"India will have to move up the value chain"

This was the categorical statement made by, none other than, Mr. Prakash Bhalerao, a man who has straddled the famed Silicon Valley for many years now. Having begun his innings in the US with Digital Equipment Corporation (DEC), fresh with a master’s degree from Worcester Polytechnic, he went on to head the entire business at DEC before venturing out on his own. He is presently the managing director of Concio Corporation, a Santa Clara USA based organisation, engaged in providing innovative solutions to emerging and established companies in the areas of eBusiness, eFrastructure services, application development, security, CRM and knowledge management.

Today, as an angel investor, he has helped over forty companies worldwide and built for himself an enviable track record as an entrepreneur. Several of his ventures, which have since been acquired by bigger companies, have become global stories in the global IT industry.

According to Mr. Bhalerao, India will have to move up the value chain if it seeks to maintain its leadership status in the software sector in the coming years. He is very clear that IT service companies will be as important as IT product companies in the future, but to stay ahead of competition, they will have to be vertically specialized in one or more domains, be it telecom or financial services. He opines that, since the next generation service businesses will be more project oriented, they will have to create domain expertise and operate in niche areas. The key to growth will come from being able to build end-to-end solutions and move up the value chain, as the days for low value services are numbered.

On being asked by domain-B about the market size for IT-based services, he estimated the global market to be in the region of $ 2 trillion to $ 3 trillion. Of this, he said, 30 per cent is for services in the telecom sector, 30 per cent for financial services and 40 per cent for hi-tech and general activities. To substantiate his claims he said Cisco has 35,000 suppliers but only 200 were electronically connected, the rest still doing manual work. While he feels that the traditional model of providing IT services will continue to be present on the horizon, these will increasingly come under pressure from companies based in China and Vietnam.

And he can prove his point! According to Mr. Bhalerao, ten years back, when IT was just taking off, the cost differential between Indian software engineers and those in the west was between one-eight to one-tenth. In the intervening years, India went and conquered the world. However, in the last three years, the average price of an Indian software engineer has just about doubled and if the trend continues, the number will come closer to what, say, an Irish engineer charges.

Ten years ago engineers from China and Vietnam were at a disadvantage because of their deficiency in English. However today, on the streets of Hanoi, you find the younger generation speaking English as well as any Indian. Today, the cost of their engineers is where our cost was three years ago. The gap is shrinking and the only way India can keep itself ahead of this gap is to get into value added/high tech kind of stuff.

In keeping with his firm belief in this regard, his company, Concio Corporation, is in the process of opening two development centres in India, one each in Mumbai and Pune, serve clients in the areas of telecom and financial services. With an investment plan between $ 5 million to $ 7 million, the centres plan to hire 100 people in each of these centres. The company has decided to offer attractive stock option schemes to its employees and wants to go public two to three years down the line.