India's IT services giants have set their sights on an increased share of the domestic IT services market, as economic growth in their home nation makes them look beyond their corporate customers in the U.S. and Europe.
The existence of fast-growing companies with IT operations far less mature than their counterparts in the U.S. and Europe makes India an attractive prospect for suppliers looking for growth possibilities.
Analyst company Pierre Audoin Consultants (PAC) expects the Indian IT services market to grow 14% by 2014, and the overall IT market by 16%.
PAC's research said: "Indian companies have been slow adopters of IT, but lately they have realized the importance of IT for keeping step with the developed world, and India's industries are rapidly adopting IT products and services to increase operational efficiency.
"… 2012 saw IT services companies increasingly focusing on their domestic markets, owing to weak economic conditions in the U.S. and Europe."
Indian businesses seeing change in IT services market
Sid Pai, president at ISG Asia Pacific, said India is typically the biggest or the second biggest market for IT services in Asia Pacific. "Indian IT services firms did not target Indian businesses, but they have had a change of heart," he said. "They are now not only supplying local businesses, but the government as well." Traditionally, despite IBM's extensive work in India, the Indian heritage multinationals have used labour arbitrage to grow massive businesses by selling to companies in high-cost countries.
Indian businesses are seeing this change. Prasad Tripurari, head of IT at Margadarsi Computers, said there is a big market opportunity because many Indian companies are not yet fully computerized.
"All the Indian companies -- small, medium and large -- are looking to computerize to reduce the manpower in their companies," Prasad said. "Major companies are looking to implement CRM [customer relationship management] systems to increase their sales."
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He said the large multinationals will find it tough to win business with small companies because they might be too expensive. "[Their success] may be very small because many small IT service [providers] are giving services for low prices compared to multinational IT service providers. This is the major drawback for multinational IT service providers." Prasad said in the mid-market the multinationals will be up against in-house IT. "Many midsize companies maintain their own IT service team for their IT needs, and may not [have] interest [in getting] IT services from these multinational companies."
Pascal Matzke, IT services analyst at Cambridge, Mass.-based Forrester Research Inc., said another challenge is the gap between the skills and experience at the big Indian multinational suppliers, and what India-based CIOs want.
He confirmed that Forrester is measuring the strategy change of the Indian multi-nationals. "For the last two years, we have seen a shift in focus among the big Indian suppliers, and they have moved away from the sole focus of offshore services to the domestic market.
"But in India, it is more about innovation and growth. While they offer a significant talent pool, the big Indian suppliers have not been focused oninnovation and growth.
"For Indian CIOs focused on growth, the big Indian multinational suppliers might not be the best partners. Their delivery capabilities are not focused on growth and innovation. They have been focused more on back-end rationalization," Matzke said.
He said tier-two or tier-three suppliers in India -- and particularly those that are spin-offs of large Indian businesses, such as Tech Mahindra and ITC Infotech -- might have the experience working with growing Indian businesses. "Also, multinationals such as IBM, which has focused on India for years, bring with them broad experience and huge India-based workforces."