India's top outsourcers have increased their share of the global IT services market, as customers break down large multi-billion dollar orders into smaller orders that Indian outsourcers can handle, and also as customer confidence in Indian providers grow, according to research firm Gartner.
According to Gartner, the top six Indian offshore service providers, including Satyam, Wipro, Infosys, Tata Consultancy Services, Cognizant and HCL Technologies, accounted for 2.4% of the total worldwide IT services market last year as compared to 1.9% in 2006.
All the companies in Gartner's list have their headquarters in India, with the exception of Cognizant, which is based in the US but delivers services mainly from India.
India's top outsourcers have delivered high quality at low cost, and put in place top quality human resources practices that enable them to hire and manage a large number of staff, says Arup Roy, senior research analyst at Gartner.
"We expect the share of these companies to continue growing," Roy says.
Other analysts agree that India's top outsourcers are increasing their share of the IT services market. Most of the growth has come from their strength in application development and maintenance (ADM), says Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International. Indian companies are now clinching larger orders for ADM, and have close to 40% of this market, he added.
There are, however, challenges ahead for the companies in the Gartner list. Large multinational services companies like IBM and Accenture have set up operations in India to take advantage of the country's lower staff costs. The lower costs of Indian providers will not continue as a significant differentiator down the line, Roy says.
These outsourcing companies are also grappling with growing staff costs, staff attrition, the appreciation of the Indian rupee against the US dollar, and their large dependence on the US market, which accounts for about 60% of their revenue.
India's outsourcing business, which includes IT services and business process outsourcing, is likely to see its revenue growth rate fall to about 25% this year from an estimated 29% in the Indian fiscal year ended March 31, Som Mittal, president of the National Association of Software and Services Companies (NASSCOM), told reporters last week in Bangalore. The main reasons: the economic slowdown in the US and the rise in oil prices.
However, India's top outsourcing companies are expanding their operations in other countries to reduce their dependence on the US market. These companies' share of the total Western European IT services market, for example, moved up from 1.5% in 2006 to 1.9% last year, after their Western European revenue grew by 51%, according to Gartner. Attempts by the top Indian companies to diversify into new services like remote infrastructure services have also been successful, Roy says.