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Indian IT firms: Targeting domestic market

Sep 5, 2008

The Indian IT industry is bearing the brunt of financial crisis and economic slowdown in the US as it derives maximum outsourcing revenues from the US. In wake of the economic slowdown, the software industry association body, NASSCOM, has projected software industry to grow at a lower rate at 21-24% in fiscal FY09 as against 28% in FY08. The dynamics of IT industry is changing and IT firms are now preparing themselves to meet new challenges. Traditionally, Indian IT firms have been deriving sales from the Americas and Europe but going forward, the CAGRs of these regions will be low where as the Asian market is expected to grow at a very fast pace and approach the market size of the European markets by 2011. The emerging Latin American and Middle-East/African markets, though smaller in size, are also expected to have a higher CAGR. The growth in the Asia-Pacific Region is expected to be higher mainly on account of growth in spends in China and India.

As per NASSCOM, the Indian IT-BPO industry continued to grow much faster than the global IT services industry, clocking a CAGR of 31.2% since FY 2004. The Indian IT industry is estimated to have grown to US$ 64 bn in fiscal 2008 from US$ 13.3 bn in FY04 (CAGR 31.2%), and during the same period, the domestic market business has grown to US$ 23.2 bn from US$ 8.3 bn in FY04 (CAGR 29.3%). As indicated in the chart, the Indian Domestic Market is growing as robustly as the export of IT services from India.

India is the fastest growing market in the overall Asia-Pacific region with compound annual growth rate (CAGR) of more than 18.6%. As per Springboard Research, the market segment, which is expected to witness the highest growth in India, is - infrastructure services. Infrastructure services segment is estimated to grow to US$ 4.27 bn by 2011. This will translate into 14% market share of the overall Asia-Pacific market. Infrastructure services is likely to grow at faster rate because it plays a critical role in business transformation, which includes mainframe centric solutions, desktop and distributed computing, network operations and monitoring, asset management, service delivery management, e-commerce and collaborative computing.

The other segment, which is expected to grow significantly, is applications services. This segment is expected to grow at a CAGR of 19.6% and will remain the most developed market segment in the Indian IT services space. Another segment, IT consulting, is estimated to grow to US$ 0.40 bn by 2011 compared to US$ 0.22 bn in 2007. Meanwhile, the overall applications market is expected to grow at CAGR of 19.6%, to represent 16% of the Asia-Pacific market by 2011. The application hosting services will grow at a CAGR of 21.2% mainly driven by small & medium business enterprises.

This growth of enterprise IT outsourcing in India is expected to fuel the surge of IT consultancy services, which currently occupies just 5% of the overall market. There is vast opportunity in consultancy projects from government projects and e-governance project in the domestic market, which is being exploited by software firms.

Conclusion
Indian software firms are targeting domestic markets aggressively to drive their future growth. Indian IT companies are increasingly focusing on expanding the breadth of their service offerings and capabilities to become a full services provider, which entails entire value chain of IT - from consulting to products and solutions and from implementation to support.

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