India IT Services Mkt Estimated To Be USD 7.5 Bn By 2011

Total domestic IT services spending in 2011 is expected to grow by 15.5% over 2010, riding on the strong waves of IT outsourcing services, finds the latest “India IT Services Report: 2010” report from Springboard Research. The market for CY2011 is expected to reach US$7.5 billion, representing more than 14% of the overall APEJ (Asia Pacific excluding Japan) IT services market.

The research shows that about 70% of IT services spending in India come from discrete services and the remaining 30% from outsourcing services. While outsourcing services are more developed in India than in China and many other countries in the region, the high skew towards discrete services in India, predominantly infrastructure support and integration-related services, clearly highlights the fact that the Indian IT services market is still in the maturing phase.

However, some Indian organisations are leapfrogging and paving their way towards growth characterised by “transformation” and “innovation”. Many of the new delivery and pricing models that we see in the market globally were born in India and adapted in other geographies of the world. Going forward, Springboard Research expects the IT services market in India to continue its rapid development and maturation process. However, the three major challenges that may hinder the growth include:

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1. Availability of Skills: The offshore industry is a significant competitor for Indian organisations (both on the end-user and the vendor side) and thus keeping the IT professionals “employable” in a rapidly changing technological environment will be a significant challenge. The problem is even more acute with the availability of skills around niche and up-and-coming areas such as storage and networks, virtualisation, and middleware.

2. Reach to Tier 2/3 Cities and Tier 2/3 Markets: Today, a large part of total IT spending comes from the western (Mumbai) and northern (Delhi) regions of India. Tier 2 and 3 cities are nonetheless developing very quickly and represent huge growth opportunities for IT vendors over the next few years. “Challenges faced to reach these new markets are numerous and include defining the right offerings and identifying the right pricing schemes for these products and services in a highly price-sensitive environment where offshore delivery models are not relevant,” noted Seepij Gupta, Associate Research Manager, IT Services, Springboard Research.

3. Differentiation of Services: With the top bracket of IT services providers competing in the same arena, differentiating one’s capabilities will be a key challenge moving forward. Springboard Research believes that the decisive differentiating elements in such a scenario will be the ability of the service provider to demonstrate three key areas to their prospective client, namely - experience, flexibility, and innovation.

Themes of “Leverage” and “Consolidate” to prevail

The last 10 years were characterised by ‘IT build-up’ with little attention paid to utilisation of infrastructure and its better management. As a consequence, the industry was exposed in the credit crisis/market slowdown of 2009, which forced organisations to weed out inefficiencies.

Springboard Research firmly believes that investment in IT will continue, but most of these investments will be in the services and technologies that promise to do “more with less” and help organisations “leverage and consolidate” their existing IT setup and have full/optimal utilisation. In the same context, technologies such as virtualisation, business intelligence, unified communications and cloud-based services will see increased investments in the coming years.

“The Indian IT services market is poised for growth in the next few years offering interesting opportunities for IT vendors of all sizes that will nonetheless have to participate actively in the rapid maturation process of this market in order to grow their footprints in a highly competitive environment,” noted Fred Giron, VP - IT Services, Springboard Research.