CXO

Offshoring jumps as cash-strapped companies step up outsourcing

The global economic crisis is sparking a boom in IT offshoring as India's major IT suppliers grew four times faster than their competitors in 2011.

India's largest IT suppliers grew four times faster than their international competitors in 2011, as companies in struggling European economies stepped up their IT offshoring.

In 2011 revenues at the top five India-based IT service providers grew at 23.8 per cent, compared to 7.7 per cent growth in the global IT services market, according to a report by analyst house Gartner.

The top five Indian suppliers made particularly strong in-roads in Europe, where their growth rate almost doubled to 25.9 per cent in 2011.

"This reaffirms Gartner's theory that the troubled economic environment will be the catalyst to faster adoption of offshore services," Arup Roy, principal research analyst at Gartner, said in the report.

"We are seeing European companies, particularly on the Continent, openly embrace offshore services engagements — and the Indian providers have been the beneficiaries."

Despite the strong EU growth Indian suppliers' European market share is still lower than in the US, and almost 70 per cent of their European revenues come from the UK.

India's major tech suppliers typically grow faster than the wider IT services market, and the country's top 10 providers are expanding at an increasing rate, with growth of 21.8 per cent in 2011 compared to 19.9 per cent in 2010.

The global economic crisis is not only fuelling an uptick in IT offshoring, but also increases the chances that companies will outsource entire IT departments as Gartner recently warned.

The sustained growth of India's IT suppliers is gradually eroding the market share of major international IT vendors, according to the report.

"The top five Indian service providers have continuously chipped away market share from the large multinational corporation providers," Roy said in the report.

"In the past five years, they have been increasingly winning large outsourcing deals with a total contract value of more than $100m."

India's top five remain focused on winning business from Fortune 1000 companies, Roy said, and in recent years have expanded their offerings from a limited pool of low-cost services to a much wider portfolio including infrastructure services, business process outsourcing (BPO) services, cloud and analytics services.

Last year saw TCS, the biggest Indian IT supplier, become one of the top 20 largest IT suppliers in the world. The company stands at number 16 in the global rankings, with a revenue of $9.31bn in 2011 and 1.1 per cent of global market share.

The fastest growing India-based IT services company in 2011 was Cognizant, which grew revenues by 33.3 per cent to $5.875bn, making it the third largest India-based IT service provider and putting it at 27 in the global rankings. Cognizant is headquarted in the US but Gartner defines India-based IT services companies as those that deliver more than 90 per cent of their services from India.

IBM remains the world's largest IT service provider, earning just over $60bn in services revenue in 2011, up 6.6 per cent from 2010. However, its 7.1 per cent share of the global services market was down 0.1 per cent on the previous year.

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Nick Heath is chief reporter for TechRepublic. He writes about the technology that IT decision makers need to know about, and the latest happenings in the European tech scene.

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