IT Investment in B-class cities

IT spends will take off in B-class cities

The IT spend by companies in B-class cities is expected to increase by 40 percent in the coming year. And much of the investment is going into hardware, bandwidth/connectivity and enterprise applications like ERP. by Abhinav Singh

Organizations located in the B-class cities of India have successfully leveraged the power of IT and are showing a keen interest in investing in different technology areas. Factors like intense competition, the entry of MNCs and the availability of new products are the drivers for investment in some key technology areas.

The Network Magazine and IMRB survey was conducted in five 'B'-class cities of India, namely Nashik, Aurangabad, Chandigarh, Indore and Cochin. The survey includes small (turnover up to Rs 100 crore), medium (turnover 100 - 500 crore) and large companies (turnover over 500 crore). 50 companies participated in the survey and respondents in these companies include CIOs, CTOs and other IT heads.

Top billing

While companies in A-class cities are more tuned to decreasing costs and increasing profits, the business focus for B-class cities is to improve the quality of service. In fact this is the number one business priority for 60 percent of the respondents. Of course, half the respondents also place high priority on increasing profits (54 percent) and decreasing costs (48 percent).

And among the various IT priorities Security (42 percent), IT standardization (42 percent) and ERP (40 percent) get top billing.

IT standardization is a priority for companies as they are considering new software packages. Rising virus threats and internal threats has made Security a top priority. ERP is drawing more interest as companies want to improve the flow of information within and outside the organization.

What comes as a surprise is that even companies in small towns are consolidating IT infrastructure and hence are looking at re-engineering the IT set-up. That means upgrading or replacing their existing infrastructure to meet future IT requirement for servers, storage and security. 38 percent said Upgrades/replacing existing infrastructure will be the third IT priority area.

Technology spending's up

Organizations from secondary cities and towns are set to loosen their purse strings this year. While average spending was Rs 213 lakhs during 2003-04, it is likely to increase to Rs 294 lakhs in the current fiscal.

Much of the spending will be on Hardware and Bandwidth/ Connectivity. In fact investment in hardware will shoot up—last year just 16 percent invested, while in the current year the figure quadruples—64 percent are likely to invest. On an average, enterprises are going to allocate 43 percent of the IT budget for hardware. The time is right for investing in hardware, as prices sink significantly due to reduction in import duties.

Other than hardware it's Bandwidth/Connectivity that's going to attract more investment. Last year 34 percent invested in this area and this year 46 percent will invest.

The obvious reason seems to be that some of the companies in the B- class cities are in the process of streamlining their hardware infrastructure in order to realize the benefits of the IT implementation to the optimum. With an expansion in the IT infrastructure the bandwidth requirement is likely to shoot up as many of the IT applications like ERP would demand more bandwidth.

Enterprise-wide applications, particularly ERP, is a major area of investment in the coming year for many companies in B-class cities as enterprises are realizing the business benefits and flexibility they can derive through the use of such applications.

Hardware spending’s up

Within hardware, PCs and peripherals will dominate investments, followed by power conditioning equipment and networking switches. Hubs are gradually being replaced by switches, as these provide better throughput.

Companies are now looking at centralizing their IT infrastructure at one location. Hence investment in PCs and setting up a Wide Area Network (WAN) are expected to increase with more spending on high-end routers, structured cabling equipment and PCs. The 15 to 20 percent drop in hardware prices (due to cuts in import duties) will effect all the peripherals/network equipment.

Also, many companies are expanding their operations and increasing headcount—and that calls for additional PCs and peripherals.

Spending on Power Conditioning equipment can be taken for granted as most B-class cities face power problems.

The spend on networking equipment like switches, routers etc is likely to happen as many of the companies are likely to go in for an increased bandwidth requirement due to an expansion in their businesses, IT applications and manpower.

Bandwidth Hungry

Requirement for more Bandwidth/ Connectivity is driven by enterprise wide applications and messaging, the need to centralize IT infrastructure, and increased usage of Intranets. Organizations are going in for bandwidth hungry applications such as streaming videos (video conferencing solutions), and VoIP phones.

Last year the average spend on bandwidth/connectivity was 29 percent of the IT budget. This year the figure will increase to 36 percent. There's going to be more demand for leased lines, VSATs and Wireless LANs.

Leased lines have been preferred as they give uninterrupted connectivity and are able to the meet the increased bandwidth requirements. The need to have better connectivity within campuses for better co-ordination is likely to drive the demand for VSATs and Wireless LANs. Many organizations have also gone in for a Wi-Fi implementation within their campuses.

More investment in ERP

According to the survey ERP, data warehousing/data mining and CRM (Customer Relationship Management) are the three areas within the enterprise wide application space, that are likely to witness robust investments. ERP, which plays a very important role in the coordination with the financial department in an organization, and with the suppliers, is essential for many organizations in B-class cities.

Currently, 34 percent of the respondents are using ERP, and this figure is likely to increase to 45 percent this year. Data warehousing/ data mining tools will see a quantum jump from 14 percent last year to 21 percent in next one year (in terms of the number of companies investing). Businesses are looking at data warehousing/data mining tools to get granular details of their business.

Additionally many organizations are using these tools to mine ERP data, searching for information that will give them an edge over the competition. CRM penetration is also expected to increase from the current base of 7 percent to 10 percent in the current fiscal. Some businesses are looking at automating some of their front-end tasks to improve the customer experience.

Enterprise security

According to the survey, 92 percent of the respondents feel that virus attacks is the most crucial security issue. This is followed by Internet Security and Theft or Damage to data (36 percent). To counter these threats companies will spend heavily on anti-virus applications (39 percent), Firewalls protection (36 percent) and Intrusion Detection Systems (14 percent). They are also likely to spend on VPN solutions for added security

reasons, Identity Management Applications, Access Control Devices and Cryptography. The survey also finds that over 85 percent of respondents did not have any kind of security audit. Also those who had security audits in the past conducted internally. It is a possibility that security audit requires a lot of investment on part of the companies because of which they are not outsourcing to external party consultant.

Abhinav Singh can be reached at

abhinav@expresscomputeronline.com