IT scorecard: Top steady, churn in middle deck

To get to the top is one thing - hanging in there, quite another. India's top-tier IT services companies have held on to their pole position, year after year, even as their smaller counterparts have had to deal with frequent reshuffle in the pecking order.

Sample this. Industry leader Tata Consultancy Services (TCS) dominates Nasscom's ranking of top exporters, with Infosys and Wipro occupying the second and third positions, respectively. Interestingly, this was as true for 2000-01 as it was for 2006-07 or 2009-10 ? the three years that Business Line picked up for highlighting the pattern.

While Cognizant, with its street topping quarterly earnings, has been nibbling at Wipro's heels for quite some time now, the Nasdaq-listed company is not included in Nasscom's ranking since it is incorporated outside India. Mahindra Satyam would also have featured in this nearly predictable list if not for the sensational disclosures by the former Chairman, Mr Ramalinga Raju, in 2009.

But the next 15 slots in the Nasscom list tell a different story altogether. Here the rankings have been dynamic every year, several big names of early 2000 (read Silverline Technologies, DSQ Software and Pentasoft) have fallen by the wayside, and younger companies such as MindTree, L&T Infotech, and others, have entered the list (See table).

Catch-up dynamics

Explaining the frequent churn in the ranks, industry observers point out that since the revenue gap among mid-tier players tends to be small, even a slight rise or fall in revenue looks stark. In contrast, the gap between TCS and Infosys stood at nearly Rs 7,300 crore for fiscal 2010. Interestingly, the gap between even the Top Two has increased from Rs 3,731 crore for the year ended March 2006.

"When you are larger, it is more difficult to catch up. That said, over time, it becomes difficult to sustain leadership in technology because technology is changing rapidly. If you make a wrong choice today it may impact you in the next three-five years," says Mr S Gopalakrishnan, Chief Executive Officer and Managing Director of Infosys Technologies.

Cloud computing is one such disruptive technology that has the potential to shape the future of IT companies, he believes.

It was the Y2K bug in 2000-01 and the ERP implementation wave of 2005-06 which the top IT companies leveraged heavily to move ahead of the pack. TCS, Infosys, Wipro and HCL grew phenomenally and were able to cross $1 billion in revenues over the last ten years.

Scale matters

"The large players are broad-based in their offerings, whereas in a mid-sized company a single order or client has the ability to influence the overall performance," says the Nasscom President, Mr Som Mittal. He further adds that some of the changes could also be a result of the heavy consolidation in the mid-tier segment over the past few years.

Industry insiders also feel that lack of scale inhibits mid-size companies' growth prospects.

"If you want to be a strategic vendor to us, you should be able to provide scale. We do 80 per cent of technology outsourcing work with a handful of strategic vendors. If a mid-size player wants to work with us, he should be able to give us extra something," says Mr F Thaddeus Arroyo, chief information officer of AT&T.

Analysts note that mid-tier firms that did not have a clear differentiation and merely tried to ape their larger rivals were most impacted.

"Large companies have been financially stable and did not falter on strategy or execution. But for some mid-tier companies, there is no differentiator. We have neither seen a focused strategy nor value proposition and they have ended up competing only on price," says Mr Amneet Singh, Vice-President - Global sourcing, Everest.

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