Margin pressure in its banking software business and a cut
in worldwide IT spending after the dot com bust forced Onward Technologies to
reinvent itself. Today, the company is riding high on the back of explosive
growth in engineering design services, says Venkatesh Ganesh
||After the dot com bust, we were looking for a niche
segment that would help us improve our revenues. Design engineering services
fitted the bill perfectly, says Harish Mehta
Engineering design looks set to be the next rising star of Indian IT. Research
firm Avendus says that the global slowdown in the automotive and aerospace sectors
will result in most Fortune 500 companies looking for low-cost suppliers who
can deliver quality work and help them improve their margins. Firms such as
Onward Technologies are repositioning themselves to tap this $7 billion opportunity.
The focus on high-end engineering design services has paid off for Onward as
the company reported a 42.5 percent rise in net profit for the third quarter
of 2003-04. This was more than your run-of-the-mill quarterly announcement.
It was the result of a concerted effort to restructure Onward Technologies
business lines based on market trends. The company has scaled up its offshore
operations and it offers high-end engineering design services today.
A new dawn
In 2001, Onward Technologies offered systems integration services in banking,
CAD-CAM (mostly low-end work) and customised software development. Its traditional
business lines of software services, banking solutions and e-learning were not
generating sufficient revenue growth for Onward. Sensing that it was time for
a change, the company decided to restructure itself. Explains Harish Mehta,
chairman and managing director, Onward Technologies, We decided to restructure
our operations and move into the lucrative product design space. The company
realised that the global engineering design market is worth a hefty $7 billion.
An Avendus report states that 30 percent of a companys R&D spend is
on design and 40 percent of this can be outsourced. Realising its strength in
this space, Onward identified four niches in CADautomotive, agricultural,
industrial and aircraft components.
Says Mehta, After the dot com bust, we were looking
for a niche segment in order to improve our revenues. Design engineering services
fitted the bill perfectly. Considering the fact that we have been delivering
IT design engineering services since 1991, we had already built up a high level
of domain expertise [in this area]. This expertise is being tapped by
clients such as Emerson and John Deere. A majority of the companys clients
for this kind of work are from the automotive, aerospace, agricultural and heavy
engineering equipment verticals.
Kissa kursi kadesign and testing
Earlier Indian design engineering firms concentrated purely on converting low-end
physical engineering data into software-readable data. However, it is high-end
and testing work that sports attractive margins. Currently,
Onward is involved in designing and testing products according to parameters
such as their performance in a real life environment by developing a prototype.
For example, Onward developed a complete seating system for a major US automobile
manufacturer. It didnt merely redesign the seat; the company also developed
a physical prototype that was tested at the Defence Research and Development
Organisation (DRDO) lab in Pune to comply with Indian and European quality benchmarks.
Onward is now eyeing the $1 billion design outsourcing market for automobiles.
Using its knowledge base and processes, the company feels that it can reduce
development costs by around 50 percent. It is also involved in offering design
engineering services to sheet metal, castings, and plastic manufacturers.
Banking on BFSI
BFSI (banking, financial services and insurance) is still strategically important
for the company. Onwards banking and software support division (BSSD)
provides services to its banking clientele. Onward took the strategic step of
strengthening its presence in the BFSI space by buying Kale Consultants
banking solutions division. This move also gave a boost to Onwards Networking
Software Solutions Division (NSSD), which focuses on networking services and
system integration for BFSI organisations. With this acquisition, Onward can
tap the US banking industry, which according to IDC estimates is expected to
spend $60 billion on IT by 2006. Similarly, the European insurance sector is
expected to be a sizeable market. According to Celent, a consulting and research
firm, the European insurance industrys spending on IT is expected to touch
Euro 22.3 billion in 2004.
Nasscom estimates that the financial services sector accounted for around 39
percent of Indian software services exports in 2002-03.
On the eServices front, Onward has entered into an arrangement with Experia
Solutions for providing end-to-end outsourcing for IT-based business initiatives
and eKnowledge (e-learning) development. According to the arrangement, Onward
will provide system development and software maintenance using both offshore
and onshore models. This is in line with India software Incs global development
model strategy. Says Mehta, We follow a global delivery model to reduce
the time and cost involved in engineering program design. Our services are delivered
through offices located in the US, Germany, and UK to customers across the globe.
Onwards offshore development centres are located at Mumbai and Pune with
51 customer support and service locations across India. Globally, the company
has a presence in the US, Germany, UK, Singapore, Finland and Japan. Its worldwide
presence has helped Onward add thirty seven new clients during the last twelve
Designs on high-end automotive work
Avendus estimates that automotive design constitutes 68 percent of the global
engineering design market. With India on its way to establishing its credentials
as the leading outsourcing destination in the world, the list of companies outsourcing
engineering design work to India is on the rise. Even though, this number might
not match the client size of the software services market, it nevertheless holds
considerable potential. Harish Mehta is looking at the big picture when he talks
about the future of Onward Technologies. He believes that there is bound to
be an influx of high-end engineering design jobs to India in the next five years
and that this will drive the Indian manufacturing industry in the long run.
Despite the fact that some of the work till date has been low-value, high-volume
stuff (such as scanning designs, migrating CAD data from one system to another,
digital conversions etc.), it is quite possible to move up the value chain.
With a rejuvenated focus on two of the biggest potential areas that the Indian
IT industry can address, Onward is set to grow again.
||Incorporated as a private limited company
under the name Onward Engineering.
||Renamed as Onward Technologies and listed on the
Indian stock market.
||Recognised as the in-house R&D unit of the Dept.
of Scientific & Industrial Research, Govt. of India.
||The company's R&D department releases 'Arthapranali',
a multi-lingual banking software product.
||It enters into a global partnership with Novell Inc.,
to provide e-directory-related consulting services.
||Onward Technologies is restructured.
It identifies two focus areas--engineering services and BFSI.
Onward acquires the banking division of Kale Consultants.