From tactical charmers to strategic magicians-such has been the story of India's software and services exports parade in FY 2005-06.

Companies rapidly grew bigger and expanded offshore delivery centers in different geographies, cornered bigger projects, and made confident forays into consulting. The expectations from enterprises changed too. From just solution providers, the need was for IT partners. The operative word became 'end-to-end' rather than just delivery of a project.

Earlier, when Indian vendors did tactical work, the size of individual engagements used to be very small. Now, these involve 200 to 250 people for over two years. Last year also saw another expectation met: the capability to be the SI. This would mean working with tool vendors, other third parties, contractors, internal IS department of enterprises; being responsible for project management; being able to handle all the external dependencies and bring together all parties in an IT engagement. Roles for Indian offshore players, therefore, became more consultative in nature.

As they gunned for the top end of the services pyramid with high value chain consulting, there were a few hiccups, some failures. But it did help in promoting other service lines, and cross-sell them.

Recovering from a weak first quarter in 2005-06, the Top 20 software exporters grew at 39%, compared to 42% and 29% in the previous two years. While they had devoured 72% of total exports in FY 2004-05, this year's contribution came down by a percentage point to 71%. The Top 20 companies contributed 69% in FY 2003-04.

Middle Prosperity
The growth is no longer skewed towards the top five players of FY 2005-06, who grew at 38% as compared to the next five companies, which grew at 49%. The bottom 10 companies had a growth rate of 29%.

The top five companies now account for 46% of total exports, up from 45% of FY 2004-05. The next five companies account for 14%, up from 13% and 10% in previous years and the next 10 now account for 11%, same as FY 2004-05, of all exports.

During the year, prices somewhat stabilized, but it was mostly new customers who came in at a better realization. Margins continued to remain under pressure with the most of the top players seeing a decline.

Satyam entered the $1bn club with broad-based growth across verticals. Infosys crossed $2bn worth of exports, while Accenture and Tech Mahindra broke through the Rs 1,000 crore ceiling in FY 2005-06. 

IBM GSI replaced HCL in the top five club with a spectacular growth of 74%. Flextronics and MphasiS BFL, on the other hand, made its entry into the Top 20 list, edging out Texas Instruments and iGate. While most of the Top 20 companies had growth is excess of 20%, Polaris was the only company to grow in single digits, down to number 17 from 14 in FY 200405.

All in One Plays
With margins of many companies tumbling, FY 2005-06 saw the hunger for better per capita revenue productivity intensify. One of the outcomes of this was a tilt towards wide-ranging business process transactions rather than just voice.  Wipro is an example; TCS an even better one. The company, during the year, acquired UK-based Pearl group's BPO division and Comicron, a leader in Chile's banking and pensions BPO business-both the buys being transaction BPOs.

This tilt also complemented the move towards integrating IT services and BPO, originally considered two different propositions. When IT companies dissolved BPO brand names (Spectramind to Wipro BPO) or formed completely owned BPO subsidiaries (like Infosys did in Progeon's case buying back stake from Citi), it hinted at the fact that initially, many of these companies may have underestimated the level of integration between IT and BPO. They saw BPO as an allied service, which could be cross-sold. But an accounts payable support may run on an Oracle platform. And the customer may want the vendor to run this platform for him, do process reengineering, simplify that transaction. There is more money to be made this way and BPO is now bundled with other IT categories and most companies have a common go to market strategy.

The line between the two fading is also important in the context of more Infrastructure Management (IMS) work coming India's way. IMS would require help desk support, technical solutions from a back office standpoint-and this falls into the BPO space. The transaction processing a company would need to do as a consequence of the data it is managing for the client would again fall into the BPO space; the actual network management would have a BPO component, also an IT services part. All of this would mean the need to manage distributed computing across the hardware and software infrastructure and therefore, one would also need application development maintenance (ADM) service and enterprise applications.

Integrated solutions, therefore, is a serious trend and is here to stay with the number of opportunities to be BPO-led for IT services and vice versa all set to go up in the future. Satyam had four wins in FY 2005-06 because of this integrated approach and it currently serves 25 clients on the BPO side as an extension of its IT services. Two of HCL's biggest wins came because of this approach last year-European electrical retailer DSG ($330 mn) and Autodesk (offshore application and data center services, $50 mn). The DSG deal is the largest IT outsourcing contract to an Indian software company, surpassing ABN Amro's $260 mn contract to TCS. DSG operates retail chains such as Dixons, Currys, PC World and The Link in 14 European countries with over 1,400 stores and 40,000 employees. HCL will provide system development, application delivery, infrastructure support and maintenance services to the enterprise.

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