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Notwithstanding the bumpy ride for everyone in the IT business fraternity worldwide during FY 09, those operating more with a focus on the Indian market were saved from experiencing a total eclipse. Albeit, the domestic market for IT hardware had to withstand serious impact due to the economic downturn. Result: the Indian hardware market remained flat during the year. Software and domestic IT services however recorded better growthat 15%. The domestic IT services market grew 15% to reach Rs 30,856 crore, much less than the growth (near 30%) experienced in the previous two fiscals, but then again, in a slowdown year no one was complaining.

True to its ongoing process of evolution, the domestic IT services market continued to mature further exemplifying traits typical to its own. Over the years, IT exports have accounted for the biggest chunk of the Indian IT services sectors revenues. It was only a few years back when most of the bigger names in the services domain started to pay attention to the burgeoning domestic market. A host of factors such as global slowdown impacting overall IT spending by enterprises, fluctuating dollar prices and strengthening of the Indian rupee against dollar led more players to venture deeper into the domestic IT services market. What ultimately encouraged service providers take to Mission India is the growing maturity of the domestic market that saw increase in multi-million multi-year total IT outsourcing and integration deals.

CyberMedia Research    DQ Estimates

After two years of steady growth, the domestic IT services market hit a roadblockgrowth rate nearly halved, though in a slowdown year, no one was still complaining. Total outsourcing and integrated business transformation deals were the flavors of the year; more and more asset-based models replaced traditional facilities management contracts. Like previous years, telecom deals showed the way with Wipros deal with Aircel taking the cherry

Until recently, the domestic market was dominated by plain vanilla support like hardware or software installations or annual maintenance contracts (AMC) that kept companies like HCL, Infosys or Cognizant from giving any importance to the domestic market, as margins were negligible. However, the emergence of big players in the field like IBM, HP, TCS, and Wipro Infotech, and their ability to win lucrative contracts from both private sector as well as PSUs, changed the entire domestic IT services ballgame.

The domestic services market started to script a new story following the growing incubation of Indian customers who started to look for end-to-end solutions provided by trusted vendors and went on to award them more such contracts worth millions, and extending over longer durations. FY 09 saw a complete turnaround of the domestic market as the year saw deals happening more on asset based models that include manpower transformation in addition to several large implementations on BI and SAP among others.

CyberMedia Research    DQ Estimates

Traditional AMC or hardware maintenance still ruled the roost in domestic IT services, though areas like enterprise application integration and infrastructure management are gaining ground, proving the growing maturity of the domestic IT service providers. Vendors like Wipro Infotech and HCL Technologies showed the way in infrastructure management projects

The Metamorphosis
As recession impacted business across the sub-continent, Indian enterprises pushed to restrict discretionary spending, which to a large extent reflected on their IT expenses as well. Having said that, instead of going for an overall cut in investment on IT, the domestic enterprises typically went through a significant transition as they started looking for need based solutions rather than demand based. Indian customers today are very specific about heir needs and are spending accordingly. The stress is more on value for money buying. And that is what they will get in return for their investments which will allow them to enhance operational efficiency and empower them to leapfrog over competition as the market grows. These need based solutions consequently gave rise to business transformational deals.

With the domestic market increasingly embracing global trends in services and the growing focus on wholesome and integrated solutions covering all hardware, software as well as applications aspects, the importance of business transformation deals gained traction. The clients focused on getting the best of global practices in the services domain and leverage the same. The trend further ensured innovation, a push that was born out of necessities like a challenging economy, growing competition and the need to enhance efficiency in processes to serve customers in a smart and effective way while scaling up businesses.

In order to realize the same, clients are now concentrating more on the services they can get from vendors based on global standards, and how quickly they can deploy them locally for best results. This is where the global expertise of service providers comes into play. Its all about trust evolving out of existing relationships, and word of mouth publicity or reference. As an example, we can have a look at IBM that has been largely investing and implementing deals in the power sector. The company has created its own market reliability in the energy sector through successful delivery of critical projects which has subsequently resulted in winning newer and larger deals in the domestic power industry. Some of the recent contracts won by IBM include those from Bharat Bijli, Kalpataru Power, Suzlon Energy and NDPL.

CyberMedia Research    DQ Estimates

The top ten are doing better as their proportion in the overall domestic IT services pie jumped by eight points. However, the more accurate assessment would be that in a tough year, it was the biggies who had the width and breadth to sustain themselves and still grow; incidentally, while many of the solution providers too did well, it was some of the tier-2 service providers who were worst hit

Tracking Trends
There were a few clear trends in FY 09 that established the growing maturity of the domestic market at par with global enterprises. In terms of verticals, there were a few new ones which made huge investments in their IT infrastructures. Few of course were the government and defense. With their huge thrust on e-governance, various departments spread across all states as well as the central government, proved to be the largest spender in IT, rolling out large IT integration as well as total outsourcing projects.

Another area where enterprise customers, in particular, have been showing a lot of interest is operation outsourcing deals. Operation outsourcing is composed of different elements like remote infrastructure management (RIM), managed services and total outsourcing. It is primarily the job of the implementing partner or the service provider to develop tools, people and processes to allow the clients operation to perform in a much more streamlined fashion. In late 1990s and early 2000s, the CIOs were more focused in the build side of the business, such as building the IT infrastructure, data center, network, etc, for their companies, therefore, the service providers too were more inclined towards the building phase of IT. But over the last few years once the creation of comprehensive IT and network infrastructure was complete and businesses swelled up on both scale and size, enterprises are now focused on measures to run the entire system in a more effective and efficient manner and at minimum possible cost. Hence, customers today have become more demanding as they want outcome based solutions and are putting more emphasis on uptime, performance and speed of response for their IT infrastructure. Enterprises today are therefore looking for partners to whom they can outsource their IT operations and who can deliver end-to-end solutions.

The third trend, made visible by the deals announced last year by all major players in this segment, was that of fully integrated IT solutions covering the entire domain of technology like applications, infrastructure, network and security. Broadly, infrastructure management services (IMS) and consultation services were the flavor of the season. Following the economic downturn, enterprises have surely been looking for some overall cost optimization and have been executing only those kind of projects that would lower their cost of IT per user. So modernization or expansion of IT systems is something that took a backseat and the thrust was more on greater efficiency and cost optimization. Thats where managed services or technologies like virtualization came into play. However, in the case of the government or the public sector, the deals are getting larger and even the nature of deals are changing from discreet to integrated ones, spanning both infrastructure and application deployment followed by full lifecycle services. In both cases, the deals include both IT as well as non-IT elements. And thats where the expertise and compatibility of the service providers plays a crucial role. The solutions have to be tailored to suit different needs of the market. Based on their expertise built by providing solutions to global customers, services vendors are now bringing in similar kind of offerings for their domestic clients. FY 09 witnessed infrastructure management and consulting services evolve fully, indicating further the growing maturity of the domestic market

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