Indian IT-BPO sector to see consolidation in 2011
After a fairly good growth in 2010, the $60 billion plus Indian information technology (IT) and business process outsourcing (BPO) industry is likely to witness a phase of consolidation in the new year.
According to a research report by the consulting firm Dun & Bradstreet Indian IT-BPO industry is expected to adopt the inorganic growth route in order to widen their service offerings and enter new geographical markets. It is expected that several third party and captive BPO units are likely to increasingly acquire small size companies to ramp up their revenue, clients acquisition, expand business segments and enhance geographical reach. “Consolidation will also be driven by international M&A deals, propelled by robustness of the Indian players,” the report said.
Indian IT-BPO industry has been seeing a spurt in consolidation with done deals like Sutherland Global Services’ acquisition of Adventity Global services, Hinduja Global Solutions’ acquisition of a UK based customer relationship management company, Careline Services, etc. Now a consortium of private-equity firms Apax Partners and iGate are close to buying 63 per cent of Patni Computer in a deal valued at about $915 million.
Increasing focus on fast growing domestic market for IT-BPO will be another trend for the industry. Dun & Bradstreet expects that in a booming economy domestic market is likely to grow rapidly driven by major government initiatives such as increased spending on e-governance and increased thrust on technology adoption/up-gradation across various government departments to bridge the gap of digital divide. “The Government of India has enacted a national e-Governance Plan (NeGP) which creates a big opportunity for the IT vendors to create an effective partnership. It has separately allocated US$9 billion for investment in NeGP projects till FY14.”
SMB thrust
Among Indian companies small and medium business’s (SMB) are expected to emerge as a significant market for Indian IT-BPO industry. Indian SMB’s have realised the long-term benefits of increased productivity derived from adoption of IT solutions. During 2009, expenditure on IT by SMB segment was about 30 per cent of the total IT spends valued at over Rs 30,000 crore. To address the SMBs more effectively IT vendors are offering tailored-made, easy to implement IT solutions and delivery models to SMB’s. Microsoft has started to offer its ERP application to SMBs through SaaS (software as service) model. Wipro has collaborated with Microsoft to deliver ERP software through SaaS model for an auto parts supplier. The consulting firm is also of the view that Cloud computing will be the next big wave for Indian IT-BPO industry.
This service offers immense opportunity to penetrate the SMB sector and offer innovative solutions by providing them an equivalent IT infrastructure, which they could otherwise not be able to afford.
Several big high-tech companies such as Microsoft are adopting cloud computing technology to widen their market share. TCS has launched various models within cloud computing services targeting the large number of SMB’s in India.
Another major trend identified is Remote Infrastructure Management Services (RIMS). Its is set to emerge as a promising opportunity as vendors are progressively moving towards a remote delivery model where services are delivered by vendors and captives from low-cost locations.
According to a study conducted by Nasscom and McKinsey, global RIMS market is estimated to be USD 106-94 billion, out of which nearly 70-75 per cent of the infrastructure management roles can be offshored. Given its strength in offshore delivery of services, India is well positioned to capture a substantial share of this RIMS opportunity, the report said.
