Business and Marketing Strategies in response to Global Economic Recession in Indian IT Companies

Introduction

The present study is an attempt to understand different business and marketing strategies adopted by the small IT firms during global economic recession .This research uses the case study approach. The research focuses on different strategies adopted by the firms to market their products, enhance revenues and to sustain in the competitive market. This study will be conducted in small IT firms of India. The present research proposal was organized as follows: The first section justifies the rationale for choosing the research topic, gives definitions of the terms and provides study limitations. The second section presents brief literature review related to marketing and IT strategies. The third section focuses on research methodology by highlighting the research approach, its design, type of study, data collection methods, reliability, validity and statistical analysis.

Background Of The Study

According to the New York Times (2009), a financial crisis that hit the world in the end of 1990’s, has its roots in the United States of America. The main reason for this crisis was low interest rate and large inflow of funding from foreign funds. This led American bankers to offer mortgage loan without any or little down payment, which resulted in loss of money in banks. As a matter of concern, these loans were offered to a large number of people. When banks realised the bankruptcy, they tried to increase their interest rates for mortgage loans. This in turn created problems for the buyers, who could not pay off their loans and had to sell out their houses. This ultimately brought the stock prices down and banks ended up in bankruptcy. This massive failure wave was passed all over the world (Sadhu, 2008).
The recession faced by the US financial sectors have not only affected the U.S but also other developed countries like U.K, and developing nations like China. This global recession hit Indian economy too, however the impact here was not as damaging. Much of the brunt was felt by the Indian software companies, as these IT companies were having huge business transactions with the US banks.
Almost 65-70 percent of Indian GDP was from IT industries during the past few decades, thus played a key role in fuelling the economies. Moreover, India has seen a revolution in the field of IT industry. In addition, this sector was most affected due to economic crisis that affected the United States as most of these Indian IT firms were having dealings & transactions with big American financial corporations like Bank of America, Morgan Stanley and Lehman Brothers, Washington Mutual, Goldman Sachs, which provide revenue to the IT. It is estimated that approximately 61 per cent of the Indian IT sector revenues are from the above corporations and 46 percent of the IT industry revenues made by the top five Indian players (Atreya 2000).
In India, most of the software firms belong to either medium or small enterprises. These firms have less than 250 employees and they comprise about 80 percent of the companies in India (Nirjar, 2008). In comparison to the larger firms like Infosys, TCS, Cognizant etc, the smaller and medium sized firms were affected more, as these firms were dependent on the business from exports to the United States. The sharpest decline in the revenues was experienced by the software industries due to this global financial crisis. As indicated by the figures, the net export of services in the first quarter of 2006-07 was around US$8 billion dollar, for second quarter in the year 2008-09, it increased to around US$13.3 billion. However, in the last quarter of 2008-09, it went through a sharp decline, where almost 23 percent drop was observed. (Paranjape 2009)
Experts felt that the entrepreneurial spirit in Indians was low and most of the companies focussed on “per hour” labour arbitrage. This happened because Indian companies tried to make profits by outsourcing their services rather than focusing on new product development, which requires technical manpower (Bhatia, 2006). Thus, by focussing on wide range of products, their experience got diluted and the scope of specific domain development also got reduced, which led to rudderless trajectory.
There is an urgent need to establish innovative strategies in order to survive during the recession period. The strategies adopted earlier can no longer be used for present day scenarios, as today’s environment is more volatile and keeps changing with each passing day. Today after experiencing recession, these firms are now trying to develop innovative business and market strategies to capture new markets. The focus is also on maintaining and consolidating the relationship with old clients. In addition, these companies are also cutting cost by reducing salary amounts, handing out pink slips to the employees as an option for reduction of assets (Latham 2009). The researchers Ferrell and Hartline showed that “in order to achieve goals of the company, the road of map or plan development plays significant role. Thus, strategy is crucial to achieve organisational goals by harnessing the capabilities and strengths of the organization.”
The focus of the present research is to understand the business and marketing strategies adopted by the IT firms, particularly small firms in India. This study will also analyse the strengths and weakness of the firms. Furthermore it will also recommend appropriate tailor made strategies for the companies to sustain in volatile environment. For the present study, small software firm from India will be chosen.

Aim And Objectives Of The Study

To analyse company’s performance in terms of both business and marketing techniques which were adopted after recession.

• To understand the strategies adopted by the firms before and after recession
• To analyse the current business strategies adopted to survive during recession period
• To analyse the current marketing strategies adopted to survive during recession period
• To understand the strategies from managers and employees point of view

Theoretical Framework

The present research would study literature related to general marketing and business strategies during economic recession or recession in general. It will focus more closely on the IT industries. This literature also highlights the situations of a selected Indian IT firm.

Definition Of Terms

“A significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”, according to the National Bureau of Economic Research (NBER), which is in charge of studying the economy pattern of the country.

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Literature review

The strategic response of small firm due to environmental change has been highlighted in the literature (Beaver & Ross 2000; Dedee & Vorhies 1998; Michael & Robbins 1998; Shama 1993; Pearce & Michael 1997). Studies have shown that organizations adopt more flexible structure and process in order to respond to environmental change (Carr et al. 2004; Chen & Hambrick 1995; Bhide 1994; Julien 1993; Peters 1992; Andren, Magnusson & Sjolander 2003; Dean, Brown & Bamford 1998). Organisation need to reconsider and reformulate its strategies in order to deal with recession, which is inherent in nature as reported by Lawless & Warren (2005) and Geroski & Gregg (1977).

Another important feature of the smaller firms is lack of formal process, planning and effective strategies (Ebben & Johnson 2005; Forbes & Milliken 1999). It was highlighted that market segmentation provides better option during economic recession (Shama, 1993). Investment in marketing and sales are some other options provided by Pearce and Mechael (1997). Long term capital structure and closeness to customers are the two strategies reported by Ross (2000) as a proactive approach. Robbins (1998) highlighted cost and assets reduction. Thus, various researchers have provided different strategies to survive recession period.

Research Methodology

For the present study, qualitative data collection and exploratory approach will be used (Bryman & Bell 2007). Selection of sample depending on the size, nature and resource availability (Miller, 1989) will be done. For the present research, a software industry (will be selected later) will be selected and its managers and employees will be interviewed to gather the data.

Data collection

Qualitative interview method (Bryman & Bell 2007) and semi-structured interview will be conducted of the staff members of the software firm. Tentative interview guide will be prepared with open ended questions.

Secondary data collection

For the present study, desk based approach will be used, where secondary data will be obtained from previously published academic literature, theories, company annual reports, news paper articles. However authenticity of the literature will be checked by the researcher (Creswell 2003) at regular intervals.

Reliability and Validity

For the present study, researcher undertook thorough content validity. Also the researcher is acquainted with the chosen subject and can always verify the validity & authenticity of the respondent’s answers.