India IT services to reach $9.5 bn in 2011

The India IT services market is on pace to reach $9.5 billion in 2011, an 18 per cent increase from 2010 revenue of $7.6 billion, according to Gartner.

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. 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%, 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,” said Arup Roy, principal research analyst.

Currently, only four industry verticals make up the bulk of the market (85% 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), said the report.

The share of local providers and multinational corporation (MNC) providers in India is almost the same — approximately 20%. Six of the top 10 providers are Indian (22.3% market share) and four are MNC providers (19.7% market share). So these two groups of vendors are about equally placed.

“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 labor 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 IT services market is quite small as compared with large markets such as the US or the UK, 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. These providers should consider providing as-a-service/pay-as-you-go offerings to counter some of these market challenges,” Roy said.