Since the previous decade, there have been a number of M&A deals
in the IT industry which have led to an increase in India's presence in
the global IT sector and MNCs setting up their base in India. Overall,
the country accounts for only a small fraction of the global services
market valued over USD 500 billion; so far, it has not attracted major
attention due its size. Currently, Indian companies are increasingly
spending on outsourcing IT systems and gaining access to cutting edge
technology. Additionally, based on the figures provided by NASSCOM, the
"small" home market now offers large multi-million dollars. The overall
domestic market, comprising of hardware, software and services (IT-BPO),
grew at an impressive 42 percent in FY 2007, and is forecasted to reach
USD 23.2 billion in the current fiscal i.e. 2008, according to NASSCOM.
According to The Economic Times, Indian companies in the IT services vertical have revenues amounting to USD 50 billion, of which about USD 10 billion comes from the domestic market. In effect, India might be a small market in the global IT services context, however, it is the third largest revenue generator for IT companies after the US (60 percent of the total), and the UK (18 percent of the total). The potential of the Indian domestic market is further supported by the GDP growth of around eight percent. The favourable economic climate is expected to lead to a boost in various sectors including IT and the battle for capturing space has already commenced between foreign and Indian IT players. Foreign IT players such as HP, IBM, Accenture, Capgemini, and Computer Sciences Corporation are amongst the early players to have identified the Indian domestic opportunity.
In the last quarter of 2007, IBM signed domestic IT deals worth USD 1.4 billion and had almost 1,600 deals in the second half of 2007. In 2004, the company signed a deal with Bharti Airtel - a telecom business operator, worth an estimated USD 750 million spread over 10 years whose value is now pegged to be over USD 1.5 billion, making it the largest domestic IT arrangement by far.
IBM's rival, HP's India subsidiary signed on clients such as United Indian Insurance, Bank of India, Britannia, Andhra Bank and Government of Karnataka.
Another MNC, Oracle is present in 20 cities, either directly or through partners. The tech major employs over 24,000 professionals in India which is a significant portion of its global employee base. The company has invested over USD 3 billion in the country over the past five years. Oracle currently has more than 6,000 technology clients and 1,000 applications clients. Its clientele include Bharti Airtel, Ashok Leyland, Aditya Birla Retail, Kotak Mahindra, Arvind Mills, BSNL, BPL Mobile and Genpact.
Rival German software major, SAP, on the other hand has over 3,200 clients across 25 sectors. SAP claims eight out of 12 navratnas and 21 of the top 25 brands in India as its clients.
Besides large Indian corporations, NASSCOM has forecasted that the IT spend by SMEs (small and medium enterprises) is set to grow over 20 percent in 2008 to around USD 9.6 billion. Although some of its current large clients include ONGC, TCS, Tata AIG, Mahindra & Mahindra, Zensar Technologies, NIIT, HDFC and Satyam, even Microsoft pitches itself in the mid-market segment. Cisco has 1,000 resellers in 100 cities and plans to include an additional 600 to cater to SME clients in Tier-2 and Tier-3 markets.
Foreign players are at an advantage being amongst the first movers in the domestic Indian sector. And Indian IT players are trying hard to fight a pitched battle against the might of the integrated deal making of MNC superpowers.
Wipro Infotech won a multi-year, USD 600-million deal to manage Aircel's IT infrastructure, making it the first Indian IT company to win such a large deal from a telecom company. Similarly, TCS bagged a USD 140 million BSNL networking contract and has also signed deals with the Ministry of Finance and other government departments.
Mid-size IT players like 3i Infotech are also trying hard to take a slice of the domestic business. However, the company acknowledges the fact that it's a challenge for them to tackle the large MNC players who have the might of software, hardware and BPO to serve an integrated deal. 3i Infotech has won a deal to manage the IT infrastructure for a large bank, across 900 locations.
Infosys Technologies, which only recently set up a domestic market unit, echoes a similar sentiment and the company is formulating strategies to meet the first mover advantage gained by MNCs. However, it is not just the capability to deliver services that has enabled MNCs to bag contracts; there has also been a lot of groundwork which has led to the business growth.
As Nipun Mehrotra, VP & GM of IBM's Global Technology Services in India and South Asia says: "We are investing in India for India to create local value and local solutions. For instance, we have developed a SDP (service delivery platform) for a large telecom operator on which it can port its new mobile value-added services applications to offer to subscribers. We have also developed intelligent business design solutions for DLF along with video surveillance. So, it's the depth along with breadth of our services which is unmatchable." In recent months, IBM has also expanded reach, setting up offices in small cities.
Besides the growing size of the sector, companies are interested in the domestic sector due the margins it offers. The margins are not only almost equal export margins, the capex per seat to set up a domestic IT outsourcing business are lower. According to a TCS official,"India was margin dilutive a few years back, now its margin additive, hence attractive."
