Domestic Services : Mission India

Notwithstanding the bumpy ride for everyone in the IT business fraternity
worldwide during FY 09, those operating more with a focus on the Indian market
were saved from experiencing a total eclipse. Albeit, the domestic market for IT
hardware had to withstand serious impact due to the economic downturn. Result:
the Indian hardware market remained flat during the year. Software and domestic
IT services however recorded better growthat 15%. The domestic IT services
market grew 15% to reach Rs 30,856 crore, much less than the growth (near 30%)
experienced in the previous two fiscals, but then again, in a slowdown year no
one was complaining.

True to its ongoing process of evolution, the domestic IT services market
continued to mature further exemplifying traits typical to its own. Over the
years, IT exports have accounted for the biggest chunk of the Indian IT services
sectors revenues. It was only a few years back when most of the bigger names in
the services domain started to pay attention to the burgeoning domestic market.
A host of factors such as global slowdown impacting overall IT spending by
enterprises, fluctuating dollar prices and strengthening of the Indian rupee
against dollar led more players to venture deeper into the domestic IT services
market. What ultimately encouraged service providers take to Mission India is
the growing maturity of the domestic market that saw increase in multi-million
multi-year total IT outsourcing and integration deals.

CyberMedia Research    DQ Estimates

After two years of steady growth, the domestic IT services market hit a roadblockgrowth rate nearly halved, though in a slowdown year, no one was still complaining. Total outsourcing and integrated business transformation deals were the flavors of the year; more and more asset-based models replaced traditional facilities management contracts. Like previous years, telecom deals showed the way with Wipros deal with Aircel taking the cherry

Until recently, the domestic market was dominated by plain vanilla support
like hardware or software installations or annual maintenance contracts (AMC)
that kept companies like HCL, Infosys or Cognizant from giving any importance to
the domestic market, as margins were negligible. However, the emergence of big
players in the field like IBM, HP, TCS, and Wipro Infotech, and their ability to
win lucrative contracts from both private sector as well as PSUs, changed the
entire domestic IT services ballgame.

The domestic services market started to script a new story following the
growing incubation of Indian customers who started to look for end-to-end
solutions provided by trusted vendors and went on to award them more such
contracts worth millions, and extending over longer durations. FY 09 saw a
complete turnaround of the domestic market as the year saw deals happening more
on asset based models that include manpower transformation in addition to
several large implementations on BI and SAP among others.

CyberMedia Research    DQ Estimates

Traditional AMC or hardware maintenance still ruled the roost in domestic IT services, though areas like enterprise application integration and infrastructure management are gaining ground, proving the growing maturity of the domestic IT service providers. Vendors like Wipro Infotech and HCL Technologies showed the way in infrastructure management projects

The Metamorphosis

As recession impacted business across the sub-continent, Indian enterprises
pushed to restrict discretionary spending, which to a large extent reflected on
their IT expenses as well. Having said that, instead of going for an overall cut
in investment on IT, the domestic enterprises typically went through a
significant transition as they started looking for need based solutions rather
than demand based. Indian customers today are very specific about heir needs and
are spending accordingly. The stress is more on value for money buying. And that
is what they will get in return for their investments which will allow them to
enhance operational efficiency and empower them to leapfrog over competition as
the market grows. These need based solutions consequently gave rise to business
transformational deals.

With the domestic market increasingly embracing global trends in services and
the growing focus on wholesome and integrated solutions covering all hardware,
software as well as applications aspects, the importance of business
transformation deals gained traction. The clients focused on getting the best of
global practices in the services domain and leverage the same. The trend further
ensured innovation, a push that was born out of necessities like a challenging
economy, growing competition and the need to enhance efficiency in processes to
serve customers in a smart and effective way while scaling up businesses.

