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US market saturating, but IT spending seen growing in India

US market saturating, but IT spending seen growing in India
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First Published: Mon, Nov 21 2011. 10 51 PM IST

Photo: Bloomberg
Photo: Bloomberg
Updated: Mon, Nov 21 2011. 10 51 PM IST
New Delhi/Mumbai: Information technology (IT) spending in India is projected to rise by 9.1% to $79.8 billion in 2012 as enterprises invest more in IT systems despite global economic challenges, research and advisory firm Gartner Inc. forecast on Monday.
Photo: Bloomberg
Gartner’s forecast comes in the backdrop of a report showing that spending on technology by US companies, which account for two-thirds of annual revenue earned by India’s $60 billion IT industry, may be reaching saturation point.
Gartner also predicted that worldwide IT spending will touch $3.7 trillion in 2011, with emerging economies accounting for $1.01 trillion.
“Businesses are increasingly looking to IT to help support the challenges of enhancing customer support, supply chain management, optimizing business processes or helping drive innovation in the business,” said Peter Sondergaard, senior vice-president and global head of research at Gartner.
IT is transitioning from being viewed as a back-office support function to a frontline business-focused function with around 350 companies worldwide investing more than $1 billion this year in IT to drive business growth, Sondergaard said.
Gartner’s forecast follows a report last month by IT consultancy firm TPI showing that technology spending by US companies is tapering off.
Watch a video
Amneet Singh of the Everest Group speaks about what slowing growth in the US market means to Indian IT firms.
The addressable market for IT vendors in the case of US companies in the list of top Global 100 companies has fallen from 45% in 2004 to 29% now, said the report. And while seven years ago US companies in the list of top Global 500 companies contributed 58% to the outsourcing spending, there has been a drop of 25 percentage points since to 33%.
The TPI report raises the question: “With the US market down, and outsourcing flat globally, where will future market growth come from?”
John Keppel, president of information services and chief marketing officer at TPI, said that while the high level of penetration achieved in the US can be looked at as a negative, “this could indicate a second wave of growth potential” for the IT industry. Keppel cited the emergence of new technologies such as cloud computing, in which networks of computing resources are placed on the Internet and shared by multiple users.
“The global sourcing market is vastly different from what it was a decade ago,” acknowledges Rajan Kohli, chief marketing officer for the IT business at Wipro Ltd. “Specific to the US, the trend for last couple of years has been that large multi-billion-dollar, single-vendor deals are fewer now, and companies are looking at smaller, targeted contracts which are shorter in duration.”
However, he added that this trend has been positive since it has allowed them to win market share away from traditional vendors. “Large enterprise clients are still growing and their IT spend is increasing in areas that help them differentiate, reduce risk or access new markets.”
Experts also feel that even though the US and the UK will continue to be a very large and crucial regions for Indian service providers, the answer (to the issue of the US market reaching saturation point) is to invest more heavily in these geographies by increasing local delivery capability with local hires.
Simultaneously, they would have to look at new delivery solutions and technical innovations like cloud computing.
“Many of the global heritage players have created truly global organizations—with localized sales and delivery teams—to address each of these markets,” said Sid Pai, partner and managing director of TPI’s India arm. He added that in this dimension, many of the global firms have a model that is much less dependent on any one geography.
The TPI report notes that even though the largest companies in Western Europe have high penetration rates, they have mixed maturity levels across regions and are “unlikely to fill the void left by the US”.
It adds that in the top global 500 list, companies from China, Hong Kong, India and South Korea have increased from 20 seven years ago to 55 today and only 9% of these are actively outsourcing ), and the size of their contracts is less than $50 million annually, which leaves the Asia Pacific region with a lot of untapped potential.
“The US and UK markets are definitely the most mature geographies while continental Europe, Middle East and APAC (Asia-Pacific) are now in growth phase,” Kohli of Wipro added.
surabhi.a@livemint.com
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First Published: Mon, Nov 21 2011. 10 51 PM IST
More Topics: IT | Information Technology | Outsourcing | US | India |