22 Apr 2016 13:02 IST

Indian IT firms late movers in digital race

Building capabilities organically is slowing Indian vendors vs global firms that buy tech: HfS Research

The next phase of growth of the Indian IT services industry is dependant on its ability to innovate and break down organisational silos to provide new-age solutions to clients.

SMAC (social media, mobile technologies, analytics and cloud computing) technologies are today the disruptive force that play a significant role in creating new enterprise business models.

A recent report from HfS Research, an analyst firm that advises IT companies across the globe, shows that of the 371 deals that it tracked (those disclosed in the public domain by 70 IT service providers) in 2015, 137 were on the digital side. However, only a fourth of this came to India-centric IT service companies. Global companies such as Accenture or IBM or even the India-centric Cognizant Technology Solutions, which have been early movers in the SMAC stack, are doing well relative to Indian IT vendors.

Revenue growth

In the December 2015 quarter, for instance, while dollar revenue growth (year-on-year) was 8.5 per cent for Infosys and 5.5 per cent for TCS, Cognizant saw a 17.9 per cent growth and Accenture plc reported 12 per cent growth in its net consulting revenues (in the quarter ended February 2016).

Of the 137 digital deals in 2015, IBM won 45 and Accenture 16. India-centric service providers — Cognizant (8 deals), Infosys (5), TCS (4) and Wipro (4) — were others among the top six digital service providers for the year.

Surprisingly, most digital deals are coming from Europe and not North America. Of the 137 digital deals, 60 came from Europe and just about 35 came from North America. Research also shows that eight out of every ten companies in Europe are interested in automation and creating digital capabilities. But Indian IT companies are largely focussed on the US market with 60-65 per cent of their business coming from exports to the US. The top five Indian IT companies make just 15-20 per cent of their revenues from the UK and continental Europe.

Now, coming to segments where there is large appetite for digital solutions, it is financial services and media.

Data show that of the 137 digital deals signed, 12 per cent were in media companies, 15 per cent in BFSI, and a good 18 per cent in public sector enterprises.

According to Pareekh Jain, Research Director, Engineering Services, HfS Research: “Public sector companies’ digital spends have been the highest in the UK followed by the US and then India.” Increasing spends by government companies on smart city projects and higher focus on digitising government departments is driving this demand in India.

Digital deals in retail, manufacturing and energy were lower at 8-9 per cent of the total.

Infosys and TCS have 30-40 per cent of their revenues coming from BFSI vertical. But for Wipro and HCL Technologies, the BFSI segment makes for a little over 25 per cent of revenues and they have a relatively larger exposure to telecom where digital spends are not large.

For Wipro, the higher exposure to oil and gas segment (14 per cent of revenues) is also a negative.

Many bottlenecks

There are several challenges to the Indian companies’ digital dreams. The first block is the conservative attitude. While global companies such as Accenture spend millions of dollars every year on acquiring new companies, even some of the top-tier Indian IT service vendors are slow and try to build capabilities organically. The drawback of this approach is that it takes a lot of time to acquire capabilities and in the meantime there can be a significant loss of market share. TCS recently called a meeting with analysts to display its digital capabilities. Though many analysts now seem to acknowledge the company’s efforts to grow the digital business, there are still doubts on how it will face competition from well-entrenched players.

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