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Indian IT services to grow to $10bn

Announcement  |  Corporate 

*Churn in Internal IT Departments is Leading Indian Organizations to Outsource
Mumbai, January 22, 2008 : As user organisations continue to grapple with the challenge of high attrition rates in internal IT departments, the Indian IT services market is pegged to grow to US $ 10.73 billion by 2011 at a five year compounded annual growth rate (CAGR) of 23.2 per cent, according to Gartner, Inc.
Key factors driving this growth are agility, growth, cost takeout and innovation. But a factor which is acting as a prime impetus for companies to consider external service providers (ESPs) is the continuous turnover rates of key IT staff in the range of 15-20 per cent.
"Growth of the IT services market is primarily being driven by economic growth, high growth among the small and midsize businesses (SMBs), government projects and increased customer focus. Many IT service providers, multinational companies (MNCs) and domestic have now recognised this potential and developed strategies exclusively for the domestic market," said Arup Roy, senior research analyst, Gartner. "Many IT organisations are planning to spin off their IT organization into an independent entity to capture the growing opportunities," added Mr. Roy.
The market segments that are expected to witness the strongest growth are consulting, IT management and business process management (BPM) services with five year CAGRs of 28.1, 23.8 and 27.1 per cent, respectively. Consulting revenue, although coming from a small base, grew 30.1 percent to US $340 million in 2006 compared with 2005. As companies become more mature in their overall approach towards IT, it becomes more complex and sophisticated; they invariably have to rely on external providers to help them with consulting services. IT management revenue grew 27.3 per cent from 2005 to US $549 million in 2006. Increased adoption of remote infrastructure management services has driven the development of network operation centers / security operation centers, remote management centers and other managed service offerings from ESPs.
BPM in India is a high growth area that is moving beyond traditional customer relationship management (CRM) services. The primary challenges that are driving organizations to engage business process outsourcing (BPO) are cost, growth and business innovation. The primary objectives of BPO engagements are productivity improvements, process/business transformation, and cost-containment to improve profits.
Table 1 India: IT Services Market Forecast by Segment, 2006-2011 (Millions of Dollars)
2007 2008 2011 CAGR (%)
2006 - 2011
Hardware Maintenance and Support 868 1033 1724 20.7
Software Support 774 950 1771 24.8
Consulting 474 607 1174 28.1
Development and Integration 1765 2125 3516 21.1
IT Management 743 915 1598 23.8
Process Management 406 510 948 27.1
Total 5031 6140 10729 23.2
Source: Gartner (December 2007)
Both global and Indian vendors have leveraged these growth areas and the top three vendors, IBM, Tata Consultancy Services (TCS) and Wipro Infotech, together accounted for 26.1 per cent of IT services vendor market share in 2006. In 2006, IBM surpassed TCS to become the top vendor, taking 11.2 per cent market share. TCS and Wipro occupy the second and third positions with 10.9 and 4.1 percent market shares, respectively. However, the Indian IT services market is still fragmented, with the majority of the market being serviced by smaller local players that account for close to 40 per cent of the IT services market.
Commenting on the vendor landscape, Mr. Roy said, "As the market matures, competition will intensify and then lead 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 organizations or captive unit spinoffs will have a difficult time in competing with well-established providers unless they also find their own niche."
About Gartner
Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 3,900 associates, including 1,200 research analysts and consultants in 75 countries. For more information, visit www.gartner.com.

First Published: Tue, January 22 2008. 00:00 IST
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