The Hindu Business Line : ‘Domestic IT services market to grow to $10.73 b by 2011’

Mumbai, Jan. 24 The domestic IT services market is pegged to grow to $10.73 billion by 2011 at a five-year compounded annual growth rate (CAGR) of 23.2 per cent, according to a research from Gartner Inc.

“The domestic IT services market is primarily being driven by economic growth, high growth among the small and mid-size businesses (SMBs), government projects and increased customer focus. Many IT service providers, multinational companies (MNCs) and domestic firms have now recognised this potential and are developing strategies exclusively for the domestic market,” said Mr Arup Roy, senior research analyst, Gartner. Most of the deals in the domestic space will be centreed around efficiency and cost savings will be the primary driver, added Mr Roy. Large Indian conglomerates face a major challenge in containing key IT professionals from joining specialised IT firms, said Mr Roy. The continuous turnover rates of key IT staff (in the range of 15 - 20 per cent) are also one of the major reasons why businesses are considering external service providers.

“Due to this we see a trend in which many companies are planning to spin off their IT divisions into an independent entity to capture the growing opportunities,” added Mr Roy, without naming any such venture.

Gartner estimates consulting, IT management and business process management services will see the fastest growth at five-year CAGRs of 28.1 per cent, 23.8 per cent and 27.1 per cent, respectively. Consulting revenue, although coming from a small base, grew 30.1 per cent to $340 million in 2006 compared with 2005.

Commenting on the vendor landscape, Mr Roy said, “As the market matures, competition will intensify, leading to consolidation. Vendors that are unable to find a niche for themselves, or smaller vendors with no real differentiators, will be acquired by larger, more-aggressive competitors. End-user IT organisations or captive unit spin-offs will have a difficult time in competing with well-established providers unless they also find their own niche.”

Currently, IBM is the largest vendor in the Indian market, followed by Tata Consultancy Services.

Both global and Indian vendors have leveraged these growth areas and the top three vendors, IBM, TCS and Wipro Infotech, together accounted for 26.1 per cent of IT services vendor market share in 2006.