Indian Outsourcing Market Continues to Show Strong Growth Potential

Call centers that handle IT questions and help desk responsibilities are suffering internal strife. Research has shown that user organizations are struggling with high attrition rates and as a result, are more frequently turning to outsourcing as a more cost effective and stable option.

Despite its current challenges, India remains a primary focus for these organizations. Gartner (News - Alert) has found that as a result, Indian services market is expected to grow to US $10.73 billion by 2011 at a five year compounded annual growth rate (CAGR) of 23.2 percent.

"Growth of the IT services market is primarily being driven by economic growth, high growth among the small and midsize businesses (SMBs), government projects and increased customer focus,” said Arup Roy, senior research analyst, Gartner, in a statement.

“Many IT service providers, multinational companies (MNCs) and domestic have now recognized this potential and developed strategies exclusively for the domestic market. Many IT organisations are planning to spin off their IT organization into an independent entity to capture the growing opportunities.”

Those market segments that Gartner expects to witness the strongest growth from 2006 to 2011 include consulting, IT management and process management. Consulting is expected to produce a 5 year CAGR of 28.1 percent, growing to $1.174 billion in 2011.

Business process management will experience a 5 year CAGR of 27.1 percent, growing to $948 million in 2011, while IT management will enjoy a 5 year CAGR of 23.8 percent to reach $1.598 billion in 2011.

The business process management in India is considered to be a high growth area that is moving beyond traditional customer relationship management (CRM) services. The primary challenges that are motivating organizations to engage business process outsourcing (BPO) are cost, growth and business innovation.

The main objective of BPO engagements continues to be productivity, process/business transformation and cost-containment to improve profits.

The IT services market in India is still experiencing fragmentation, as the majority of the market is being serviced by small local players that account for close to 40 percent of the IT services market.

“As the market matures, competition will intensify and then lead to consolidation. Vendors that are unable to find a niche for themselves, or smaller vendors with no real differentiators, will be acquired by larger, more-aggressive competitors,” Roy added.

“End user IT organizations or captive unit spinoffs will have a difficult time in competing with well-established providers unless they also find their own niche.”

Susan J. Campbell is a contributing editor for TMC (News - Alert) and has also written for eastbiz.com. To see more of her articles, please visit Susan J. Campbell’s columnist page.

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