Though the domestic software services market has been sluggish compared to the healthy export market, that is set to change with large multi-thousand crore rupee projects seeking implementers, despite the economics being seemingly adverse -- "When the international billing rate is $25 an hour, there has been limited incentive to deploy a resource at State Bank of India for $5 an hour," says R Ravi, the IT analyst at Karvy Stock Broking.
But the times, they are a-changing. "India is seeing large deals...comparable to international scale," says Dr Anurag Srivastava, VP, Wipro Infotech. And the largest demand is coming from globalised sectors like banking and telecom, which account for 35-40 per cent of the spend on IT services.
Bharti's outsourcing deal with IBM (at Rs 3,400 crore or Rs 34 billion over a 10-year period) has been a landmark, and other large telecom majors are reportedly in the market scouting for IT partners as they move away from an in-house IT management model to adopt the outsourcing mantra.
Add on the demand from sectors like aviation and insurance and you will see the rationale for Nasscom's aggressive projection for the domestic IT services market alone -- Rs 24,000 crore (Rs 240 billion) in 2009 against Rs 13,000 crore (Rs 130 billion) last year.
Boosting this growth will be the government which has announced a spend of Rs 23,000 crore (Rs 230 billion) on a national level e-governance project to be rolled out over five years.
Besides the growing size of the domestic pie, there is another reason large IT companies are choosing to get hawkish on Indian soil. "There is a strategic advantage," says Nasscom's VP, Rajdeep Sahrawat.
As
Indian companies bid for complex projects globally, having done work on the domestic soil enhances their global eligiblity. "It is an opportunity to build competence in a complex deal," says Srivastava.
That is exactly what Tata Consultancy Services has done. It has executed critical projects for the National Stock Exchange, National Depositories, Reserve Bank and UTI, so that the share of its domestic market in its overall revenue has risen to 12.5 per cent last year
(ending March 2006) against 11.7 per cent a year earlier.
The share of the domestic market will only rise as the economy grows and more companies emulate State Bank of India (outsourced to TCS), Bank of Baroda (HP) and Dabur (Accenture) to focus on their core businesses. TCS has gained a clear strategic edge from its Indian engagements.
"The learnings have been replicated in large international deals and projects in areas like banking, capital markets, insurance and mutual funds," says a TCS spokesperson.
Only Infosys has stayed away from the domestic market, its local exposure limited to its banking software product Finacle, which contributes less than 2 per cent to the overall revenue. But it claims to be ready to change track.
"With Indian companies globalising, there would be tremendous opportunities to do business in India with returns similar to those available in the international markets today. Our business model has enough flexibilities built in to tap the local market, if the need arises," says V Balakrishnan, CFO, Infy.
With that need not too far away, get ready for some competitive elbowing for a share of the domestic outsourcing pie.
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