Second-tier Indian IT firms struggling to maintain growth

Bangalore: Second-tier IT vendors are not sharing the same optimism as their larger counterparts about a recovery in demand for IT services in the country. While the country's top technology firms including Tata Consultancy Services, Infosys Technologies and Wipro grew their revenues in double digits, Tech Mahindra and Patni saw their revenues and profits fall sequentially, because of pressure on telecom clients and project delays, and have refrained from giving a robust guidance, reports The Economic Times.

Whereas companies like Mastek, profits slipped into single digits to 2.5 crore from 35 crore in the comparable quarter of the previous year. Traditionally in the Indian IT industry, higher demand for IT services has spilled over to smaller service providers, benefitting them. But post-recession, there has been visible divergence in how large firms and a majority of medium-size firms percieve future demand.

Tech Mahindra, Mindtree Systems and Persistent Systems remained almost the same revenue size in 2009 and 2010 and others such as Mastek, Hexaware and KPIT Cummins saw a double-digit drop in revenues from 2009 to 2010 in dollar terms, says Sudin Apte, Principal Analyst with technology research firm, Forrester Research points out.

Sonata, NIIT, Polaris and Patni fared only marginally better with their revenue dropping between 8 percent and 4 percent. Although large firms also cut costs, they were still able to continue making investments in developing intellectual property and industry-specific skills, he said. The recession also pushed mid-size firms, desperate for business, to accept "unreasonably high rate discount demands," according to Apte.

The report also said the market for small- and mid-size offshore players is highly crowded, with more than 400 firms, all looking the same and positioning themselves the same way, which was till based on the traditional advantage of leveraging low-cost resources.