Most Indian vendors have been primarily US focused so far, but that is changing as vendors diversify their geographical client base. With the continued pressure on margins and the uncertainties arising from the slow down of the US economy, Indian IT vendors are re-thinking their strategy and exploring the non-US markets.

With the depreciating US$ against the Rupee in the past one year, the need for geographic diversification is gaining importance among the Indian vendors. Apart from UK and Europe, several Indian IT vendors are exploring Asia Pacific and Australia markets. Vendors are eyeing these geographies to extend their geographical reach and also to enter these markets.

Exploring Newer Geographies

While the US remains the dominant market for the Indian vendors, revenues from other geographies will gradually increase. Infosys, TCS, Wipro and Satyam are some of the significant Indian players offering services in these geographies.

The Indian vendors are rapidly looking at penetrating into these markets either by way of acquisitions or inorganic growth. Almost all the large Indian vendors have operations in Australia and Asia Pacific, while the mid sized players are looking at building their marketing presence.

India: Another Market Opportunity

Indian IT vendors that have until recently favored the dollar market have now eagerly started looking at opportunities in their own backyard. Several Indian vendors such as Wipro, Infosys, HCL and TCS are all in the run for the contracts as they intend to rely lesser on the US. Recently, TCS bagged a $140 m multiyear deal with BSNL for providing business support systems and operational support systems.

Companies such as Wipro, Satyam and TCS are seen building capacity and eyeing the opportunity in the Indian market. Banking and telecom have been the major verticals in the domestic BPO space so far. The global IT majors are gearing up for a significant share in the domestic market. Over the long term, we expect the Indian market to become one of the larger and faster growing markets.

Future Outlook

Though the large vendors are denying any immediate impact on their growth plans due to the US slowdown, they are all actively exploring and setting up base in these new markets. Simultaneously, along with diversifying geographically, vendors are also looking to build or acquire expertise in several segments other than financial services.

This trend is here to stay, as Indian vendors seek to make themselves "global" companies rather than suppliers to the US or UK markets. Interestingly, though the valuations of Indian service providers has fallen off late, they can still leverage their market caps to make aggressive acquisitions in other geographies. Some years ago, companies like Infosys listed in overseas markets and raised money for inorganic growth. However, much of this has not materialized, barring a few small acquisitions. While we don't necessarily expect very large M&A activity in 2008, the number of deals will increase as Indian vendors aggressively seek to acquire or build capacity in more locations (within and outside India), capture new markets (emerging economies, Far East, Europe, etc), and add new functional or domain capabilities.