India IT Services To Reach $9.5 Billion In 2011

The India IT services market is on pace to reach $9.5 billion in 2011, an 18 percent increase from 2010 revenue of $7.6 billion, according to Gartner, Inc. India’s domestic IT services market ranks third in Asia/Pacific. The market is forecast to grow to $15 billion by the end of 2014.

“India’s domestic IT services is a large emerging market in high growth mode,” said Arup Roy, principal research analyst. “Coupled with other factors such as openness to adopt technology, and a maturing sourcing approach, it represents an attractive target potential for providers of all sizes. The top 10 providers have a cumulative market share of just 42 percent, indicating a highly fragmented market served by many small players with no large, dominant, well-entrenched player. However, this scenario varies widely by submarket such as by industry vertical.”

India’s IT services market is quite small as compared with large markets such as the U.S. or the U.K., but it does offer a growth opportunity to the service providers because of the buoyant market conditions. Gartner analysts said the market has a critical mass that is worth tapping and has the potential to expand further with “as a service”-type service offerings. “With a historic focus on cost, rather than on value for money, of services, as well as a propensity for scope creep in Indian services deals, new market entrants must be careful about the opportunities they target,” Roy said. “These providers should consider providing as-a-service/pay-as-you-go offerings to counter some of these market challenges.”

More from Biztech

Future Group - Reliance Retail Deal approved by CCI RBI ban on cryptocurrencies takes effect; prohibition could force investors to tap the black market

“There is still room for new players, and the barrier to entry is quite low. Hence, this market presents an immense opportunity for any large credible player to consolidate its position and grab market share in a big way. In the recent past, the cost of labour and infrastructure in Tier 1 cities has been rising, but it still is one of the lowest in the world. It also varies widely by region, and in some regions, providers can offer extremely competitive rates,” said Roy.

India’s growth fundamentals are on relatively solid footing and can support sustainable growth and development in the near future. High GDP growth rate leading to growth across industries is the key to sustained IT services growth potential. Government infrastructure projects will strongly drive IT, in conjunction with the expansion of the financial services and manufacturing subsectors. Currently, only four industry verticals make up the bulk of the market (85 percent of all IT services spending). Those four industries are banking, financial services and insurance; telecommunications; manufacturing; and government. This means that other industry verticals offer a good opportunity of growth as they start opening up and start engaging with external service providers (ESPs). The share of local providers and multinational corporation (MNC) providers in India is almost the same — approximately 20 percent. Six of the top 10 providers are Indian (22.3 percent market share) and four are MNC providers (19.7 percent market share). So these two groups of vendors are about equally placed.

“India domestic market presents a high growth opportunity at a good critical mass for a broader group of mainstream global providers and small to midsize providers to start competing in the Indian domestic market,” said Roy. “Companies who are planning to invest in India to target the domestic market should develop a realistic target of their revenue and growth potential in the medium to long term.”