)
Indian IT services players gave a tough challenge to traditional vendors like IBM, Accenture and HP-EDS while cornering the share of the outsourcing market. Analyst however doubt that if the same can be repeated now as technology shifts such as digital, automation and cloud take centre stage.
Indian IT/Business Process Management (BPM) services provider continue to hold its leadership position in the overall outsourcing space with a share of 55 per cent. According to Nasscom's Strategic Review 2015, the industry clocked revenues of $146 billion in FY15 of which $98 billion were exports revenues.
However, with investments in research and development (R&D) and acquisitions by global players such as IBM and Accenture much higher than Indian players, the former seem to be in a better position to claim market share in digital spends.
“Traditional vendors like IBM, Accenture, and HP have much higher R&D investments, a larger patent portfolio, longer history of expertise-led acquisitions, and more importantly a sales force far better attuned to selling higher-end solutions,” said Atul Goyal and Vaibhav Dhasmana of Jefferies in their report.
Earlier this month, India's largest IT services provider Tata Consultancy Services (TCS) said digital is 12.5 per cent of its consolidated revenues which makes this segment slightly less than $2 billion for the company.
Infosys on the other hand has not yet shared the revenue numbers from digital services, but the company has said that during the first quarter of FY16, it closed 15 deals on Panaya platform, and has close to 100 such engagements. Add to this automation impacted its infrastructure management services unit as it saw a growth of 7.2 per cent sequentially.
Wipro on the other had stated that it is setting up a 350-member team working on hyper simplification and on its automation platform, ‘Holmes’. It already has over 70 projects leveraging Holmes. In order to enhance the capability of its digital practice, the Bengaluru-based company, earlier last month, had announced the acquisition of Designit, a Denmark-based global strategic design firm, for a consideration of around Euro 85 million (around $94 million or Rs 595 crore) .
But a quick comparison with what IBM or even Accenture is doing makes all these achievements look dismissal.
Take for instance IBM. The Big Blue filed a total of 7,534 patents in 2014. Accenture on the other hand filed 4,680 patents in FY14 (Accenture follows September to August financial year). Now compare these numbers to Indian players. TCS filed 466, Infosys 79, and Wipro 334 patents in FY14 respectively.
The gap between the two groups further widens when it comes to investments in R&D. In case of IBM, it annually invests approximately 6 per cent of total revenues for R&D, focusing on high-growth, high-value opportunities. In case of Accenture, R&D spends were $640 million in FY14. Compared to these, TCS invested a total of $148 million, Infosys $99 million and Wipro $43 million in R&D in FY14.
“The Indian firms have been far slower to capitalise on the huge and fast growing digital market place. Accenture and IBM have moved quickly through acquisitions to build large practices and a sizable intellectual property (IP) base,” said Peter Bendour-Samuel, CEO, Everest Group. “The Indian firms have largely been on the sidelines with regard to digital and cloud acquisitions. TCS and others have been busy developing their own IPs and patent base. However, the acquisitive path has allowed Accenture in the digital space and IBM in the cloud space to far outdistance the Indian players,” he added.
Of course, one can always debate that IBM has a technology product legacy and hence the investments would be higher. But Accenture, which is a like-to-like comparison, is too ahead of Indian players.
One can also argue that in case of Infosys and Wipro, the focus has been on acquisitions. But even on that parameter, Indian players fall behind. Accenture for instance has acquired a total of 45 companies, mostly smaller ones, in the last three years. IBM has invested more than $26 billion, including over $17 billion on making more than 30 acquisitions, to build its capabilities in big data and analytics.
"Indian players can give competition to the global players for the short to medium term, since the early investments for (especially) large enterprises preparing for digital is to do infrastructure refreshes in what we call ‘renovating the core’. This continues to be a sweet spot for many of the Indian providers leveraging their overall capabilities in infrastructure and apps. In the longer term however, as the key focus shifts to the true promise of digital business, Indian companies can only compete effectively by taking their business and domain expertise, thought leadership and extensive ‘soft skills’ capability to the next level. This is a challenge since one can argue they have just reached somewhat of a par status with the ‘global globals’ on this front in traditional global sourcing, but with digital business the goal posts have shifted again, and fairly dramatically," said Partha Iyengar, VP, head of research, Gartner India.
Unlike Indian management of the top three firms who have only recently started to disclose numbers on digital revenues and deal wins, Accenture in FY14 stated that Accenture Digital generated $5 billion in revenue. For the third quarter ended May 31, 2015, Accenture said that Digital related services grew by 30 per cent and accounted for 20 per cent of its overall revenues.
“A contributing factor in digital is that it is still an immature space and is far closer to the business functions than traditional enterprise IT. Hence Accenture's in-country business facing teams have an advantage. As the space matures, the low cost industrial arbitrage of the Indian firms may advantage them in a similar way it has in the enterprise IT space. A contributing factor in the cloud space where IBM has been most active, is the IP-based business model and high valuations of the target firms. The Indian firms have so far been unwilling to pay the multiples necessary to acquire these assets,” added Samuel of Everest Group.
It is still too early to come to a conclusion on who will gain market share though it looks like that the scales are favouring the traditional players. As Digital as a space grow and encompass every vertical and segment, Indian firms may have to play a catch up game either through acquisitions.
