Channel: Industry

Wednesday, November 03, 2010
US IT companies in India
The success of Indian IT Industry overseas and particularly in US is one of the most talked stories of the recent times. The dream run of the homegrown companies like....

By Aditya Jha, IBM
Tables & Graphs
 

The success of Indian IT Industry overseas and particularly in US is one of the most talked stories of the recent times. The dream run of the homegrown companies like TCS, Infosys and Wipro has been possible largely because of their continued success in drawing more business from US. More than 50% of businesses of Indian companies come from US, and the US clients are one of their biggest and longest serving clients. But still this is only the half story told. Somewhere in getting gaga over the success of Indian companies in US, it should also be considered whether US companies have got any success in India or not. Whether ‘Destination India’ for US companies has been any good as has been the ‘Destination US’ for the Indian companies. And the trend back home suggests that it is the US companies who are leading the lot.

 

With markets struggling world wide but a resilient India in 2009-10, the IT industry witnessed a better growth in domestic market at 7% while the overall growth was 5%. Also the list of the top 20 domestic IT companies is led by US based MNC HP and nearly half of the companies in this list are from US.

 

What makes this growth more noticeable is the fact that the global revenues of these companies declined in the same period. Many of US based MNCs achieved the growth in double digits while for most of the Indian companies it was in unimpressive single digit, showcasing their diminutive penetration in domestic market.

 

If we look at the revenue share of IT companies in 2009-10, the MNCs are much ahead of Indian companies in domestic market. The big guns like Microsoft, HP and Intel draw more than 80% of their revenue from their India operations whereas the Big Three of Indian companies have more than 80% of their business outside India. It was not until recently that Indian companies have started showing more interests in India, like Infosys which came up with a new division called India Business Unit, dedicated for projects in India only a few years back.

 

When it comes to exports, Indian IT companies do rule the roost but as the result in 2009-10 are anything to go by; the MNCs have not been that far behind either and many came in the close ranks with their Indian counterparts.

 

The big MNCs are evenly placed in the list of top performers in the export market and the growth rate of companies like Accenture and Mphasis have been even better when compared with the combined average growth of the top three Indian firms. If the MNCs can maintain this growth trend in coming years they will soon give hard run to the Indian companies.

 

To make for the lost ground in service exports from the country, the US Companies are revamping their strategies and targeting acquisitions of small software and consulting firms and increasing their Indian headcount.

 

They have been also aggressive in increasing their Indian headcounts, which has doubled and tripled in recent years and now in many companies’ accounts for nearly one third and one fourth of their total global workforce.

 

However, the scope of IT services in India is unlike that in US or other developed countries and is more about IT infrastructure, customized software products and High Level Consulting. In 2009-10, the software products accounted for nearly 40% of the local market, which had revenue of $25.5 billions. The traditional leaders like IBM, HP and Microsoft, with their vast experience and expertise in these segments have also been the first to get the most of the home projects. In India most of the e-expenditures are on the green field projects and US companies, which are mostly product based and provide end to end consultancy get an edge over the Indian companies which are predominantly service oriented.

 

The US IT companies get almost 80% of the consulting assignments in India. The central government has PwC as consultant for its e-governance programs. Ernst &Young is a consultant in the Unique ID program and Accenture is involved in making the strategy of India’s department of posts program.

 

The National Unique Identification Program (UID) has also created a lot of opportunities for these companies. While one of the 200-crore biometric solutions contracts has been awarded to Accenture, for another 2000 crore contract IBM and HP are among the competing vendors.

 

Apart from government projects, these companies have been equally successful with other projects. The IBM – Bharti deal is one of its kind where IBM provides the complete IT solutions to Airtel and in turn is a partner in its revenue sharing. IBM has also bagged LIC’s 50-crore CRM project. It is also one of the vendors in the 2,000 crore Tax Net project being implemented by the Central Board of Direct Taxes. Microsoft is involved with the Citizen Service Centre project and Intel is involved with the WiMax program

 

As the future seems bright for IT industry, and the differences keep disappearing between the MNCs and Indian companies, the landscape has become more local or global as we put it. Indian IT companies are increasing their global footprints and becoming more global and US Companies are expanding their business from India and becoming more local. Every other company is becoming equally competitive and the good news is that pie is only growing.

 

This growth has also brought in some noise from US. It has become a common trend in US now days to lambaste Indian IT industry for every job lost there. As the US political climate is heating up we can expect more such debates in coming days. But if we look more carefully we find that it’s the nature of this industry that the factors like cost effectiveness and customized solutions win over rest of the factors. Be it in India or US the clients will always give preference to these factors ahead of nationality of the vendor companies and only that way can minimize operational costs and sustain growth in long runs. The growth in this industry only confirms that how the future businesses will not remain confined to any boundary but will become global in true sense.

 

Aditya Jha
Author is SAP business intelligence consultant with IBM in India.

 

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