EMERGing out on the growth track
Loading ...Emerging companies may have been less impacted overall by the recent downturn, but have been able to reap the benefits of the recent upswing in market conditions – this is the essence of the findings of a NASSCOM-Prayag Market Traction Survey. Read the analysis of key findings.
The Survey was conducted over a period of 6 weeks across November and December 2009. During this time we interviewed CEOs/Business Heads of 21 emerging companies. The profile of these companies ranged across the spectrum of emerging companies – from start-ups barely out of the pre-revenue stage to established players reaching mid-size stage. Revenue-wise as well, the companies that were tracked, display a wide range – from those registering initial sales to companies with several hundred crore in annual sales. For most of the companies, India and North America were their key markets. In a sense this spectrum is representative of the profiles of companies in the emerging companies group. (For a detailed profile of participants please download the Survey Findings Data Sheet)
Almost every company interviewed for the survey reported that customers were more optimistic than they had been in previous quarters, but still guarded and conservative when it came to decision making.
Some key insights into current customer behaviour:
- Customers looking for a quick RoI period – as quick as 12-15 months as compared to 18-24 months previously.
- Big bang projects requiring substantial investments still being deferred. Customers say that the visibility into their own business has now been reduced to 3-4 months – this is particularly true of North America
- Interest in performance based models
Were emerging companies less impacted by the downturn?
Going by the responses of participating companies, a little more than half of those surveyed – 52% said that they had not been greatly impacted by the downturn. Only a third of the companies surveyed reported drops in sales quarter-on-quarter/year-on-year. A larger number (48%) reported slowdown in pipeline traction and project truncations (38%), but few companies actually lost long term contracts.
Among the companies reporting a quarter-on-quarter sales drop (Q1 FY09 compared to Q1FY08), the drop was mostly in the 5%-10% range with only one company reporting a loss of more than 10%. In terms of annual sales (FY 09 compared to FY 08), 14% reported a 5-10% drop in revenue with another 14% reporting drops over 10%. More than a third of the companies interviewed reported a drop in billing rates and for most of these companies, the drop was in the range of 5-20%.
When looking at quarter-to-quarter sales at emerging companies, it may be important to keep in mind that for several companies in the start-up/early stage mode, the picture may have been distorted by a couple of large wins. A large size contract can substantially impact sales growth for at least a couple of quarters for these companies. Some of these orders also came from government contracts – a trend visible across at least a couple of companies that sold to this segment.
Will 2010 be the year of hardware?
An interesting perspective provided by a survey participant was that 2010 is likely to be year of hardware and OS software refresh. With Windows 7 being the most significant Windows update since XP, a large part of enterprise IT budgets may be consumed by the upgrade. The subsequent purchase cycle, it was pointed out, may also be focused on infrastructure – cloud computing, virtualization – with application software purchases occurring only further down the road.
Combating the recession
Many emerging companies did cut back on hiring (43%), but a larger majority actually continued to hire (57%). In fact several companies said that, thanks to the recession, they were able to make high quality hires. It is not surprising therefore that 95% of the company also did not have to downsize staff and more than half (52%) actually offered increments in April 2009. But these increments were obviously scaled down from previous years with a third of the companies surveyed offering increments of 5-10% and another 19% of the companies offering raises in the range of 10-20%.
But most however did cut back on other expenditure, particularly travel – almost half the respondents said that they did cut back on travel. After travel, the head of expenditure that experienced the most cuts (43%) was employee entertainment and leisure activities. Around a third of the respondents also said that they had cut back on marketing expenditure.
What did some of these companies do in order to combat the downturn?
- Increase sales staff
- Reduce product pricing
- Change focus to developing markets
- Improve operational efficiency through better resource utilization, forex management and cost reduction
- Offer solutions with better RoI that helped their customers cut costs
- Focusing 100% on fewer opportunities that could be converted
- Focus on domestic market, government business
Nature of the Revival
Most of the emerging companies surveyed were seeing clear signs of revival in the past quarter. 81% said that sales had definitely accelerated in Q2 FY 10 as compared to Q1 FY10.
Some of the recovery trends being seen at the companies surveyed include:
- Revival of projects truncated last year as well as accelerated closure of new projects
- Improved pipeline
- Customers open to discussion on large projects
- Traction in verticals such as automotive and healthcare
- BFSI also expected to revive quickly
However, while these revival trends are clearly seen by most firms, it is also plain that no company expects to find itself completely out of the woods anytime soon. So, while demand may have recovered, it is also becoming clear that the progress of recovery will be painfully slow. That means that the 20% + pre-recession growth rates are still far off and the industry may have to be content with slower growth rates of 10-12% for the next few years. That may be the bitter centre of the recovery sweet pill!
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The last few months have shown that the Indian companies have been pretty hardy in these recessionary times, and guess that is reflected by the response of the participating companies. In fact it’s not just IT contracts coming into India, numerous Indian companies are venturing abroad and you are hearing more such news day after day. Recently read about the Religare group making big noises in the global financial space (Business Standard)