In order to realize the same, clients are now concentrating more on the
services they can get from vendors based on global standards, and how quickly
they can deploy them locally for best results. This is where the global
expertise of service providers comes into play. Its all about trust evolving
out of existing relationships, and word of mouth publicity or reference. As an
example, we can have a look at IBM that has been largely investing and
implementing deals in the power sector. The company has created its own market
reliability in the energy sector through successful delivery of critical
projects which has subsequently resulted in winning newer and larger deals in
the domestic power industry. Some of the recent contracts won by IBM include
those from Bharat Bijli, Kalpataru Power, Suzlon Energy and NDPL.

CyberMedia Research    DQ Estimates

The top ten are doing better as their proportion in the overall domestic IT services pie jumped by eight points. However, the more accurate assessment would be that in a tough year, it was the biggies who had the width and breadth to sustain themselves and still grow; incidentally, while many of the solution providers too did well, it was some of the tier-2 service providers who were worst hit

Tracking Trends

There were a few clear trends in FY 09 that established the growing
maturity of the domestic market at par with global enterprises. In terms of
verticals, there were a few new ones which made huge investments in their IT
infrastructures. Few of course were the government and defense. With their huge
thrust on e-governance, various departments spread across all states as well as
the central government, proved to be the largest spender in IT, rolling out
large IT integration as well as total outsourcing projects.

Another area where enterprise customers, in particular, have been showing a
lot of interest is operation outsourcing deals. Operation outsourcing is
composed of different elements like remote infrastructure management (RIM),
managed services and total outsourcing. It is primarily the job of the
implementing partner or the service provider to develop tools, people and
processes to allow the clients operation to perform in a much more streamlined
fashion. In late 1990s and early 2000s, the CIOs were more focused in the build
side of the business, such as building the IT infrastructure, data center,
network, etc, for their companies, therefore, the service providers too were
more inclined towards the building phase of IT. But over the last few years once
the creation of comprehensive IT and network infrastructure was complete and
businesses swelled up on both scale and size, enterprises are now focused on
measures to run the entire system in a more effective and efficient manner and
at minimum possible cost. Hence, customers today have become more demanding as
they want outcome based solutions and are putting more emphasis on uptime,
performance and speed of response for their IT infrastructure. Enterprises today
are therefore looking for partners to whom they can outsource their IT
operations and who can deliver end-to-end solutions.

The third trend, made visible by the deals announced last year by all major
players in this segment, was that of fully integrated IT solutions covering the
entire domain of technology like applications, infrastructure, network and
security. Broadly, infrastructure management services (IMS) and consultation
services were the flavor of the season. Following the economic downturn,
enterprises have surely been looking for some overall cost optimization and have
been executing only those kind of projects that would lower their cost of IT per
user. So modernization or expansion of IT systems is something that took a
backseat and the thrust was more on greater efficiency and cost optimization.
Thats where managed services or technologies like virtualization came into
play. However, in the case of the government or the public sector, the deals are
getting larger and even the nature of deals are changing from discreet to
integrated ones, spanning both infrastructure and application deployment
followed by full lifecycle services. In both cases, the deals include both IT as
well as non-IT elements. And thats where the expertise and compatibility of the
service providers plays a crucial role. The solutions have to be tailored to
suit different needs of the market. Based on their expertise built by providing
solutions to global customers, services vendors are now bringing in similar kind
of offerings for their domestic clients. FY 09 witnessed infrastructure
management and consulting services evolve fully, indicating further the growing
maturity of the domestic market

A Toast for the Toppers

IBM continued to retain its market lead last year too in the domestic IT
services space. Large scale business transformation engagements, winning
significant deals across consulting and application services portfolios as well
as signing bigger contracts for integrated technology services, strategic
outsourcing and maintenance were the key growth drivers. IBM started the year by
signing up a cushy deal with Star India as it decided to focus on the media and
entertainment industry. The deal required IBM to implement SAP applications
encompassing all major business processes within Star India and help the company
increase process efficiency, enabling it to enhance customer experience and
drive greater control over the net margin. The deal also marks a cohesive and
systematic approach by IBM India and IBM Hong Kong to effectively undertake
varied ERP implementations across the globe.

