Indian IT services firms, who constitute a large chunk of Top 20 companies went truly globalbe it in terms of building delivery capability in other offshore destinations or targeting newer markets beyond the US. Most firms reported higher revenues from Europe and are putting all out efforts to penetrate deeper into the market. The decision, which many of them had taken a couple of years back, purely for growth reason, saw an urgency of implementation as dollar started showing signs of weakening, while the Euro and the Pound still held steady.

Talking of dollar depreciation, it did not really affected the revenues negatively last year. In fact, contrary to popular belief, the average price of dollar was Rs 45.05up from the average of Rs 44.11 in 2005-06. That was because for the first few months of 2006-07, the dollar appreciated to reach a high of Rs 46 plus before beginning to decline. After March, however, the slide has accelerated. Many firms expect this to adversely affect their revenues in 2007-08. But if that is bad news for exporters, it is good news for importers. India still imports most of its IT products. A slide in dollar price will make them more affordable.

While building global delivery and de-risking against the dollar slide, Indian services firmsso far known only for their capability in application development and maintenance (ADM)broadened their portfolio. Many of themthe Big Three includedhad earlier set out to bring down the dependence on ADM as a clear target. They succeeded. And so did other large players like Satyam and HCL.

The year saw many Indian services firms buying out small, specialized firms in different geographies. But, unlike the big bang acquisitions in developed markets, most Indian firms acquired for skill. Whether it is a Top 20 firm like Wipro adding the next pearl to its now famous "string of pearls" or a Rest 150 like Sasken Communications acquiring Finland-based wireless firm Botnia Highteh Oy or even a much smaller Rest 150 firm like Infrasoft Technolgies acquiring the UK-based specialized services delivery firm M Consultingall these acquisitions were meant to add skills that can act as fuels for their future growth.

In another area too, Indian firms started competing as equals: BPO. Though BPO is not part if this DQ Top 20 issue, one thing worth mentioning is that most IT firms realized that unless they have an integrated approach to IT and BPO based on platform-building, they do not add any extra value. While late entrants like TCS used the learning from others to start with an integrated approach, companies like Wipro, which got into the business inorganically, undertook major restructuring in their BPO unitsometime even at the cost of growthto integrate IT and BPO. Infosys also has taken a similar path.

On the export front, some product companies have emerged and are making their mark globally. We are no more stuck with just one name (i-flex) when we talk of Indian software product companies: Polaris, Cranes, Subex, Infrasoft Technologies, 3i, and KLG Systel have emerged as strong contenders in the specialized product space in their own rights.

The companies selling in the Indian market (domestic companies) went more local, literally. Two trends were clearly visible across companies: large as well as small; specialized as well as broad multi-offerings companies.

One was the focus on the small and medium business (SMB) by all firms. IBM tried to shed its image of "for the big" and succeeded, making close to 35% of its revenues from this segment. So did SAP India. Oracle had close to 4,500 customers by the year-end out of which a significant number was added last year.

The other manifestation of going deeper was the move by many companies to open offices in tier-2 and tier-3 cities. All the large companiesIBM, Microsoft, Sun, Oraclehad a clear target of penetrating into "the nooks and corners" of India. IBM had a target of reaching out directly to seventeen small cities by the end of 2007. Sun already has built direct presence in places like Coimbatore, Trichy, Vishakhapatnam, Guwahati, and even Jammu. Oracle went to Lucknow, Jalandhar, and Bhubaneswar as well. Raipur, Nagpur, Nashik, Thiruvanantapuram, Ranchi, Bhopal, Ludhiana, Goa, Indore, Nagpur, and Dehradun were the other favorites.

Many firms partnered the central and local governments in their e-Governance and citizen services initiatives. While the MCA 21 project of the Ministry of Company Affairs has already received a lot of attention because of its scale, state governments are all building initiatives. Most state governments finalized the contracts for their State WANs (SWANs). Cisco owes a significant part of its revenues to that infrastructure building exercise.

Also, the domestic services businesswhich has got everyones attention with the big-bang IBM-Bharti deal in 2004had accelerated in 2005-06, and further accelerated last year with IBM bagging the Idea and DLF deal and HP bagging the Uco Bank deal. Services now contribute a significant part to the business of IBM and HP in India.

The Tasks Ahead
Despite the impressive performance, the Indian domestic market is still small by even emerging market standards. Take for example IBMs business. Its Indian business is less than half of what it makes in China or Brazil.

This year will be the first full year when India will start with a lot of global attention for its sheer market potential and not just leveraging its low cost labor. As we are close to completing the first quarter, the trends make us hopeful that the growth will be even better.

But, before that, we will analyze how it movedsegment by segment and player by playerin Vol II of DQ Top 20. Enjoy the rankings.

Shyamanuja Das
shyamanujad@cybermedia.co.in

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