Opinion IT majors focus back on developed markets

The impact of TCS’ move to merge its Japanese unit with Mitsubishi Corp’s IT arm goes beyond the six-fold increase in the Mumbai-based IT major’s revenues from Japan. The deal marks a scale-up for TCS in the second-largest market for software services in the world, a market that has traditionally posed high entry barriers for foreign IT firms. India’s IT firms have struggled to build scale in Japan, an over $100 billion market dominated by homegrown companies and a handful of Chinese outsourcing firms. Japan’s IT services market contributes less than 2 per cent to the Indian IT revenues, as per Nasscom data.

More than that, the TCS deal in Japan is part of the broader trend of Indian IT firms redirecting their energies in increasing revenue flows from the high-margin developed markets. This gains significance considering the need for scale that Indian IT firms clearly lack. For instance, by end-April last year, even as TCS had overtaken Accenture Plc to become the world’s second biggest IT services employer (with nearly 265,000 people on its rolls), the Indian IT major’s revenue was less than half that of the Dublin-based technology consulting firm. Accenture, along with IBM, are also far ahead of TCS on another significant aspect — revenue productivity. The global annual revenue of Accenture, the world’s second biggest technology and consulting firm by sales, stood at $28 billion in 2012, over twice what TCS generated. IBM, from its global technology and business services divisions, generated close to $60 billion that year.

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Wipro too has said it has begun to redirect its energies from lower-yielding markets such as the Asia Pacific back to continental Europe as a focus market, along with the US and the UK. In 2013, the company appointed Ulrich Meister — who led the global system integration for Frankfurt-based global IT services and consulting company T-Systems — as head of business in Europe, with the mandate to chart strategy for each market in the region. Infosys too is reported to be in the process of beefing up its sales teams in America and Europe, with the focus being on hiring locals in these markets. The broader strategy followed by Indian IT in key developed markets in the coming years could decide if they tide over the struggle to move up into the top league. After fighting the pricing game at the bottom of the pyramid, it is heartening to see all the major homegrown IT firms now making concerted efforts to move up the value chain in the high-margin markets.

Anil is a senior editor based in New Delhi.

anil.s@expressindia.com