Pay heed to domestic market, IT firms told

Indian software companies, which have been busy conquering the world and neglecting their backyard, should not continue doing so. This is because the domestic market is going to grow into a huge opportunity and, left untended, is likely to be taken away by the international players, who are already digging roots in India.

This is the perception of Gartner, the technology researcher, which sees the Indian market growing at a compound annual growth rate (CAGR) of 16.4 percent between 2003 and 2008.

The research firm finds it ironic that the potentially huge domestic Indian market remains largely untapped by Indian IT and business process outsourcing (BPO) services providers, which have occupied a dominant position globally.

Multiple forces are working in tandem to drive the Indian IT services domestic market in to a boom phase through 2004 and beyond.

However, just as Indian players are trying to enter the US markets, global players are increasingly realising the importance of India as an BPO destination and are setting up development centers.

International firms, after having established their presence in India, will not only use the local delivery centers to service their offshore business but also target the fast-paced local IT services market, which grew 15 percent in 2003 over the pervious year.

Development and integration services revenues made up the largest share of the market, accounting for 57 percent of the total Indian IT services market.

Speaking at the Gartner Summit India 2004, Craig Baty, group vice-president and chief of research, Gartner, said, "At a CAGR of 17.3 per cent, India is expected to be the fastest-growing IT services market in the region compared with the global average of 6 per cent, making it faster than its Asian counterparts such as Singapore, China and Australia."

"By 2008, Indian domestic market will be almost 1.5 times the size of the Singapore market. The growth will primarily come from government contracts, banking financial services industry (BFSI) and manufacturing verticals," he added.

Gartner feels the Indian IT Services landscape represents a complex mix of market players comprising of local service providers focused solely on the domestic market, local service providers that focus largely on exports of IT services and have a very small exposure to the local market, local service providers that focus solely on exports though they may sell some product licenses in the local markets, multinational service providers selling into the Indian markets while also using India as a base for their global delivery model and multinational service providers that have facilities in India solely for use as a base for their global delivery model.

Ravindra Datar, principal analyst, IT Services (India) and BPO (Asia Pacific), said, "The year 2004 is expected to mark the beginning of a rapid growth period for the Indian IT Services market. The prominent growth drivers are: expectations of a stable economic growth, increased global competitive pressures on local industry, improving infrastructure, increasing investments in setting up offshore IT and BPO facilities in India."

He added, "With such strong growth expected, Indian players should look beyond the creamy layer of the market to recognise the huge potential hidden in the SMB sector. Essentially, they should look at playing the volume game deploying innovative strategies in the SMB sector, and showcase their global successes in the Indian market."

If they do not do this, they will "risk losing out to global players. Local Indian players have to gear up and demonstrate their capabilities and better reach across the country."