Infrastructure remained a growing segment for IBM as it won large deals from
Lodha Developers, Lanco Infratech and several other infrastructure
organizations. Consumer packaged goods is another vertical that saw IBM sealing
strategic and business transformation deals with companies like Eureka Forbes
and Gujarat Cooperative Milk Marketing Federation, the owner of popular dairy
products brand Amul. The deal is a combination of business transformation and
integration which required the services major to leverage the expertise of IBM
Research.

CyberMedia Research                                                                                              DQ Estimates

The Big Four are in a class of their own; the Next Four would come in the tier-2 club; the rest would be smaller than even the solution providers. However, unlike the solution providers, because of their non-channel origin, we have included them in this table. Tulip Telecom and Sify are two companies excluded from this table, as their revenues primarily come from telecom-related managed network services

IBM further entered into a contract with Torrent Pharmaceuticals to provide
consulting services including upgradation of SAP, revamping the total hardware
infrastructure, and enhancing the disaster recovery set up ensuring near zero
data loss for Torrent. IBMs unmatched performance in the power sector further
got a boost, when North Delhi Power Limited (NDPL) joined the IBM-led global
Intelligent Utility Network (IUN) coalition of few selected global utilities,
aimed at accelerating the adoption of smart grid technologies and business
solutions through knowledge sharing.

Another noteworthy win for IBM last year came from Canara Bank for deploying
core banking solution across its 1,000 branches in partnership with i-flex. The
CBS rolled out at Canara Bank is amongst the largest implementations based on a
centralized architecture and involves all modules of Oracles FLEXCUBE,
including agricultural loans, foreign exchange and service branch functionality.
The centralized core banking system will enable efficient and personalized
customer service, 24x7 banking through multiple delivery channels, faster
time-to-market and superior relationship management at the bank, benefiting over
22 mn customers and 30,000 employees.

One common trend predominant last year was increased activities from PSUs,
mainly banks and financial institutes who have been focused in augmenting their
overall IT infrastructure and upgrading installed applications in order to
undergo major transformation. HCL Technology held a lions share last year in
the BFSI sector for infrastructure as well as application deals. To start with,
HCL won a fairly large contract from the Punjab National Bank (PNB) for complete
integration and management of its network across 4,000 branches. The deal also
included setting up PNBs Security Operation Center (SOC) involving some
high-end technology implementations that enabled the bank to monitor security
settings on a proactive manner round the clock. Another outsourcing deal signed
with Union Bank of India involved HCL completely refreshing the existing network
infrastructure and providing connectivity to 2,300 odd branches for the bank.
HCL further won a deal from a large financial institution where it was engaged
to roll out next generation network platform for over 3,000 users.

The jewel in the crown however was the deal HCL signed up with the National
Insurance Company (NICL). The Rs 393 crore, seven-year contract required HCL to
provide end-to-end IT services engagement facilitating complete business
transformation including implementing core insurance application, HRMS, CRM,
business analytics as well as creating a data center. The project was rolled out
across the 1,000 odd branches that NICL has in the country, within the first
eighteen months. HCL will also be engaged in supporting all the applications as
well as hardware and complete infrastructure for the next five years.

HCL Infosystems on the other hand received orders to deploy a cash management
system and disaster recovery solutions for a leading bank in the country and a
deal for mobile banking solutions for a leading nationalized bank. In the media
and entertainment space, the company tied up with NDS to offer solutions on
digital services networks to various cable TV operators. HCL also delivered an
end-to-end consultancy and technical solutions for an FM radio channel in North
Bengal and Sikkim. One more significant engagement for HCL was implementing an
asset management system for a leading television broadcaster in the country,
that required archiving of rare and priceless content. The company also bagged
few cushy orders in the government sector. It delivered a system integration
deal for Himachal Pradesh State Electricity Board (HPSEB) to introduce
computerized billing and energy accounting package. Among other key e-governance
deals were automating law court operations across the country, implementation of
HCL Dial100 solution for Police Control Centers across seven cities to track PCR
vans fitted with GPS devices. HCL Infosystems, along with HCL Technology,
jointly delivered one of the years biggest business transformation deals for
BSNL wherein HCL will enable the national telecom service provider to migrate
its finance, commissioning and operations functions onto a single ERP system.
The main data center for the project would be established at Hyderabad, while
the disaster recovery center would be set up at Kolkata.

