Relevance of SMITs

Volume 15, Number 1 Article by B V Naidu March, 2003

Relevance of SMITs :

B V Naidu, Director, Software Development Parks India, Bangalore, traces the phases of growth of the Indian IT industry starting with the 1992-96 Off-Shore Development Centre wave, and moving on to the multinational phase between 1994 and 1997 which propelled the new entrepreneurship of 1997-98. The early presence of technology companies and consequently of many professionals, drove the Silicon Valley effect between 1997-2000, when VC funded companies started setting up their back-end design centres in India and many IPs/products developed from these technology-focussed, small companies. From 2000 onwards began the IT Enabled Services and Business Process Outsourcing wave.

Bringing out the paradox of the small and medium sector, B V Naidu notes that while this crucial sector constitutes 60% of the software industry, its contribution to the overall exports is a mere 9%. Focussed technical expertise, the initial advantage of an SMIT, could become disadvantageous if it did not cross the size threshold. Larger companies have better market access and customer penetration and seem the logical choice for outsourcing. Further, family owned SMITs do not generally grow beyond a certain point primarily because of the lack of confidence that management staff have in the company.

Industry bodies and the government should consolidate their focus on SMIT growth. Larger companies should outsource lower level work to them and SMITs should network to share expertise and management skills, and could take the consortium approach to target markets, helped by VCs. The concept of serial entrepreneurship should be encouraged and CEOs should be open to M&As.

Reprint No 03108h