re-structuring, decentralized decision making, empowerment etc.

India business expansion- overseas start ups

Many a times start ups especially those located outside of India look to short cuts to expand their business. They look to instant strategic alliances and tend to believe that local companies will sign on the dotted line set by them. This is due to insufficient knowledge of current trends, practices and maturity of Indian IT companies be they start ups or mature mid sized companies.

Any strategic alliance arrangement with a company should be preceded by a robust business due diligence exercise wherein not only the capability of both parties is understood but also the vision, business model and culture is understood. Alliances are between people- the company only provides an institutional arrangement. Rushing through increases the likelihood of failure.

A step by step approach to deal making lays the path to successful deal making.

India business expansion- overseas companies

There are a large number of small and mid sized Indian IT companies constantly looking out for IT jobs in the US. H1 B visas are getting now tougher to get. US regulatory requirements for India based professional services companies is becoming stricter. Local hires in the US are either too expensive, require a lot of retraining or there are not enough of them to service the US demand.

Innovative business arrangement between Indian Professional Services IT companies and US IT companies has become critical. A win win engagement model for both parties is required to be negotiated. Teaming agreements and acquisition appear to be good options. People are already working on new engagement models and doing it successfully. Transparency in negotiation is the way to successful deal making.

Forest land clearance- selecting land for setting up industry

Forest land clearance is an issue that exercises a lot of industrialists. Many of them take on board retired or serving Indian Forest Service officers in the hope that through them the red tape will get cut faster and the process of obtaining forest clearance less painful.

The process of getting permission to use forest land for a non forestry purposes is complicated and takes a lot of time. Optimally the process takes three years.

The best option is to select a piece of land that has not been notified as forest. In case there is no option but to select a piece of forest land for setting up an industry like opening a mine, it is best to avoid sanctuaries, thick forest, wetlands attracting migratory birds and other ecologically sensitive areas. Even if you are able to get the forest officer on your side, the counter pressure is often generated by wildlife lovers and media. The power to accord clearance lies with the Ministry of Environment and Forests and pressure from line Ministries and Ministry of Finance does not often succeed.

It is easier to wrestle with agricultural, private land owners and rehabilitation than the forest bureaucracy in India.

And mind you obtaining forest clearance is tougher in the Western developed countries than it is in India.