As IT giants chase new markets, India sticks to what it knows

Judging by their acquisition activity, Indian IT outsourcing providers are not pursuing emerging technology markets such as cloud, digital marketing and analytics as much as their global competitors. 

That is the conclusion of a research note from analysts at Japanese investment bank Nomura. 

"Emerging spend areas like digital marketing, mobile, analytics and cloud are buzzwords we hear often from Indian IT, but the focus of their acquisitions has predominantly been in traditional spend areas," wrote Ashwin Mehta and Pinku Pappan yesterday. 

The analysts compared the acquisition activity of India's top five IT services companies over the last five years with that of IBM and Accenture. 

The two global providers have been more acquisitive, and have focused their acquisitions on the emerging technology markets over more established markets such as technology platforms, IT services and industry solutions. 

IBM, for example, has acquired 19 services companies in the last five years. Ten of those were related to analytics, two to cloud and one to mobility, while just six were related to conventional areas. 

Accenture has made seven acquisitions in the emerging fields, and just three in the established markets. 

By contrast, between the top five Indian suppliers have acquired just four companies in the emerging technology areas, and eight in the conventional fields. 

Three out of the four emerging tech acquisitions were by Wipro. It bought two analytics providers, Promax Applications Group and Opera, and one cloud provider, Axeda Corporation. 

The other deal in this category was TCS's acquisition of Computational Research Laboratories, a cloud-based high performance computing (HPC) provider. 

Mehta and Pappan believe the figures reflect the Indian providers' focus on capacity building – i.e. adding resources to provide conventional services – and geographic expansion. IBM and Accenture, meanwhile, have sought to capture new areas of spending. 

In the long term, they conclude, India's providers may change tack to capture growing spend by on digital marketing, for example. 

"However, near-term focus in our view is likely to remain more towards traditional spend areas across Indian IT companies aimed at geographical expansion and greater depth in industry solutions."

The need for change

This conclusion chimes with remarks made by ISG analyst Sid Pai in a recent conversation with Information Age.

The market for conventional IT services is saturated, Pai said, and if they are to maintain their current levels of growth, the Indian provider must offer new product and services lines. However, they may be reluctant to do so as it will dilute their margins. 

Another factor reshaping the Indian IT services industry is automation. Companies such as India's IPSoft and the UK's BluePrism are offering automation software that could replace much of the work that is currently outsourced to Indian offshore providers. 

Pai described this as "the real threat to the IT and business process services industry". 

However, a recent report by analyst company Ovum downplayed the disruptive impact of automation, as customer requirements are constantly evolving. 

“Competition, fast-changing regulatory and compliance guidelines, customer demands, technology advancement, integration dependencies and multiple stakeholders / geographies, amongst other things, are pushing businesses to achieve more in less time," wrote Ovum analyst Tom Reuner. 

"Thus automation is always playing catch up with standardisation of ever-new technologies and concepts."

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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