Gartner warns Indian IT firms

By siliconindia staff writer   |   Tuesday, 24 August 2004, 07:00 Hrs
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MUMBAI: Multiple forces are working in tandem to drive the Indian IT Services domestic market in a boom phase in 2004 and beyond. However, just as Indian players are trying to enter the local US markets, global players are increasingly realizing the importance of India as an outsourcing destination and are setting up development centers.

These players, after having established their presence in India, will not only use the local delivery centers to service their offshore business but also target the fast paced local IT services market, which grew 15 percent in 2003 over the pervious year. Development and integration services revenues accounted for the largest share of the market, accounting for 57 percent of the total Indian IT services market, growing at a compound annual growth rate (CAGR) of 16.4 percent through 2003 to 2008.

Said Craig Baty, Group VP and Chief of Research, Gartner in his session on Global Sourcing at Gartner Summit India 2004, "At a CAGR of 17.3 percent, India is expected to be the fastest growing IT services market in the region as compared to the global average of 6 percent, making it faster than its Asian counterparts including Singapore, China and Australia."

"By 2008, Indian Domestic market will be almost 1.5 times the size of the Singaporean market. The growth will primarily be driven by government contracts, Banking Financial Services Industry (BFSI) and manufacturing sector," he further added.

Mapping the characteristics of the local market Gartner states, the Indian IT Services landscape represents a complex mix of market players comprising of Local service providers focused solely on the domestic market, Local service providers that focus largely on exports of IT Services and have a very small exposure to the local market, Local Service providers that focus solely on exports though they may sell some product licenses in the local markets, Multinational Service Providers selling into the Indian markets while also using India as a base for their global delivery model and Multinational Service Providers that have facilities in India solely for use as a base for their global delivery model.

This complex landscape of domestic and multinational service providers with their captive and non-captive facilities in India does have an impact on the domestic market demand. However, it is ironic that the domestic Indian market remains largely untapped by Indian IT and BPO services providers that have occupied a dominant position in the global offshore services market.

Speaking at the Gartner Annual summit 2004, Ravindra Datar, Principal Analyst - IT Services (India) & BPO (Asia Pacific) said, "The year 2004 is expected to mark the beginning of a rapid growth period for the Indian IT Services market. The prominent growth drivers are: expectations of a stable economic growth, increased global competitive pressures on local industry, improving infrastructure, increasing investments in setting up offshore IT and BPO facilities in India."

He further added, "With such strong growth expected, Indian players should look beyond the creamy layer of the market to recognize the huge potential hidden in the SMB sector. Essentially, they should look at playing the volume game deploying innovative strategies in the SMB sector, and showcase their global successes in the Indian market, or risk losing out to global players. Local Indian players have to gear up and demonstrate their capabilities and better reach across the country, to be able to challenge global competition, that have strong established brands, stronger financial power to penetrate and eventually dominate the Indian market, if not challenged."

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