When TCS announced its results recently, the company reported a 6% growth in the domestic market in the quarter ending June 2010. The company expects further growth from the domestic market where it services the government and the private sector.

The top IT-ITeS companies that declared their quarterly results recently still seem to be struggling to reach the pre-recession performances. As deals and contracts from the most favored markets dried up during the slow-down, these Indian companies were clearly left scampering and did their own rounds of cost cutting and margin reductions to deal with the crisis. Many of these companies managed to survive the lack of business from their highest contributors in the US, UK and Europe.

However we can clearly see evidence of change. Now, just as risk management is high on their clients’ list of priorities, it is of equal if not more importance to them as well. So as companies concentrating on the US and UK markets try and diversify into Asia-Pacific and Middle-east, they are also giving due importance to developing and growing in the domestic market. Intelenet Global Services is one of the early movers in domestic outsourcing. Sandeep Aggarwal, EVP - Sales, Solutions, Transition said, “The current move towards domestic market is actually a validation of our five year old strategy. We believed in the India growth story and hedged the risks with a judicious mix of domestic and international clients.”

Recent studies have indicated huge potential of the Indian market. While telecom predictably continues to be the biggest contributor, considering the sheer volume, others such as BFSI, travel, government and retail are also picking up. When Bharti set the ball rolling about five years ago as it entered into a deal with IBM, there were not many companies that were looking at the domestic market. As more and more companies from across the globe are making their way into the Indian market, they are also bringing in the best practices that have made them successful. The market is leveraging the experience that Indian BPO providers have in providing voice, non-voice and knowledge services across a host of domains such as human resources, billing, accounting etc.

A new approach

Though the services being offered to Indian markets are similar, the approach has to be different. The primary reasons that this market was not tapped earlier was that it was not developed or mature enough and the other being the low margins. Over the last few years globalization has had an impact and Indian companies are changing the way they function. The idea of outsourcing for labor and cost arbitrage may not have the same impact as it did on the overseas clients. It is important that Indian companies see value in offerings.

For service providers, outsourcing to the domestic market means more innovations. Lower margins have been off-set by huge volumes, innovative pricing strategies and long-term contracts. Among the strategies that are being used include moving into Tier III destinations and rural regions to set up centers to service the domestic market, moving to revenue sharing models from per minute or per transaction models, and gradually moving to higher value services. While the curve would remain the same as overseas outsourcing model, the speed with which it happens will be faster.

A new market

Companies such as Infosys and Wipro are betting big on the Indian domestic market. The Indian market is very lucrative and many global companies are planning to enter. While it would be difficult to compare it with the Western markets as drivers are completely diverse, the fact is India was one of the better performers during the recent difficult time which gives it an added advantage. Indian vendors looking to diversify client portfolio to attain more stability need to seriously consider India, more so because they have a better understanding of how this market functions, and also because it will be much easier to convert prospects to clients. The benefits are for all to see and the concerns more manageable. Expressing optimism, Sandeep Aggarwal said, “We believe that Indian clients are coming of age and are outsourcing more. Indian market contribution to overall industry revenues is definitely set to grow.”