Mumbai: Large Indian software services companies such as Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd will see accelerated growth in 2008 with a surge in interest among business customers to engage tech and back-office support vendors as the economy in the US, the largest market for such services, slows, a leading expert has predicted.
Back in bounce: Peter Bendor-Samuel, chief executive of Everest Group.
At the same time, smaller players risk losing out as clients prefer to ship work to larger vendors who can implement complex deals, Peter Bendor-Samuel, chief executive of Everest Group, said in an interview here. Everest Group is a Dallas, Texas-based advisory firm specializing in the information technology (IT) business.
Vendors such as Satyam Computer Services Ltd, Wipro Ltd, Infosys, TCS, Cognizant Technology Corp. and HCL Technologies Ltd, collectively referred to as ‘SWITCH’ providers, will see higher growth and “sustain their growth rates of between 30% and 35% as outsourcing is set to increase,” said Bendor-Samuel, who is attending trade body Nasscom’s annual conference here.
A 38% revenue forecast for 2008 made by Cognizant, a New Jersey-headquartered firm with the bulk of its operations in India, is realistic, he added. Indian companies such as TCS, Infosys and Wipro run their financial years between April and March and are yet to release business guidances for fiscal 2009.
“Slowdown (in tech outsourcing contracts) has already happened in the second and third quarters of 2007 and we are now back in the bounce,” Bendor-Samuel said. Such a slowdown typically happens in anticipation of a recession and once that uncertainty is removed — the US is widely expected to go into a recession soon — expenditure on technology services returns to normal.
Although clients are slow in finalizing their budgets relating to new software development, they will continue to spend on maintaining their current software applications, the Everest Group CEO said.
Typically, application development forms 20-30% of IT budgets, and maintenance and product software roll-outs account for the rest. Indian vendors are seeing increased momentum in maintenance type of deals, Bendor-Samuel said. The surge in interest is from Fortune 500 customers and from those who already have some exposure to outsourcing.
“There is a change in the psyche of the market place,” Bendor-Samuel said, adding that customers want their vendors to do more of sophisticated work in areas such as remote infrastructure management and business process outsourcing. A recent report prepared by consultant McKinsey and Co. for Nasscom predicted Indian vendors will have a 50% share in the global market for remote infrastructure management or the business of remotely managing the infrastructure, hardware and software of customers — amounting to up to $15 billion annually five years from now.
“It is all about brands, quality of service offerings and the ability to do more complex services that's attracting customers to larger providers. Clients want to have fewer providers, which will in turn affect the growth rate of smaller players as they lack scale and do not have the ability to do sophisticated work,” Bendor-Samuel said.
The December quarter results of mid-sized companies such as Sasken Communication Technologies Ltd, NIIT Technologies Ltd and Geometric Software Ltd have been unimpressive with some exceptions as Tech Mahindra, and Infotech Enterprises Ltd have done relatively well.