The Top 5 Groups of Indian IT always give us terrific material for a study in the dynamics of the industry.

They range from a medley of parallels and homogeneity to one of intersections and heterogeneity. They make for a complete study: for the Top 5 Groups in India are involved in every conceivable activity in the IT business, barring chip-making. They therefore make up a pocket edition of any larger study on Indian IT, be it the four issues of DQ Top 20 or something else. Hold it up and you'll see the origins of the larger waves that rule the industry and the minor undercurrents that determine the future.

This year, the Top 5 Groups add up to $8.7 bn in the IT business, each member of this club well past the $1 bn mark individually. Having grown at a blistering pace of 40% last fiscal, the combine constitutes 31% of the overall IT industry in 2004-05. In rupee terms, the Top 5 Groups grossed Rs 38,149 crore.

Last year's Top 5 Groups contributed 29% of the industry, and this year they went up two percentage points to 31%. Does a 2-point shift matter? Maybe these groups simply grew a wee bit faster than the industry average?

Look again. The two percentage points translate to Rs 2,480 crore-roughly the size of two DQ Top 20 companies. That the Top 5 Groups could pull up this much more from the overall industry pool is a significant point. It shows how scale accrues in a market pushed at high growth rates, and the opportunity lost by other smaller companies.

What then is the big news? A look at the Top 5 Group companies would suggest the dominating influence of IT services exports and BPO on the overall performance. Yes, nearly 70% of the revenues came in from there. Exports by Top 5 Groups also grew at 38%, a tad faster than overall exports.

But even so, the star of the show was possibly the domestic market. Buoyed up at an impressive 45%, the Top 5 Groups' domestic market performance outshone the overall domestic growth rate of 29%. Considering that the year before the previous year, the Top 5 Groups domestic business grew by only 23%, this signals the robustness of the domestic market last year. HP India sales notched up Rs 5,271 crore-the first company to garner $1 bn from the domestic market. Services and products revenue by HCL Infosystems, TCS and Wipro Infotech were impressive too.

All in all, the Top 5 Groups have put up a commendable performance by growing faster in both domestic and exports segments.

Looking for Common Ground
The Top Groups definitely proved that actual synergies can and do exist between their IT services and BPO entities. That such synergies were visibly lacking before 2004-05 was not owing to any basic flaw in the principle itself, but perhaps owing to the erroneous marketing strategy of going to both sets of clients with the same approach. So what did these groups do differently this year to address this issue? For one, there was a concerted effort to combine the branding for both the IT services and BPO arms.

Nothing illustrates this better than the way Spectramind was rechristened Wipro BPO, or how HP assimilated and renamed Digital GlobalSoft. HCL had done this earlier, the idea being that a common brand not only helps in a simplified 'go-to-market' approach, it also enables the BPO arms to leverage the existing brand equities of the IT services entities. The Tata group does not come into this purview since the group was not involved in any major export-oriented BPO business in 2004-05, but even Infosys acknowledged the importance of the common branding approach; its BPO arm might still be called Progeon, but it started Infosys Consulting to augment its IT services and BPO arms. Interestingly, outside of the Top 5, there were other votaries of this common branding too, notably MphasiS.

This brings us to the even more crucial aspect of achieving this synergy beyond having a common branding. True, the marketing personnel and the pitch for IT services and BPO needed to be different as they catered to a different audience (IT services to CIOs, while BPO to CFOs and increasingly even CEOs), but the move was towards combining consulting with outsourcing and look at new opportunities to combine 'build' and 'operate' across the three pillars of process, application and infrastructure.

Of all the groups, perhaps Infosys was the best in consummating this conjugal alliance-its three pieces, Infosys Consulting, Infosys Enterprise Solutions and Progeon were nice fits in the jigsaw puzzle. Even HCL achieved a modicum of success in this through HCL Technologies, HCL BPO and HCL Comnet (apart from HCL Infosystems, which is the domestic vendor). The immediate success spin-off: bagging large multi-year contracts spanning across processes, applications as well as infrastructure. Wipro too seems to be on the way while the Tatas have only the BPO piece missing to complete the jigsaw.

Buying Growth
No doubt, all these groups achieved significant organic growth driven by the substantial increase in headcount. However, it was also a year when most of them looked at growing inorganically by means of acquisitions-an attempt to fill in the potential gaps in their portfolio of offerings by picking up niche expertise available. Or, in some cases, to acquire completely new expertise, as there was an acknowledgment of the need to operate in diverse verticals and horizontals to compete on a global scale with an IBM, Accenture or EDS.

The HCL group was active on this front-it acquired from Rao Insulating Company the remaining 23% stake in Bangalore-based Shipara Technologies, a company focusing on high-end engineering and technology areas such as aerospace, embedded systems, engineering services and communication technologies. Subsequently, through Shipara it acquired the balance 43% stake in Aquila Technologies, an engineering services expert. In addition, HCL Technologies Bermuda hiked its stake to 51% in Aalayance Inc, a business integration specialist with EAI expertise, while in HCL Technologies BPO Service (Northern Ireland) acquired AnswerCall Direct, a contact center in Ireland for nearly £4 mn from PwC.

The Tatas weren't lagging. Awash in cash, and now a lot more independent, TCS acquired a 10% stake in Philippine Dealing System Holdings Corp (PDS) for $0.9 mn-the company's first post-IPO acquisition. Incidentally, TCS also bagged a $3 mn contract from PDS subsidiary Philippine Depository & Trust Corp (PDTC) for implementing a depository, registry, clearing and settlement system for the equities and fixed income securities market in the Philippines. With Asia-Pacific contributing 18% to the TCS coffers, the PDS acquisition is likely to further bolster TCS position in this region.

In a move to strengthen its offerings for the insurance industry, it also acquired the Phoenix Global Solutions for a fixed amount of $10 mn. Incidentally, TCS is believed to be in negotiations with large companies in the aviation and telecom software space in Europe. It aggressively scouted for global software companies of reasonable size, with a plan to merge all IT companies of the Tata group.

While Wipro and Infosys did not go for actual acquisitions during the year, they made no secret of their plans to do so in the near future. While Wipro scouted for potent businesses in European markets such as France, Germany and the UK, Infy's Progeon looked around in the US. All these were primarily meant to build a sustainable global delivery model calling for conformance-optimally to all three components of offshore, onsite and now most importantly near-shore. While all these groups have traditionally excelled in offshore, the onus is now on the other two, primarily by means of establishing development centers and full-fledged business development offices in multiple geographies staffing them with local professionals in the client interfacing teams.

All's Well that Ends Well
For an industry that grew 33% overall, the 40% growth rate of the groups of companies that offer the largest base is indeed heartwarming. It suggests that there is much more headroom for the growth of the Indian IT industry. And the role that these companies play is very vital. The companies that constitute the Top 5 groups have increased their footprint this year. Revenue leadership apart, these companies fan the flames and satisfy the global and domestic demand for IT services and products.

Easwaradas S Nair with Rajneesh De in Mumbai