Tuesday, 13 November 2007

Mediocre growth? Not if you are Indian!

In response to my posting on 11th Nov. Sanjiv Gossain from Cognizant sent me the following email


Hope you are well. I read with interest the note you wrote on the lack of growth in UK IT Services on your blog Sat 10th) and you quoted the very low growth of various firms such as Logica CMG, CSC, BT, EDS, etc. However, you didn’t mention companies like mine (Cognizant) or some of our offshore brethren (INFY, TCS, etc,).

While I can’t speak for them, we are having a stellar year in the UK and in Europe, with growth of >92% (in the last quarter). While this is admittedly off a small base compared to the Logica CMG’s of this world, I know that we are growing very fast indeed, and taking considerable work away from those companies.

Somehow, I feel you should be mentioning firms like ours a little more. We are here to stay….and not just a passing fad…


Sanjiv Gossain
Vice President, Cognizant Technology Solutions


Actually I have covered the ‘offshore players’ on many occasions in HotViews and in my other work over the last decade.

Indeed I reported on the appearance of an Indian company - TCS (at #15) - in the Top Twenty of Ovum Holway’s Rankings for 2006. Indeed Wipro (at #21) is clearly ‘bubbling under’ with Infosys, HCL and Cognizant snapping at their heels.

The effect of the Offshore players on the UK SITS sector is actually not quite so great as one might expect from the headline figures. I have estimated that the Offshore players represented about 5% of the UK SITS market in 2006; ie about £1.4b revenues out of a £28b total. The offshore players I monitor had an average growth rate of 50% - which is 10x the market growth rate of ‘the rest’. Although such growth from a small base has a limited effect on the overall growth of the market - all the same, if the Indians are growing by 50% in a UK market with a 6% overall growth - 'the rest' already have a growth rate of <4%. That's pretty depressing. Evidence that the growth of the offshorers is both substituting from growth from onshore companies and actually acting to depress the market as competition drives fees downwards. If you remember, I have referred to this as “Cold Tech” – one of the many drivers right now which actually depress the overall size of the ICT market.

What actually is, and will continue, to have a greater effect is the use of offshore resources by the established onshore players – particularly those at the top of the UK rankings like EDS, IBM, Capgemini and Accenture. Right now I’d estimate that c15% of the UK SITS revenues of such companies relate to work undertaken offshore. So, added to the 5% from the Indian players themselves, that means c20% of UK SITS revenues have an offshore element right now. By 2008, I estimate that figure will have risen to 35% with the 50% level hit by 2115 – if not before. But, as I have said above and many times before, that is likely to have a deflationary effect on the total size and growth of the market. We will indeed get far more SITS work done in the UK but we (ie the customers) will pay less for it – in much the same way as we have seen in the PC market.

You may recall that my piece yesterday also made reference to the importance of the Financial Services sector to the ICT sector - it represents c21% of spend in the UK. You might therefore be interested in reading the piece in Businessweek - Finance's troubles infect tech . Although I doubt it will make you feel any better!

No comments: