India Grapples With e-Business Bottlenecks: Study

Even as the Indian software industry grapples to buck the tech slowdown trend, the nation is groaning under the weight of infrastructure bottlenecks that are bedeviling its plans to capitalize on India's enormous wealth of talent and resources.

Though the information technology industry has managed to register for the first time globally with its low-cost, high-quality enterprise, it is constrained on its home turf.

A blow-by-blow account of the kind of barriers holding up the Internet virtual as the engine of socio-economic growth in the country has been vividly captured by a joint study conducted by NASSCOM and the Boston Consulting Group during the first of half of this year.

The study bunches India with other Asian nations that face bug hurdles to e-commerce adoption. It laments the limited Internet access among customers and small and medium enterprises, as well as a lack of reliable payment gateways.

"Current level of Internet usage in India is low among both businesses and individuals," the report says. "The number of Internet users has barely crossed the 5 million mark across the country. Current penetration of PCs and other devices to access the Net for individuals is less than 1 percent. Penetration of telephones is limited to less than 3 percent of the Indian population of over 1 billion."

Similarly, poor telecom and communications infrastructure for reliable connectivity is thwarting India's IT industry and government from facilitating extensive e-commerce adoption, the study says.

The report also points out that the existing telecom infrastructure is unreliable. Internet connectivity is very slow and access costs are still very high. Businesses cannot influence these external factors, the report indicates, and they may need government intervention.

Some major global telecom investors see opportunity in the poor penetration. Telecom equipment maker Motorola, which has cut several thousand jobs worldwide in its semiconductor business, plans to not only expand its Indian operations, but turn it into a hub for software development, support and chip design activities within the Asia-Pacific region.

Motorola India has so far invested $150 million in its Indian operations. It plans to significantly grow its workforce in India from the present 900 employed in software and semiconductor design operations, top company executives informed.

Motorola India recently bagged an order worth $200 million from state-owned telecom major Bharat Sanchar Nigam Ltd (BSNL) as part of the latter's preparation for launching services as the third cellular service provider in circles outside Delhi and Mumbai. The deal is expected to fetch Motorola 50 percent growth during the year.

The company claims to have captured 40 percent of Indian cellular infrastructure market already. It is also hopeful of picking up significant contracts from Bharti Enterprises for supplying GSM equipment as well as from Reliance Infocom for supplying the CDMA infrastructure for basic services.

Meanwhile, Motorola India Electronics Ltd., (MIEL) the wholly-owned subsidiary of Motorola Inc., is investing $40 million to set up its largest design and software center at Whitefield on the outskirts of Bangalore for providing end-to-end solutions in converging technologies. Being the first offshore software development center of the U.S.-based parent company's global software group, MIEL designs semiconductor chips and develops solutions and systems for communication providers.

The campus, which covers more than 500,000 square feet, will focus on developing the next generation wireless communication products, including GPRS, WAP applications, and advanced electronic systems, a company executive said.

The first phase of the new technology center, with an area of 150,000 square feet and worth $12 million, would be complete by 2003. By 2005, the second phase will add another 350,000 square feet to house 2,500 design and software professionals.

But some outside investors are less confident in India's status as a telecom and Internet player. Bangalore-based Sasken Communication Technologies Ltd., a player in telecom software services, has suffered a jolt as global networking major Nortel Networks has reportedly suspended a $10 million project alliance with it. Industry analysts say this move is aimed at cost-cutting by Nortel.

Nortel and Sasken have been working closely since 1990 mainly in the wireless technology area. Sasken is said to have been supplying the project with a team of almost 200 engineers. According to sources, the development might impact the bottom line of Sasken by about $8 million to $9 million.

In India, Nortel until recently had five key outsourcing partners through ODC (offshore development center) model-Wipro, infosys, TCS, BPL Innovision and Sasken. Nortel is currently Wipro's largest customer, which accounts for nearly 8 percent of the company's software export revenues. According to sources, the status of Nortel's other projects signed with the Indian companies are to be determined.

The report also points out that the existing telecom infrastructure is unreliable. Internet connectivity is very slow and access costs are still very high. Businesses cannot influence these external factors, the report indicates, and they may need government intervention.

The study also points out that multiple gaps in the current legal and regulatory framework have been inordinately delaying decision-making at various levels.

For instance, the Indian Contract Law is not covered under India's IT Act. The legal jurisdiction of contracts involving international parties is not defined. What's more, the IT Act does not clarify all the issues regarding taxation of electronic transactions, and is silent on the issue of protection of intellectual property rights such as patents, trademarks, and copyrights in the Internet space.

"Similarly," the study says, "safeguards to protect privacy of personal and business data collected over the Internet are not in place, and industry incumbents are concerned about the security and confidentiality of their data. Transactions cannot be completed online due to a lack of convenient online payment solutions as information flow between banks is still not completely online."

In order to reverse the trend and catch up with the global movement towards e-commerce, the study says the government needs to make these external factors a top priority for a quick adoption of e-business by Indian companies.

"Delay in e-commerce adoption in trade intensive industries could cause them to lose their competitiveness," the study says. "The government urgently needs to address the key factors that can turn around the situation for better. It has to first resolve legal and regulatory issues for e-commerce transactions, and accelerate development of communication infrastructure."

--Reported by Newsbytes.com, http://www.newsbytes.com