Capgemini, Logica, AT&T, BT now eye local IT services

The domestic information technology (IT) services market is no more a lowprofit option and entry of global players in this segment is a testimony to its growing maturity and lucrativeness.

Earlier, the domestic IT services market was characterised as ‘where you would pay for the hardware but get the services for free’. This has changed over the last few years with the profit margins in some segments comparable to the developed markets.

Says Seepij Gupta, analyst, software and services research, IDC India: “In some segments of the domestic IT services markets — application management and managed services, for example — the profit margins range between 25-30 % and 16-32 %, respectively. This kind of profitability makes the India market almost at par with the developed economies.”

Rising profits also reveal the growing maturity of the local market where corporates and governments are willing to spend a larger amount on technology. Sudip Saha, analyst, services research, Springboard Research, says the maturity curve is getting sharper in the domestic market reflected in the larger size of IT outsourcing deals as well as longer-term contracts. “Corporates are realising that having internal IT departments is expensive and it better to outsource,” he added.

European IT services majors like Capgemini, Logica, Groupe Steria and Atos Origin have already planned their local market moves. Segment-specific players like AT&T and BT too have made their foray into the telecom technology services market in India.

Anand Sankaran, chief executive, Wipro Infotech, said domestic IT services market is reasonably attractive and has steadily seen more vendors getting in: while the market was dominated by the likes of IBM, TCS, Wipro, Hewlett-Packard and HCL Infosystems, it is now seeing aggressive pitches by Infosys Technologies and Accenture.

Springboard Research says the domestic IT services market size was $5.7 billion in 2008 and is expected to touch $6.6 billion this calendar. According to Mr Saha, there are sectors in India like utilities and infrastructure which are actively looking at outsourcing their IT requirements and in the process expanding the market.

The domestic IT services market has already set certain global benchmarks which are either being very closely studied or even getting emulated. A classic example of this is the Bharti-IBM IT outsourcing deal, which set a benchmark for the global telecom industry.