The Hindu Business Line : `IT services export to grow to $23 b by 2006'

WITH Indian vendors widening their service offerings to keep pace with changing customer demand, a research report has estimated a 38-per cent two-year compounded annual growth rate (CAGR) in Indian IT services exports to $23 billion in financial year 2006.

"Based on the trends, we forecast a 38 per cent two-year CAGR in Indian IT services exports to $23 billion in fiscal 2006. We expect market share of Indian vendors in the global market to expand," a recent report by Merrill Lynch said.

It said that the IT services industry has been transformed with customers focusing on return on investment (RoI), since the bursting of the technology bubble in 2000-01.

"This focus has resulted in enhanced demand for integrated end-to-end services, value-based pricing models, competitive global delivery and domain focused solutions. As demand picks up and western system integrators (SIs) set up in India, supply constraints are surfacing. Labour arbitrage is a diminishing advantage. Indian vendors are moving up the value chain and expanding their service offerings to include IT consulting, systems integration, and technology infrastructure management to increase customer wallet share," it said.

It said that the Indian market was an "inflection point", estimating that it would grow more rapidly than the six per cent CAGR in the last three years.

"We forecast growth at about 15 per cent per year over the next two years," it added.

On the demand side, it said, IT consulting had become more an upfront activity rather than a standalone offering; customers were looking at IT sourcing as part of long-term business strategy; and the IT demand was picking up, led by macro-economic recovery.

Elaborating on the supply side trends, it said that technology infrastructure was enabling companies to source independent of location, bringing offshoring to the centre-stage.