Source: economictimes.indiatimes.com

For the $40 billion IT services and ITeS industry, it could well be time to chant Homeward Bound. Dogged by rising rupee, increasing wages and dipping margins in the IT exports business, the home market is now far too attractive to ignore.

Demand for IT products and services from India Inc is growing at a fast clip, margins are attractive and there are no rupeedollar worries. And most interestingly the deal sizes have gone up significantly with a large number of $50-100 million IT contracts up for grabs. This is similar to what Indian players chase in the global markets.

Companies with domestic market arms like TCS, HCL and Wipro and multinationals like IBM, Accenture, HP have seen the business grow significantly. Even Infosys Technologies is setting up an India Business Unit to tap the local market. While for the small and mid-tier IT companies the local market provides an opportunity to stay afloat in these tough times.

According to Rajdeep Sahrawat, vice president, Nasscom, today the domestic market is far cry from what it was earlier. “ There are mega deals up for grabs both in the private and public sector. For instance the railways ERP project, the BSNL systems integration, networking projects, IT work from ministry of finance and private telecom companies, banks and others are offering multi-year contracts that are over $100 million,’’ he says.

The fact that other destinations are becoming attractive for global work also makes it imperative for IT companies to increase their local market exposure. Says Avinash Vashistha, chairman & CEO, Tholons, an advisory firm, “ If companies, particularly the small and medium ones don’t address the domestic market they’ll find the going tough. The larger companies are in a better position to cope with global market fluctuations and managing a stronger rupee, but for the smaller players things can be difficult, as competition for global IT work is also growing.

Today Vietnam offers rates 20% cheaper than India with same quality for some services. While Philippines is also an attractive low cost outsourcing destination.’’ Adds George Paul, associate vice-president , HCL Infosystems, “ Companies today are comfortable outsourcing IT infrastructure that was earlier handled internally.

Information Communication & Technology (ICT) is recognised as a key infrastructure and that’s driving growth in the domestic market.’’ HCL Infosystems has about 5,000 people focussed on the home business.

According to IDC the domestic IT and ITeS market will grow at 24% in 2008 to touch Rs 1.1 lakh crore. IDC sees a higher local demand driven by growth of broadband, expansion of Software-as-a-Service (SaaS), service oriented architecture, virtualisation as also networking projects. The net margins in the domestic market are at about 9-11 % and this has improved considerably in recent quarters.

Also, companies have lower overhead costs and often use international experience in the local market . Says S Venkatramani, vice president & head, India geography , TCS, “ earlier the demand was selective and doing IT in India was margin dilutive. Now its different. Selective engagements and execution efficiency ensures that margins are healthy. At the state level a single IT deal averages Rs 25-50 crore a year and a central or nation wide level projects are worth at least Rs 100 crore.’’ TCS has about 7,000 people in its local operations.

On the other hand Wipro has about 10,000 people looking after the domestic business. Says Suresh Vaswani, president, Wipro Infotech, “ Last year we had a 50% growth in the domestic business.

There are now total outsourcing deals from clients in India which spans data centre management, applications development, branch support (for banks, insurance companies etc), consultancy, infrastructure management. We will increase focus on the local market’’ Wipro Infotech has handled about 10 total outsourcing contracts including those from HDFC Bank, Dena Bank, Yes Bank. As India Inc looks at IT for cutting edge solutions, IT service providers can ignore the home business only at their peril.

Source: www.reuters.com

European companies outsourced more business than their counterparts in the Americas for the first time in 2007 as northern European countries followed Britain’s lead, outsourcing consultancy TPI said on Friday.

The value of outsourcing deals signed in Europe last year was $40.9 billion, compared with $26.6 billion in the Americas. The financial services sector dominated demand for business process outsourcing in Europe and elsewhere, TPI said.

“Companies across Europe are outsourcing in ever greater numbers,” TPI partner Duncan Aitchison said in a statement, naming Germany, the Netherlands, Sweden, Switzerland and France as being particularly active.

TPI, which monitors contracts worth $25 million and over, estimates active outsourcing contracts worldwide were worth $79 billion at the end of 2007 and predicts the market will grow by 7 percent this year.

“Given the sustained growth rate we are currently witnessing and the level of activity, particularly in Europe and Asia Pacific, we have every reason to expect similar strength in the market going forward,” Aitchison said.

Business process outsourcing, a high-value activity in which service providers supply people and manage processes as well as providing basic IT services, grew strongly, while human resources outsourcing fell out of favour, TPI said.

The global share of deals awarded to Indian firms rose to 9 percent this year from 6 percent in 2006. And so-called European big five: Atos Origin (ATOS.PA: Quote, Profile, Research), BT (BT.L: Quote, Profile, Research), Capgemini (CAPP.PA: Quote, Profile, Research), Siemens (SIEGn.DE: Quote, Profile, Research) and T-Systems (DTEGn.DE: Quote, Profile, Research) awarded 9 percent of the 2007 outsourcing deals.

India’s own domestic outsourcing demand, driven by the country’s wider economic success, is also growing. The value of contracts signed in India last year was $5.7 billion, up 77 percent and surpassing Australia and Japan.

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