A SWITCH in the Top 10 Service Providers
A new research report from Gartner states that the top six Indian-based offshore IT services providers accounted for 1.9 percent of the total $672 billion IT services market in the United States in 2006. This percentage represents a significant jump -- nearly fourfold -- over the minuscule 0.5 percent of the market these providers could claim in 2001, when the market totaled $554 billion.
These top six Indian-based service providers are often collectively referred to by "SWITCH," an acronym formed from the first letters of their names in an otherwise random order:
- Satyam Computer Services,
- Wipro Technologies,
- Infosys Technologies,
- Tata Consultancy Services (TCS),
- Cognizant Technology Solutions, and
- HCL Technologies
Despite their relatively smaller size, these firms are making significant strides toward challenging the market-share positions of the leaders in the space, thanks to annual revenue growth far exceeding the market norm, says Allie Young, vice president and distinguished analyst for Gartner. The average annual growth rate of the SWITCH companies was 42.4 percent in 2006, compared with a 4.3 percent growth shown during the same period by IBM, the global market-share leader. Part of the disparity may simply be a measure of statistical imbalance, Young says: "Some may argue that the reason for high growth rates is the smaller revenue base" the SWITCH firms were building off of. While Young admits that growth from a smaller revenue base is easier to achieve, the fact is that, operationally, "Indian-centric providers are outperforming many organizations far larger than they are."
Taking the revenue growth of the leading global provider and leading Indian provider in 2006 as an example, the report highlights that despite IBM's $48 billion total in IT service revenue, its dollar growth year over year was less than $1 billion. TCS, on the other hand, increased its revenue by over $1.2 billion in 2006, according to the report, and achieved this increase from a revenue base 1/18th the size of IBM's.
This improved standing within the market can be owed to these companies perfecting their respective value propositions through global delivery models, Young says. "They're providing high-quality yet lower-cost labor to buyers globally, and making inroads in key clients, often beginning with smaller, project-based, or staff augmentation work." This growth also comes as a result of cost savings, a deepening focus on vertical expertise via partnerships with vendors such as Oracle and Salesforce.com, and CRM domain know-how, all of which are contributing to a greater value proposition for end users. "It's the confluence of a lot of hard work," says Mathew Goldman, Gartner research vice president. "These service providers have been improving their domain expertise for years -- and now it's starting to pay off."
"From being relatively unknown brands a decade ago, leading Indian-centric providers now offer formidable competition to the global players," writes Partha Iyengar, vice president and distinguished analyst at Gartner, in the report. Buyer adoption of global delivery models and a willingness to consider emerging offshore service brands has had a material impact on the competitive landscape and, in particular, Indian-based providers' market-share performance. Large outsourcers are now reevaluating their preferred vendor rankings to include Indian companies, Iyengar says.
"If the Indian IT service providers continue to grow at the current pace," she adds, within the next three to five years "at least two of them will be a part of the top 10 companies globally."
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