Mumbai: With Western companies slashing budgets and putting decisions on hold, outsourcing companies in India and abroad are turning to the Indian market long ignored because of its small size, as a source of future growth.
“The IT industry has looked outwards. Now it is time to look inwards,” Commerce minister Kamal Nath told delegates gathered Wednesday for an annual conference hosted by industry group Nasscom.
While some point out that India cannot hope to make up for the slowdown in the West, the country’s potential is plain. Just 2% of Indians have computers. Half the population doesn’t have access to primary health care, 80% of households don’t use banks, and there’s a dire need for teachers and all problems technology could help solve.
Cisco Systems Inc., the world’s largest maker of computer networking gear, has moved aggressively into India, investing more than $1.2 billion since 2005. The company plans to make Bangalore, India’s outsourcing hub, its second global headquarters, after the United States.
“There’s a high probability that India will have the highest GDP growth of any of the developed and developing countries next year,” Cisco chief executive John Chambers told the gathering.
Multinational outsourcing companies have been quicker to jump into the Indian market than domestic firms.
Research firm Gartner says IBM is the leader in India’s domestic market, though Tata Consultancy Services, India’s largest outsourcing firm by revenues, also has a strong presence.
Analysts and executives attribute this to a variety of factors. Some said multinationals with deep pockets can take a longer term view on investments, while others said foreign behemoths arrived with more competitive product offerings.
India’s information technology services sector grew 20% this year and hardware sales surged 17%, according to Nasscom.
But others greet India’s shining potential with skepticism. Infosys co-chairman Nandan Nilekani said India certainly “won’t be a substitute for de-growth globally.”
India will account for just $34 billion of the $1.66 trillion global information technology services market this year, according to Forrester Research. And global purchases of information technology goods and services will fall 3% in 2009 after growing by 8% last year, Forrester predicted.
The engines of India’s outsourcing boom, U.S. firms and the global financial services industry have choked, and a faint sense of gloom hung in the air on the conference’s opening day. Attendance and sponsorships were off 20%, and delegates got bags made of cloth instead of leather, a shift organizers insisted had more to do with environmental concerns than fiscal ones.
Despite the small domestic market, Indian information technology outsourcing firms have a strong, and growing, global presence, and executives from both developed and developing countries descended on the conference to court Indian firms who might want to expand their overseas presence.
Indian IT outsourcing firms now have offices in at least 52 countries, according to Nasscom. Tata Consultancy Services recently acquired Citigroup’s back office unit, and India’s HCL Technologies Ltd. bought British consulting firm Axon Group PLC.
Even as large firms like IBM cut costs by sending fewer representatives to the conference, Nigeria, Zimbabwe, Ghana, Brazil, Russia, Egypt and Poland all dispatched new or expanded delegations, said Nasscom vice president Sangeeta Gupta. This year’s 1,200 delegates came from 20 countries, up from 14 last year.
Aleksandra Suszczewicz, coordinator of investor relations for the Polish city of Lodz, said this year Poland sent six people, instead of one. Her city is trying to replace its moribund textile industry with back office work. Infosys, Accenture, and GE all have service centers in Lodz, she said.
She and her colleagues hope to get Indian companies to invest more in Poland, as well as learn from India’s success in the sector and deepen trade ties.
“Of course we should attract their capital,” she said. “Indian companies have money.”