Indian tech firms should increase their focus on creating software products for local companies that are expected to nearly double their expenditure on information technology to 2%—equivalent to more than Rs1.68 lakh crore—of such global spending by 2011, according to John Gantz, the head of research at tech tracking and consulting firm International Data Corp.
“The potential packaged software market is the real frontier for India and will act as the differentiator (for the Indian tech industry). Without a strong local industry that writes software, it will be difficult for the country to sustain its growth in the global marketplace,” said Gantz.
Indian tech services companies, which have built a $48 billion (nearly Rs1.97 lakh crore) business by remotely building and managing software and back-office services for the US and European corporations, have the potential to be successful in creating software products to run call centres, help in drug discovery and clinical trials, and automate the development of software itself, Gantz said.
“India has the data centres and the software skills to develop products. It is a high-profile investment destination for the world and is witnessing a lot of entrepreneurial activity, in the form of venture capitalists, which see the potential of the Indian domestic market,” Gantz said.
“Someone just has to take the first step to start the process of creating products for the domestic market, and it will catch up fast.”
Indian companies are expected to spend more than Rs75,000 crore on purchases, upgrades, development and maintenance of software and hardware in 2007, but the country’s top tech services companies Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd have traditionally had a miniscule share in such expenditure.
Most of the large companies among such domestic outsourcing contracts have been bagged by International Business Machines Corp.
But, a local industry representative said Indian tech vendors were beginning to wake up to the potential of such businesses.
“As global majors such as IBM and Accenture leverage the India potential, Indian companies will also drive into the domestic story to gain a competitive edge,” said Vinnie Mehta, executive director at Manufacturers’ Association for Information Technology.
Key to such a shift in the local market, though, is heavily dependent on the uptake of applications and content among the Indian audience. “Broadband penetration will provide a strong infrastructure as it will be the vehicle on which all local content and applications will ride on,” Mehta said, adding the government will have to provide incentives to propel the effort.
The reasons for servicing local clients are also driven by growth. According to IDC, worldwide tech spending stands at $1.17 trillion and will have a compound annual growth rate of 6.5% till 2010. Though India’s share is 1% of the total market, it will be one of the fastest-growing at nearly a fifth a year, alongwith Russia that will grow by 19% till 2010 as well as Brazil that will grow 12%. China, whose market share is at 3%, will grow at 15%. Japan, which has the largest pie in the Asia Pacific region at 10%, will grow at just 2%. “India, China, Brazil and Russia will be biggest high-growth markets going forward,” Gantz said.
Meanwhile, IDC estimated the total tech and back-office services industry in India (including exports) clocked revenues at Rs1,98,477 crore in 2006, up 31% over 2005. The revenues are estimated to touch Rs4,58,228 crore (over $100 billion) by 2011.
Of this, the domestic service revenues were at Rs68,411 crore in 2006 and is projected to touch Rs1,68,370 crore in 2011, annually growing at 19.7%. Tech export revenues were at Rs1,30,067 crore last year and will grow at 17.4% to touch Rs2,89,857 crore in 2011, indicating that domestic tech revenues will grow faster than exports revenue for the five-year period, IDC said.
“The domestic IT/ITeS (tech and information technology enabled services) market has attained a significant size now, but continuing with the same growth momentum for the next five years is not going to be an easy task,” said Kapil Dev Singh, country manager, IDC India.
The domestic market has moved to a new phase where just affordability is not a concern, but availability of relevant products and the application of technology is of equal prominence, he said.