Buy big to get noticed, Indian IT companies warned

Indian outsourcing companies need to make big acquisitions if they are to really challenge the existing world order of global IT services companies.

The top six India players, Cognizant, HCL, Infosys, Satyam, TCS and Wipro - collectively referred to as Switch - accounted for 1.9 per cent of the total $672bn IT services market in 2006, compared to 0.5 per cent in 2001, according to figures from analyst Gartner.

It said these companies are making inroads into "key" clients, often beginning with smaller, project-based work. Despite their smaller size, it also said they are making "significant strides" to challenge the market share leaders' positions, by showing strong annual revenue growth far exceeding the rest of the market.

Special Report: Inside India

In February silicon.com's Steve Ranger visited the Indian tech hotspots of Bangalore, Mumbai, Pune and Hyderabad. Click on the links below to see photo galleries of the cities and companies visited.

♦ Satyam's IT campus
♦ Hyderabad's tech parks
♦ Bringing tech to rural India
♦ High-tech on the streets of Pune
♦ Pune - the new Bangalore?
♦ Boom town Bangalore
♦ Bangalore's Electronics City
♦ SAP and Wipro in Bangalore

The average annual growth rate for the India companies was 42.4 per cent in 2006, compared with a 4.3 per cent growth of the market leader during the same period, the analyst group said.

Gartner vice president Partha Iyengar said companies are re-evaluating their preferred vendor rankings to include Indian companies. "If the India-centric IT service providers continue to grow at the current pace, at least two companies will be a part of the top ten companies globally," he said in a statement.

But Gartner said it will still take a number of years for Indian companies to challenge the top service providers or appear among the top three market share leaders — unless they make a major acquisition. And the analyst group said that if market share leadership in the top three is a goal, these companies would need to pursue acquisitions of "considerable size".