A New Business Model & a Billion Dollar Opportunity

 

Exporters in India’s Tirupur, a small town which houses a $2-billion knitwear production industry, are now the proud owners of a SaaS ERP solution. Using a community owned and pay-per-month/service model, they seek to reduce supply side inefficiencies, bring down operational costs, and compete effectively with trade rivals from Bangladesh and China. This is the first time that small exporters in India have joined hands to create a common technology platform.

A few things about this deal stand out. The size of the deal is gigantic (in the context of the Indian software market), approximately in the range of USD 40-50 million. A relatively lesser known local software company (Ramco Systems), one that is undoubtedly making its mark internationally now, won the deal against market behemoths. A community, not an individual company, purchased the solution and is doling it out to smaller players.

Should the community purchase model gain traction in developing markets (like it has in pockets across Europe-details in the article), larger vendors would do well to rethink their emerging market strategies. There are several other Tirupurs in the Asia Pacific—small, barely penetrated clusters that generate sizeable business but lack IT infrastructure and knowledge. This deal, in effect, may be a creative entry point into the proverbial multi-billion bottom of the pyramid.

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The IT Problems, or the problems with traditional IT

Apart from basic infrastructure, one of the first things that an organized textile manufacturer needed a decade ago was an ERP. ERPs did everything under the sun, were large, monolithic applications often compiled from homegrown legacy point applications. ERPs deployments were not completely new in the Indian textile industry even a decade ago. In fact, many larger textile companies deployed ERPs back in the day (such as the mySAP implementations of Alok Industries and The Krishna Group).

The world has since shifted to componentization of ERP modules, with vertical and functional experts catering to specialized requirements in each area. As of date, customers have two broad options: either to get all their ERP modules from one vendor ensuring easy integration between moving parts, or, model their IT architecture on SOA from bottom up, invest in good middleware, and generally stick to open-standards based applications—praying all the way that applications get along well with each other.

However, challenges in Tirupur are unique and require creative responses. Tirupur’s operational planning is dismal, partners often out-quote each other, sales and distribution is disjointed (meaning several small shipments to one location instead of a bulk delivery, increasing costs), and poor material and HR management. Adding to these woes is a fluctuating currency environment.

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