India: Retailers Power IT Spending Boom

The fast-growing retail industry, one of the booming corners of the Indian economy, will account for the lion's share of IT investments in the country, according to Springboard Research.

This growth is the result of the Indian retail industry, traditionally dominated by small, family-owned retail shops, migrating to a "more modern and organized retail industry structure", said Springboard Research. The overall Indian retail industry was worth an estimated US$325 billion in 2006.

In its report India's Retail Industry: IT Market Trends and Opportunities, 2006-2010 released Monday, the research house revealed that IT revenue from the retail segment, which totaled US$253 million in 2006, is expected to grow at a compound annual growth rate (CAGR) of 44 percent to reach US$1.07 billion by 2010.

Nilotpal Chakravarti, market analyst at Springboard Research, said: "As the current economic boom in India spreads to tier two and tier three cities and towns [across the country], reaching out to prospective consumers in these cities is high on the agenda of most retail companies."

"Retailers consider market presence in these cities and towns key to their growth and profitability. As such, many retail companies are investing in technology that will help support their expansion into these new markets," Chakravarti said.

Following real estate and human resources, IT is the highest area of investment for most large- and medium-sized retailers in India, according to the report. Results also showed that retailers considered supply chain management (SCM) and inventory management their top strategic focus areas, thus fuelling the demand for enterprise resource planning (ERP) systems.

Some 35 percent of retail respondents said ERP was the largest IT solution they had deployed in the past 24 months, and a further 38 percent of retailers said they would invest in an ERP software in the next 12 months.

The survey also found that 22 percent of respondents viewed strong service and support as the top consideration in selecting IT vendors. Other considerations identified by the respondents included price (17 percent), expertise in a particular solution area (15 percent) and knowledge of the retail business (13 percent).

"Many Indian retail [companies] have traditionally focused on service and support as a key factor in choosing a vendor," said Chakravarti. "We expect this to continue and to also see more significance placed on an IT company's industry knowledge, expertise and ability to provide retail-focused solutions."

"Price has been a key factor in the past and will always be a factor, but we expect industry knowledge to advance to play a very primary role in vendor selection," he said.

Across vendors, ERP vendor SAP took the top spot in the market, and was identified by 27 percent of respondents as the "leading primary influencer" in terms of solutions investments, followed by Microsoft at 14 percent and local vendors at 19 percent.

According to Springboard, Indian IT vendors' focus on providing customized and industry-specific retail solutions has helped them create a niche for themselves in the market.