Mumbai, February 19:

Faced with competition from countries like China and the Philippines, India’s famed software makers have identified innovation of products and processes as the new tool to stay ahead in the global market.

Experts say that in the absence of enhanced focus on research, Indian IT firms’ much peddled twin advantage of cheaper cost and a vast pool of skilled professionals may not help it sustain the dizzying growth being witnessed now.

“In the short term, most of the Indian technology companies may look at innovation as a strategy to achieve higher growth,” said Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom), “But in the long term, innovation will be a strategy to survive in a highly competitive world. If the companies don’t innovate to open up new business opportunities, they will sink.”

For decades Indian technology services and the outsourcing industry have thrived by writing cheaper software codes and managing back-office operations for overseas clients like General Electric, British Airways and HSBC. The Indian IT-ITES industry is expected to grow at a healthy clip of 28 percent in the current financial year ending on March 31 to touch $36 billion as overseas companies continue to outsource jobs to local firms.

The sector, which accounts for nearly five percent of the country’s gross domestic product and employs 1.2 million workers, is projected to earn $60 billion revenue in exports by the end of the financial year 2009-10. The earning potential as well as the threat that China and some Eastern European nations could co-rner a large chunk of West-ern customers’ software services and outsourcing contracts is forcing Indian firms to focus on innovation.

Wipro, India’s third biggest software exporter, says focus on new tools, technologies and solutions has helped it earn $100 million on an annualised basis for the nine-month period ended on December 31. This figure works out to be about five percent of the company’s revenues and is targeted to go up to 10 per cent over the next three years, says Azim Premji, the entrepreneur who turned his vegetable oil business into an IT giant.

“We need to constantly reinforce the feeling that we have to keep thinking differently if we have to survive and grow,” said the Wipro chairman, “At Wipro, we institutionalised the spirit of innovation through our initiatives six years ago and are now deriving business value from these investments.”

Wipro’s innovation initiative and its centres of excellence currently have a team of close to 500 professionals working on a portfolio of projects in the areas of new service lines, business solutions and research and development. During the October-December last quarter, 29 of Wipro’s ‘new engagements’ came as a direct or indirect result of innovations, said Premji, India’s richest man mainly on account of his over 80 per cent stake in the $15-billion company. The software icon said that the Indian IT industry had witnessed quite a few major innovations in the recent past.

“But the industry that is galloping at over 30 per cent growth year after year cannot sustain its pace with business as usual,” he war-ned, “Because every busine-ss model, no matter how robust, will be copied and duplicated in a much more efficient way by some other country in some other way.” S Ramadorai, CEO and MD of Tata Consultancy Servic-es, said Indian IT firms must capitalise on the pool of kn-owledge workers to innovate new products and pro-cesses and transfer them.

“Our country can achieve IT exports to the tune of $60 billion by 2010. Another $15 million to $25 billion can be added through innovation. Innovation is the key to achieving this growth.”