Decoding the domestic it market opportunity

Decoding the Domestic IT Market

Opportunity
Mid sized IT companies have played an important role in the development of the domestic IT industry
that is estimated to be around INR 1200 Bn as of FY10. However the Indian market has its own evolution
path in terms of key services, customer segments, competition and operating model. Mid sized service
providers must take cognizance of these differences and make appropriate adjustments to their business
model to continue to profitably address the domestic opportunity, say Kaustav Ganguli & K. Raman
(Practice Head – Infocomm, Media & Education) of Tata Strategic Management Group.

The domestic Indian IT Market, estimated at INR 1200 Indian enterprise & government customers are opting

Bn as of FY10, is expected to grow at a healthy rate of for players capable of end-to-end play (hardware,

18% per annum over the next 3 to 5 years. India’s IT software & services) in turn-key system integration

spend continues to be driven primarily by hardware projects.

(40% of total spend), followed by services (39%) and
In terms of customer segments, Banking, Financial
software (12%) (Refer Fig 1.). A developed market like
Services and Insurance (BFSI), Government and
the U.S., on the other hand, has most of its spends
Telecom are the top verticals in India accounting for
directed towards services (44%) and software (34%). It
74% of overall spends. What is worth noting is that
would seem that India, at a macro level, is trying to
even amongst top verticals in the Indian market there
catch up first on creating the right kind of IT
are differing degrees of IT maturity & spend behaviour.
infrastructure, even as it spends simultaneously on

software and services.

Under IT services the top spend areas for Indian

companies are System Integration (24%),

Infrastructure Management Services (36%) and

Application Management (20%). This is in stark

contrast with the export market where Custom

Application Development, with 51% share of the export

market IT services spend, and Application

Management, with 28% share, continue to be the

dominant service lines.

As organizations & institutions leapfrog levels of IT

maturity by procuring integrated solutions, combining

complex hardware, software & services, majority of

1 Tata Strategic Management
Group

Figure 1 : Domestic IT – Market Size and Segments

Indian Domestic IT Market (Rs Bn) Domestic IT Revenue Split (%)

18%
1200
1044 1094

729

FY07 FY08 FY09 FY10 Total: Rs 1,200 Bn
Source: Nasscom Report

The other key thing to note about the Indian market is

the increasing adoption of IT by the Small & Medium

Enterprise (SME) segment. The SME segment

accounts for almost 1/3rd of the total domestic IT

spend (Refer Fig 2.) and is expected to grow at a rate

very similar to the overall market growth rate (18% per

annum for 2010 to 2013). Globally, however, the SME

segment accounts for a higher share (44% as of 2010)

of the total IT spend. This suggests that Indian SME

segment spends on IT, while increasing at a fast clip,

may still have significant potential for further growth.

To sum up, the Indian market demands end to end

capabilities across various verticals and for different

levels of IT maturity. This offers a structural advantage

to large sized IT companies as they would typically

possess the breadth and depth of services to cater to

the different need types of verticals having differential

IT maturity.

However the Indian IT Market has traditionally not

been the focus of large Indian IT players. The top ten

listed IT players from India (in terms of annual

turnover) who account for 62% of industry’s exports

from India command only 23% of the domestic IT

market share. While the largest Indian IT companies

continue to focus on opportunities in foreign markets

Group

the domestic market, at least in the immediate term, companies must have a clear idea of the alliance &

offers an attractive opportunity to the small and mid- partnership strategy they need to adopt.

sized IT companies.
Innovations on Delivery

In order to address the opportunity effectively mid
In order to protect margins and ensure profitability
sized companies need to develop capabilities to
companies will need to innovate on delivery models.
address the unique needs of the Indian market.
The innovations need to ensure that common process,

Focus on Select Customer Segments platform, human resources and infrastructure are

leveraged for multiple customers. One of the best
To get a higher return on resources deployed mid
examples of delivery innovation in Indian IT has been
sized companies need to have a sharp focus on the
in the Managed Services space. Here, companies
customer segments they would like to cater to. The
have leveraged their expertise in Remote Infrastructure
customer segmentation may have to go beyond
Management (RIM) to drive down delivery costs and
traditional industry verticals and focus on specific sub-
boost margins. The model banks on greater sweating
verticals or organization sizes (by employees or by
of centralized technology and human resources in a
annual turnover) within such sub-verticals. This is
shared services model for multiple customers. Given
because different verticals and different sizes of
the lower price points in the domestic market, service
companies within such verticals are in different stages
providers will have to work on such innovative delivery
of IT evolution and would have different needs to be
models for higher profitability.
catered to. For example if a company wants to focus

on the government sector it may need to go further and Talent Management Strategy

also make decisions on the type of projects, the states
The other factor that would decide the relative success
it wants to focus on, the target agencies & entities in
of companies in the domestic market is in the realms of
the government and also the offerings for the sector.
talent acquisition, management and retention. IT

Alliance Strategy for Missing Capabilities companies are fast realizing the fact that value in

customer engagements get driven by employees
As majority organizations in the domestic market prefer
engaging with customers and not in back-offices.
end-to-end solutions, mid sized companies in the short
Hence there is an increasing focus on developing a
term will need to create effective partnerships to take
holistic strategy towards attracting high-quality talent,
care of missing capabilities. These companies would
engaging & motivating them, and ensuring higher
also need to acknowledge and accept that their roles
returns on investment in such talent by retaining them.
could be varied depending on the opportunity. For

example, the mid sized companies could play the role Innovations on Pricing Models

of service providers to other IT companies in some
In more cases than not, Indian Enterprise Customers,
cases and address the needs of the end customer in
especially those amongst SMEs, find it difficult to make
others. Such complex relationships would mean that
significant one-time investments in upgrading their IT

