Even as the Indian software services export industry is exultant over the robust performance of the biggest players in 2005-06 and the prospects for the years ahead, experts caution that the industry faces the prospect of declining profitability and that a shake-out in the industry is on the horizon as major systems integrators like IBM and Accenture ramp up their operations in India.
"The large Indian companies now need to take a call on what to do with the hundreds of small clients, who account for less than $ 1 million in revenues, they signed up in the past few years, because the Indian outsourcing majors have moved up to signing bigger deals like the one Tata Consultancy Services and Infosys Technologies signed with ABN AMRO," says Mr Sudin Apte, country manager, India, and senior analyst at the Pune-based Forrester Research, Inc. Industry observers say that while four software makers have crossed the $1 billion mark and this could result in them being taken more seriously for big-ticket contracts from clients, buyers of technology services were also looking at the bandwidth of Indian systems integrators.
"That’s where the domain knowledge comes into play. The largest Indian systems integrators have over 200 clients, while some have over 500 clients. The problem that these companies face is that the smaller clients still suck up the same resources that big-ticket customers require," says Mr Apte. According to research by Forrester, Indian software industry has also to contend with the changing dynamics of the offshore market. "Back in 2000, Indian SIs served just the United States and the United Kingodm, and the number of clients was between 50-100, and the size of the contract was between $200,000—$300,000. In 2006, the geographies have expanded to include the North America, EU and the Asia-Pacific markets, while the number of clients has increased to between 200-700, and the size of the deals is $100 million. Most Indian software companies are struggling to get the bandwidth, in terms of domain expertise, to keep up with the requirements of the market," he said.
"There is now a mismatch between what the bigger clients expect and what Indian SIs are able to deliver. Again, for most large SIs, the top five-six per cent of clients account for 35 per cent of their revenues," he added.
More worryingly, other experts say, for Indian companies, the MNC systems integrators have emerged as major competitors. Some studies indicate that while earlier about 10 people were hired by MNCs technology companies like IBM and Accenture, for every 100 software jobs, the figure has now jumped to nearly 45. IBM has over 39,000 people in India.
While the larger companies struggle to develop the bandwidth for a changing outsourcing market, it is the smaller companies who face the prospect of being squeezed out of the market. "There is sure to be a shakeout in the industry, because the small companies are no longer able to evolve with the market requirements. We expect to see some companies collapsing in the next two years, unable to keep pace with clients’ requirements," he said.
"The large Indian companies now need to take a call on what to do with the hundreds of small clients, who account for less than $ 1 million in revenues, they signed up in the past few years, because the Indian outsourcing majors have moved up to signing bigger deals like the one Tata Consultancy Services and Infosys Technologies signed with ABN AMRO," says Mr Sudin Apte, country manager, India, and senior analyst at the Pune-based Forrester Research, Inc. Industry observers say that while four software makers have crossed the $1 billion mark and this could result in them being taken more seriously for big-ticket contracts from clients, buyers of technology services were also looking at the bandwidth of Indian systems integrators.
"That’s where the domain knowledge comes into play. The largest Indian systems integrators have over 200 clients, while some have over 500 clients. The problem that these companies face is that the smaller clients still suck up the same resources that big-ticket customers require," says Mr Apte. According to research by Forrester, Indian software industry has also to contend with the changing dynamics of the offshore market. "Back in 2000, Indian SIs served just the United States and the United Kingodm, and the number of clients was between 50-100, and the size of the contract was between $200,000—$300,000. In 2006, the geographies have expanded to include the North America, EU and the Asia-Pacific markets, while the number of clients has increased to between 200-700, and the size of the deals is $100 million. Most Indian software companies are struggling to get the bandwidth, in terms of domain expertise, to keep up with the requirements of the market," he said.
"There is now a mismatch between what the bigger clients expect and what Indian SIs are able to deliver. Again, for most large SIs, the top five-six per cent of clients account for 35 per cent of their revenues," he added.
More worryingly, other experts say, for Indian companies, the MNC systems integrators have emerged as major competitors. Some studies indicate that while earlier about 10 people were hired by MNCs technology companies like IBM and Accenture, for every 100 software jobs, the figure has now jumped to nearly 45. IBM has over 39,000 people in India.
While the larger companies struggle to develop the bandwidth for a changing outsourcing market, it is the smaller companies who face the prospect of being squeezed out of the market. "There is sure to be a shakeout in the industry, because the small companies are no longer able to evolve with the market requirements. We expect to see some companies collapsing in the next two years, unable to keep pace with clients’ requirements," he said.