The US market is reaching a saturation point when it comes to outsourcing. The outsourcing growth in the US has halved over the past year -- from 60 per cent to 30 per cent. Indian companies, hence, need to increase their investments in emerging markets to keep the outsourcing growth intact, say industry experts.
"While other economies like Europe and Asia are growing at 70 per cent and 35 per cent each respectively, the pace of growth in the US is slowing down," notes Pradeep Udhas, global partner-in-charge, sourcing advisory, KPMG
However, the Indian IT industry is still largely dependent on the US.
According to Nasscom's IT industry analysis, the US accounted for 67.18 per cent of the IT industry's revenues in 2006-07 (FY07) -- a two per cent decrease from 2002-03 (FY03) when it accounted for 69.10 per cent.
There has been a marginal growth in revenues from Europe. From 22.20 per cent in FY 2003, the revenues from Europe increased to 25.13 per cent in FY 2007. However, revenues from markets in the rest of the world have been on the slide. From 8.70 per cent in FY 2007, the revenues from rest of the world decreased to 7.69 per cent in FY 2007.
Japan, which is the second largest IT market after the US globally, is still untapped by Indian players. "There is a huge interest in outsourcing to India in Japan," says Udhas. Patni, for instance, claims to have the highest revenues from Japan among Indian IT companies. It started addressing the Japanese market as recently as mid-2005.
Deepak Khosla, senior vice-president, Patni says," Japan contributes to five per cent of our overall revenues." The rich dividends of investing in emerging markets is evident.
"Investments in emerging markets constitute 40 per cent of our overall expenses," said Ganesh Natarajan, deputy chairman and CEO, Zensar, adding, "The growth rate in emerging markets is over 30 per cent which is above industry standards. Revenues from emerging markets contribute to 23 per cent of our overall revenues, which is higher than industry standards of 7per cent to 10 per cent." Zensar is present in South Africa, China, Australia, Japan, and Poland.
Hexaware has identified the regional language speaking markets in Europe like Germany, Scandanvia and France as 'high potential markets.' It has its European headquarters in the UK and a delivery centre in Germany. "We plan to add one new market a year," said Sunil Surya, head, operations for Europe, Hexaware.
Indian companies are also setting up nearshore centres in China, Eastern Europe and Latin America and onshore development centres to tap emerging markets.
But "these investments are not enough," notes Udhas pointing to global successes like IBM and Accenture. He adds, "We need to take a cue from global multinationals like IBM and Microsoft who have committed significant investments in local markets."
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