The local Indian market will come into its own for technology outsourcing. India is already the largest local market in Asia Pacific after Australia and Japan, and the booming Indian economy will mean there is significantly more technology outsourcing to be done by local Indian companies in 2007.
"A one per cent growth in the national GDP will translate into a 20-22 per cent growth in the domestic IT market," says Alok Shende, director ICT practice (India), Frost and Sullivan. Utkarsh Palnitkar, partner, Ernst & Young (E&Y) concurs: "There will a double digit growth for the $8 billion domestic market."
"This will be especially true of the government, financial services and telecom sectors - estimated size of $2.5-3 billion for contracts of up to $25 million each," pitches in Sidharth Pai, Partner, TPI.
The BPO industry will continue to move up the value chain. "Outsourcing is set to go up from low value intermediates / APIs to late stage intermediates/ APIs/ formulation side," says Palinitkar.
Even the scope will evolve to include services, Akilesh Tuteja, Executive Director, KPMG says, "Scope of outsourcing will increase from labour based to service based. This will also be seen across tier I companies."
Also 2007 will see the bid market, that is Fortune 1400 and below companies outsourcing to India. "The Fortune 1400 and below companies will now jump onto the outsourcing market," shares Shende.
Even consolidation is set to increase as firms look at improving topline based on matching of synergies. Favouring the European Union due to continuation of favourable valuations for more M&As to take place vis-à-vis United States, Palnitkar says: "Inorganic avenues of growth are being seriously looked at by domestic companies to take advantages of the flattening of the world."
While the reason for acquisition could be pipeline, relationship-building or technological competence for IT India Inc where the top five still contribute to a major chunk of the industry's revenues, "the consolidation will be among the top 10 players to consolidate their market share," says Shende.
India Inc will once again be in the news for winning the big ticket contracts. "In 2006 the frequency had come down as companies go through a 4-5 year cycle for reviewing their contracts and 2007 there will be announcements for major international deals taking place with India Inc winning a few," says Shende.
KPMGs Tuteja adds, "They will be less focused on cost a s a driving factor. Contracts will be used for driving top line growth by CIOs."
About IT companies moving to tier II- III towns, Pai reasons firms "want to move away from the congestion in Bangalore and NCR (Delhi/ Gurgaon/ NOIDA) belt." Shende agrees, "the action will now move to tier II-III cities as the top 3-4 cities reach saturation".