Potential Sectors
Telecom, banking, infrastructure, e-governance and retail are some of the sectors which are seeing large IT deployments.
Telecom
Telcos like Idea, MTNL, BSNL, Airtel or Vodafone have outsourced their IT, billing, infrastructure management and customer care. With a subscriber base of an estimated 300 million, and growing, managing IT has become a gargantuan task. Bharti Airtel, BSNL, Idea Cellular and Vodafone have all entered into deals with IBM India which include work like consolidation of data centres, billing, CRM, data warehousing, IT helpdesk, disaster recovery, business intelligence, managing the intranet etc.
Banking
In the Banking, Financial Services and Insurance (BFSI) space, IT spends currently account for about five to seven percent of revenue. While TCS and SBI have formed a JV to offer consulting in the financial space, HDFC has doled out a Rs. 360crore (USD 8071 million) contract to Wipro Infotech. Interestingly, MNCs are targeting both, large and small deals in BFSI. For instance, IBM has inked a deal with Mahesh Sarkari Bank, a Pune-based cooperative bank, to manage the bank's IT infrastructure. Similarly, HP has tied up with United Bank of India and Andhra Bank.
Insurance
In the insurance sector, Max New York Life Insurance signed a 10-year, multi-million dollar services agreement in August this year with IBM - the largest such deal in the Indian financial sector - to form an integrated solution for policy issuance and administration by the name of Max Vijay. IBM will enable policy dispensation by wireless handheld devices which allow data transfer via GPRS to the back-end systems to facilitate on-the-spot issuance of insurance policies. Overall, IBM will provide policy setup, customer care and claims processing for Max New York Life customers. Aimed at making insurance available in every nook and corner of the country, the recently introduced insurance policy which focuses on the rural masses, will be sold across channels such as neighbourhood stores, microfinance institutions and NGOs, among others.
Infrastructure
Infrastructure is another area which is seeing large IT deployments. Real estate major DLF last year awarded a multi-million dollar 10-year contract to IBM to transform and manage DLF's information technology infrastructure. Recently, Mumbai-based realty company, Lodha Group awarded a 10-year, Rs. 132 crore (USD 29.55 million) IT transformation contract to Wipro Infotech. More such deals will be in the offing as new airports, malls, ports and SEZs are being developed. Though challenges like availability of quality talent and infrastructure in small towns exist, there is a great advantage in terms of negligible legacy systems.
Future
According to a Market Attractiveness Index used by Springboard Research to rank 15 individual IT Services markets on the basis of growth opportunities, the top five IT services markets in India are infrastructure application integration, enterprise application integration, enterprise IT outsourcing, custom application development and network integration. Though, in terms of size India is far behind the US and the UK, the country has emerged as the largest market just behind Australia (USD 14.5 billion) and China (USD15.6 billion). Indian companies have realised that exports apart, the next big growth area for them is back home. The rupee volatility, impact of the sub-prime crisis and economic slowdown has made them learn this the hard way. With the booming economy and over one billion consumers, businesses are expanding in India. To grab a major portion of those billion dollar contracts, the battle between MNC and Indian IT companies is only expected to intensify in the coming months.
In the last quarter of 2007, IBM signed domestic IT deals worth USD 1.4 billion and had almost 1,600 deals in the second half of 2007. In 2004, the company signed a deal with Bharti Airtel - a telecom business operator, worth an estimated USD 750 million spread over 10 years whose value is now pegged to be over USD 1.5 billion, making it the largest domestic IT arrangement by far.
IBM's rival, HP's India subsidiary signed on clients such as United Indian Insurance, Bank of India, Britannia, Andhra Bank and Government of Karnataka.
Another MNC, Oracle is present in 20 cities, either directly or through partners. The tech major employs over 24,000 professionals in India which is a significant portion of its global employee base. The company has invested over USD 3 billion in the country over the past five years. Oracle currently has more than 6,000 technology clients and 1,000 applications clients. Its clientele include Bharti Airtel, Ashok Leyland, Aditya Birla Retail, Kotak Mahindra, Arvind Mills, BSNL, BPL Mobile and Genpact.
Rival German software major, SAP, on the other hand has over 3,200 clients across 25 sectors. SAP claims eight out of 12 navratnas and 21 of the top 25 brands in India as its clients.
Besides large Indian corporations, NASSCOM has forecasted that the IT spend by SMEs (small and medium enterprises) is set to grow over 20 percent in 2008 to around USD 9.6 billion. Although some of its current large clients include ONGC, TCS, Tata AIG, Mahindra & Mahindra, Zensar Technologies, NIIT, HDFC and Satyam, even Microsoft pitches itself in the mid-market segment. Cisco has 1,000 resellers in 100 cities and plans to include an additional 600 to cater to SME clients in Tier-2 and Tier-3 markets.
Foreign players are at an advantage being amongst the first movers in the domestic Indian sector. And Indian IT players are trying hard to fight a pitched battle against the might of the integrated deal making of MNC superpowers.
