Indian IT service providers increasing pace of growth

Bangalore

September 27th, 2007

Gartner in a new research report, stated that the top six India-centric
offshore service providers, collectively referred to as SWITCH companies (TCS,
Infosys, Wipro, Cognizant, Satyam and HCL Technologies), accounted for 1.9 per
cent of the total $672 billion IT services market in 2006, compared to 0.5 per
cent of the $554 billion IT services market in 2001.

Allie Young, VP and Analyst, Gartner said, "India-centric providers have
perfected their respective value propositions through global delivery models (GDMs),
providing high-quality yet lower-cost labour to buyers globally. These companies
are making inroads in key clients, often beginning with smaller, project-based
or staff augmentation work."

Despite their relatively smaller size, the top six India-centric offshore
service providers are making significant strides to challenge the market share
leaders' positions by continuing to show strong annual revenue growth far
exceeding the market norm. The average annual growth rate of the SWITCH
companies was 42.4 percent in 2006, compared with a 4.3 percent growth of the
market leader during the same period.

Young said, "Some may argue that the reason for high growth rates, is
the smaller revenue base. While percentage growth on a smaller revenue base is
easier to achieve, the India-centric providers are outperforming (in total
dollar gains) many organizations far larger than they are."

Analysing, for example, the revenue growth of the leading global and Indian
provider in 2006, it can be seen that despite IBM's $48 billion total IT service
revenue, its dollar growth year over year was less than $1 billion. TCS on the
other hand increased its revenues by over $1.2 billion in 2006, and achieved
this increase from a revenue base 1/18th of IBM's size.

The increasing competitiveness of the India-centric service leaders is
evident in growth rates that outpace the market, and market share rankings that
have grown stronger each year. In 2001, the ranking positions of the top six
service providers in India spanned from 68 to 212. By 2006, they were within the
top 100, with rank positions spanning from 35 to 86.

Partha Iyengar, VP, Analyst and Regional Research Director, Gartner, said,
"From being relatively unknown brands a decade ago, leading India-centric
providers now offer formidable competition to the global players. Buyer adoption
of offshore service delivery and a willingness to consider emerging offshore
service brands has had a material impact on the competitive landscape and
providers' market share performance. Large outsourcers are now re-evaluating
their preferred vendor rankings to include Indian companies, especially for
multi-vendor engagements. If the India-centric IT service providers continue to
grow at the current pace, at least two companies will be a part of the top ten
companies globally."

Nevertheless, while these six leading India-centric providers are enjoying
strong growth rates, it would still take them a number of years to challenge the
top service providers or appear among the top three market share leader roles -
unless they make a major acquisition.

According to Gartner, the India-centric leaders must carefully assess which
type of acquisition is most suitable to their long-term objectives. If market
share leadership in the top three is a goal, they will need to pursue an
acquisition of considerable size.