Group

infrastructure or applications portfolio. Our analysis effectively leveraged implementation partnerships with

shows that an average medium sized Indian enterprise other IT majors for initial entry and ramp-up in their

with an employee size of ~300 has an annual IT identified customer segments. As far as innovation in

budget in the vicinity of Rs. ~42 Lakhs – this obviously delivery model is concerned, one of the most

places constraints on the extent of one time capital successful examples is found in the Managed Services

investments that such a company can make towards IT space where leading service providers like HCL &

upgrades. This underlines the need for opex-based or others like Allied Digital and Glodyne pioneered the

‘pay per use’ pricing model in the Indian market. concept of Remote Infrastructure Management (RIM)

Needless to say – such migrations in pricing models to cut down delivery costs and boost margins. The

need to go hand-in-hand with changes in the delivery other noteworthy example of delivery model innovation

architecture as well. The other emerging trend in is unfolding in the SME space in the domestic market.

pricing models is with regards to increasing usage of Here, some mid sized companies like Ramco Systems

performance-based or outcome-based pricing – are offering cloud based services on a ‘pay per use’

especially in the area of IT services. Service providers model to its customers and others have started offering

need to be alive to such new customer requirements services in cloud consulting & integration. Though

with respect to pricing and effect appropriate changes most IT companies in India are yet to adopt a

in offerings & delivery. comprehensive talent management strategy, the seeds

of change in this area had perhaps been sown by HCL
Learnings from Successful Companies
in 2005 when it announced its ‘Employees First,
The success stories of the largest Indian IT companies
Customers Second’ (EFCS) policy. The EFCS is based
focused primarily on international markets are well-
on the five pillars of employee empowerment,
chronicled. However, in the domestic market we also
transformation, recognition, knowledge & support and
find examples of medium or small sized companies
endeavours to drive a unique employee organization
that have grown successfully by making strategic
thriving on a value-driven culture.
choices in some of the aforementioned factors. Apart
Strategic Imperatives for Domestic Market
from clearly identifying and implementing a go-to-
Play
market approach for select customer segments, many

of these companies have relied on effective It is clearly evident that the domestic market has very

partnerships, innovations on delivery & pricing, and a unique characteristics in its IT needs and spend

holistic talent management strategy for their growth. behaviour. Companies which are looking to serve this

For example, Allied Digital and Glodyne are two fast-growing and attractive market have to make

examples of companies who have derived majority strategic choices primarily in two aspects. These two

(94%: Allied; 75%: Glodyne as of 2009) of their aspects are:

revenues from the domestic market. One thing that
1. Where to compete: This would involve
clearly marks out these companies is how they
decisions on offerings & market segments (verticals

Group

/ sub-verticals, enterprise sizes, geographies, strategic choices to maximize their chances of

MNC / Indian, public / private etc.) sustainable growth in the domestic market. Firms that

do this quickly can seize the advantage and emerge as
2. How to compete: This would mean
the next generation of success stories in the Indian IT
identifying innovations in delivery & pricing models,
sector.
entering into effective partnerships, and adopting
© Tata Strategic Management Group. All rights reserved
long-term initiatives to ensure higher returns on

talent.

Companies need to conduct critical analyses of the

strategic options under each of these two aspects and

institute an implementation program for the identified

About Tata Strategic:

Tata Strategic Management Group is the largest Indian Owned Management Consulting Firm. Set up in

1991, Tata Strategic has completed over 500 engagements with more than 100 Clients across countries

and industry sectors, addressing the business concerns of the top management. Today more than half

the revenue of Tata Strategic Management Group comes from working with companies outside the Tata

Group. We enhance client value by providing creative strategy advice, developing innovative solutions

and partnering effective implementation.

Our Offerings

Group

Strategy
Set Direction • Vision • India Entry
• Market insights : B2B, Urban, Rural • Alliance & Acquisition Planning
• Competitive Strategy • Strategic due diligence
• Growth/Business Plans • Scenario Planning

Organization Effectiveness Marketing Operations
• Organization Structure • Cust. Segmentation • Manufacturing Strategy
Roles & Decision rules • Product Innovation • Service levels
• Workforce Productivity • Market Share • Managing Complexity
Drive Strategic • Performance Management • Route-to-Market • Logistics & Supply Chain
Initiatives & Rewards • Brand Strategy • Throughput enhancement
• Capability Assessment • Structured Sales & • Capital Productivity
• Talent Management Distribution • Strategic sourcing
• Governance for family • Marketing Upgradation
businesses
• Delegation & MIS

Support • Program Management
Implementation • Refinements/Course Corrections

About the Author:

K. Raman is the Practice Head of the Infocomm, Media & Education Practice at Tata Strategic Management

Group. He has worked with various organizations in sectors undergoing rapid transformation like IT, Telecom

and Education, helping them identify key shifts in markets and dimensioning the impact of such changes. In

the IT sector he is involved with various mid-sized companies advising them on business model changes

required for sustaining and accelerating growth.

Kaustav Ganguli is the Engagement Manager with Tata Strategic Management Group’s Infocomm, Media &

Education practice. He has significant experience in providing advisory services on strategic issues to

organizations both in India and abroad. He has had functional and consulting experience in IT / ITeS sectors

and has provided strategic advice on issues related to growth, business model & profitability to several

organizations in the Indian IT & ITeS sectors.

Nir m al, 18t h Floor , Nar im an Point , Mum bai 400021, I ndia
Tel 91-22-66376712 Fax 91 -22- 66376600
ur l: w w w .t sm g.com em ail: r am an.kalyanakr ishnan@t sm g.com

Group

Decoding the domestic it market opportunity

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (15)

Similaire à Decoding the domestic it market opportunity

Similaire à Decoding the domestic it market opportunity (20)

Decoding the domestic it market opportunity