CyberMedia Research                                                                                              DQ Estimates

The domestic BPO market is growing faster than IT services; Aegis BPO, Intelenet and Serco led the way. The likes of IBM Daksh and HP too recorded significant numbers. IT services companies like Wipro, Infosys or TCS, however, still do not contribute significantly to the domestic BPO market

The growing synergy between Wipro Technologies and Wipro Infotech steered the
company to outrace many of its competitors in the domestic services market and
deliver total outsourcing deals with global expertise. Telecom, BFSI,
government, and defense have been the predominant growth areas for Wipro in the
Indian market. The company won large outsourcing deals from Aircel, Unitech
Wireless, and ESIC. The nine-year multi-million deal engaged Wipros domestic
arm to enable Unitech Wireless to build innovative, scalable, and flexible
operational infrastructure to achieve non-linear, scalable growth, while
delivering highest levels of customer services to its subscribers. Significant
wins came from emerging sectors like, manufacturing, retail, healthcare,
education, power, and infrastructure as well.

TCS completed the ERP implementation of Cochin Port Trust in record time last
fiscal enabling the south Indian port to become the countrys first ePort. Its
strength and expertise in the government sector enabled TCS to bag one of the
most sought after deals of the yearthe mission critical passport automation
project of the government of India, valued at Rs 1,000 crore. The project will
be implemented within a Buy-Own-Operate-Transfer framework with the pilot
project to be operational within nineteen months. The countrywide roll-out of
the Passport Automation Project will take place within six years, and the
government will open seventy-seven Passport Filing Centers across the country in
a phased manner. TCS has end-to-end responsibility of implementing as well as
managing this project. TCS further helped design and build a new scalable system
for National Securities Depository (NSDL), which will be the Central Record
Keeping Agency for the government of Indias new pension system. TCS will
provide end-to-end services, from conceptualization of the solution to the
development, implementation, deployment, and administration of hardware and
system software. TCS will also continue to support and maintain the Central
Record Keeping System as well as provide enhancements and ensure scalability as
the number of records increases. It also tied-up with IPL to provide back-end
connectivity to IPLs Rajasthan Royals. Leveraging on the Tata heritage, TCS
bagged some plum deals beyond the government sector including contracts from
Tata Sky, communications and Voltas.

Following the EDS acquisition which helped the company strengthen its
position in the domestic market, HP experienced a boom time in its services
business. It bagged significant application based business transformation and
infrastructure management deals from Indian Railways, Tata Motors, Durgapur
Steel, and Raymonds. The company also won a comprehensive IT outsourcing and
transformation contract from Britannia Industries. As part of the deal, HP would
implement tailor made solutions for Britannia including a data center.

Datacraft continued to monopolize Ciscos TelePresence deployment in India.
Under its Microsoft business, projects based on SharePoint witnessed increased
traction. Post its merger with Dimension Data, the company began focusing more
on manufacturing, travel and transportation, financial services, telecom, and
media & entertainment. Datacraft won a $1.7 mn contract from a leading telecom
service provider to scale up its Multi-Protocol Label Switching (MPLS)
points-of-presence that will help the service provider to augment seventeen
points-of-presence across major cities across the country. Datacraft would also
provide a three-year uptime maintenance and support service.

As the domestic Indian market matures further, the demand for wholesome
transformational deals over standalone is set to dominate the services
landscape. With more and more business critical deals in the offing, the base
contract value is increasing rapidly on a y-o-y basis. As a result, the coming
years will witness more such large scale total outsourcing and transformational
deals as Indian enterprises gear up to differentiate themselves and become
global players.

Piyali Guha

piyalig@cybermedia.co.in

with inputs from Urvashi Kaul