The Indian IT services market will reach $9.5 billion in revenues during 2011, an 18 per cent increase over the year ago and well set to grow to $15 billion by the end of 2014, according to Gartner, Inc.
"India's domestic IT services is a large emerging market in high growth mode. Coupled with other factors such as openness to adopt technology, and a maturing sourcing approach, it represents an attractive target potential for providers of all sizes. The top ten providers have a cumulative market share of just 42 per cent, indicating a highly fragmented market served by many small players with no large, dominant, well-entrenched player. However, this scenario varies widely by sub-market such as by industry vertical.' said Arup Roy, principal research analyst at Gartner.
Although India's IT services market is small in comparison to bigger markets such as US or UK, it offers growth opportunities to the service providers. It is already ranked third in the Asia/Pacific region and the fundamentals of India's growth are strong and can support sustainable growth and development in the near future. The high GDP growth rate leading to growth across industries is the key to sustained IT services growth potential. Government infrastructure projects will strongly drive IT, in conjunction with the expansion of the financial services and manufacturing subsectors.
On the scope of entry for new players, Roy said "There is still room for new players, and the barrier to entry is quite low. Hence, this market presents an immense opportunity for any large credible player to consolidate its position and grab market share in a big way. In the recent past, the cost of labour and infrastructure in Tier 1 cities has been rising, but it still is one of the lowest in the world. It also varies widely by region, and in some regions, providers can offer extremely competitive rates."
Currently, only four industry verticals account for a major portion of the market (85 per cent of all IT services spending). These four industries are banking, financial services and insurance; telecommunications; manufacturing; and government. This implies that other industry verticals will offer good opportunities of growth as they start opening up and engaging with external service providers (ESPs).
The share of local providers and multinational corporation (MNC) providers in India is almost the same. Six of the top 10 providers are Indian and they have 22.3 per cent of market share and four are MNC providers and they have 19.7 per cent of market share.
"India domestic market presents a high growth opportunity at a good critical mass for a broader group of mainstream global providers and small to midsize providers to start competing in the Indian domestic market. Also with a historic focus on cost, rather than on value for money, of services, as well as a propensity for scope creep in Indian services deals, new market entrants must be careful about the opportunities they target." added Roy.