Wipro Infotech won a multi-year, USD 600-million deal to manage Aircel's IT infrastructure, making it the first Indian IT company to win such a large deal from a telecom company. Similarly, TCS bagged a USD 140 million BSNL networking contract and has also signed deals with the Ministry of Finance and other government departments.
Mid-size IT players like 3i Infotech are also trying hard to take a slice of the domestic business. However, the company acknowledges the fact that it's a challenge for them to tackle the large MNC players who have the might of software, hardware and BPO to serve an integrated deal. 3i Infotech has won a deal to manage the IT infrastructure for a large bank, across 900 locations.
Infosys Technologies, which only recently set up a domestic market unit, echoes a similar sentiment and the company is formulating strategies to meet the first mover advantage gained by MNCs. However, it is not just the capability to deliver services that has enabled MNCs to bag contracts; there has also been a lot of groundwork which has led to the business growth.
As Nipun Mehrotra, VP & GM of IBM's Global Technology Services in India and South Asia says: "We are investing in India for India to create local value and local solutions. For instance, we have developed a SDP (service delivery platform) for a large telecom operator on which it can port its new mobile value-added services applications to offer to subscribers. We have also developed intelligent business design solutions for DLF along with video surveillance. So, it's the depth along with breadth of our services which is unmatchable." In recent months, IBM has also expanded reach, setting up offices in small cities.
Besides the growing size of the sector, companies are interested in the domestic sector due the margins it offers. The margins are not only almost equal export margins, the capex per seat to set up a domestic IT outsourcing business are lower. According to a TCS official,"India was margin dilutive a few years back, now its margin additive, hence attractive."
Potential Sectors
Telecom, banking, infrastructure, e-governance and retail are some of the sectors which are seeing large IT deployments.
Telecom
Telcos like Idea, MTNL, BSNL, Airtel or Vodafone have outsourced their IT, billing, infrastructure management and customer care. With a subscriber base of an estimated 300 million, and growing, managing IT has become a gargantuan task. Bharti Airtel, BSNL, Idea Cellular and Vodafone have all entered into deals with IBM India which include work like consolidation of data centres, billing, CRM, data warehousing, IT helpdesk, disaster recovery, business intelligence, managing the intranet etc.
Banking
In the Banking, Financial Services and Insurance (BFSI) space, IT spends currently account for about five to seven percent of revenue. While TCS and SBI have formed a JV to offer consulting in the financial space, HDFC has doled out a Rs. 360crore (USD 8071 million) contract to Wipro Infotech. Interestingly, MNCs are targeting both, large and small deals in BFSI. For instance, IBM has inked a deal with Mahesh Sarkari Bank, a Pune-based cooperative bank, to manage the bank's IT infrastructure. Similarly, HP has tied up with United Bank of India and Andhra Bank.
Insurance
In the insurance sector, Max New York Life Insurance signed a 10-year, multi-million dollar services agreement in August this year with IBM - the largest such deal in the Indian financial sector - to form an integrated solution for policy issuance and administration by the name of Max Vijay. IBM will enable policy dispensation by wireless handheld devices which allow data transfer via GPRS to the back-end systems to facilitate on-the-spot issuance of insurance policies. Overall, IBM will provide policy setup, customer care and claims processing for Max New York Life customers. Aimed at making insurance available in every nook and corner of the country, the recently introduced insurance policy which focuses on the rural masses, will be sold across channels such as neighbourhood stores, microfinance institutions and NGOs, among others.
Infrastructure
Infrastructure is another area which is seeing large IT deployments. Real estate major DLF last year awarded a multi-million dollar 10-year contract to IBM to transform and manage DLF's information technology infrastructure. Recently, Mumbai-based realty company, Lodha Group awarded a 10-year, Rs. 132 crore (USD 29.55 million) IT transformation contract to Wipro Infotech. More such deals will be in the offing as new airports, malls, ports and SEZs are being developed. Though challenges like availability of quality talent and infrastructure in small towns exist, there is a great advantage in terms of negligible legacy systems.
Future
According to a Market Attractiveness Index used by Springboard Research to rank 15 individual IT Services markets on the basis of growth opportunities, the top five IT services markets in India are infrastructure application integration, enterprise application integration, enterprise IT outsourcing, custom application development and network integration. Though, in terms of size India is far behind the US and the UK, the country has emerged as the largest market just behind Australia (USD 14.5 billion) and China (USD15.6 billion). Indian companies have realised that exports apart, the next big growth area for them is back home. The rupee volatility, impact of the sub-prime crisis and economic slowdown has made them learn this the hard way. With the booming economy and over one billion consumers, businesses are expanding in India. To grab a major portion of those billion dollar contracts, the battle between MNC and Indian IT companies is only expected to intensify in the coming months.
No comments:
Post a Comment