labels: Infosys Technologies, Tata Consultancy Services, Wipro Infotech
TCS, Infosys, Wipro set to emergeIT service megavendors by 2011: Gartner news
13 August 2008

Mumbai: TCS, Infosys and Wipro Technologies, collectively referred as "India-3", will emerge as the next generation of IT service megavendors, according to Gartner, Inc. These vendors are increasingly being considered for strategic service deals, and will augment or, in some cases, replace today's acknowledged megavendors by revenue --- IBM Global Services, Accenture and EDS - in this space by 2011.

These emerging megavendors are much smaller than the current megavendors but will increasingly compete for the same megadeals that had been the exclusive domain of the incumbent megavendors.

The 'India-3' have leveraged their strong success with meeting client needs to achieve record growth levels during a long period of time (30 quarters continuously) and have outperformed the incumbent megavendors by almost a 3:1 margin in growth rates. A comparison of the key data and statistics between the 'India-3' vs. the current megavendors shows the differences in growth rates between these companies and reveals the rise in the market capitalization of the emerging megavendors.

The market capitalisation of the Indian providers is significantly higher than that of EDS, and almost on par with Accenture, which are much larger companies in terms of revenue.

''The emerging megavendors have made dramatic progress in the past few years and have more than doubled their revenue in a four-year period, with the 2007 revenue being 2.6 times the 2004 revenue,'' said Partha Iyengar, vice president, distinguished analyst and regional research director, Gartner. ''This level of growth differential has continued even as these vendors have become multibillion dollar enterprises. To put this in context, there are just 100 service enterprises globally with more than $1 billion in revenue.'' 

Table 1. Statistics for Emerging and Current Megavendors (Service-Related Statistics Only)

Company

Year End

Revenue
(Millions of Dollars)

Growth Rate

Head Count

Revenue per Employee (Dollars)

Market Cap (Millions of Dollars)

TCS

2007

5,718

32.45%

111,407

51,320

27,800

2006

4,317

44.89%

89,419

48,280

29,294

2005

2,979

33.31%

66,480

44,820

19,747

2004

2,235

-

45,715

48,890

13,240

Infosys

2007

4,176

35.15%

91,187

45,800

23,563

2006

3,090

43.59%

72,241

42,770

29,101

2005

2,152

35.18%

52,715

40,820

19,250

2004

1,592

-

36,750

43,320

12,156

Wipro

2007

3,393

37.94%

82,122

41,310

17,388

2006

2,459

35.50%

67,818

36,260

19,187

2005

1,815

34.09%

53,742

33,770

13,913

2004

1,354

-

41,857

32,340

11,651

IBM Global Services

2007

54,144

12.12%

368,558

146,910

149,744

2006

48,291

1.86%

355,766

135,740

146,355

2005

47,407

2.43%

329,373

143,930

129,381

2004

46,283

-

329,001

140,680

 -

Accenture

2007

22,134

4.07%

170,000

130,200

23,951

2006

21,268

7.65%

140,000

151,910

18,647

2005

19,757

-0.53%

123,000

160,630

15,076

2004

19,863

-

103,000

192,840

14,312

EDS

2007

21,453

17.69%

139,000

154,340

9,483

2006

18,228

6.63%

118,000

154,470

14,389

2005

17,094

13.10%

119,000

143,650

13,913

2004

15,114

-

117,000

129,180

10,431

Source: Partially compiled by Gartner from company annual reports, Capital IQ, OneSource, Hoovers and 10-K filings. Additional inputs from company responses and Gartner analysis.

The emerging megavendors have leveraged four critical competencies to achieve their status as emerging megavendors. The competencies are: process excellence; world-class HR practices; providing high quality services at a low cost; the achievement of significant and disproportionate 'mind share' compared to their actual size.

To achieve process excellence, the 'India-3' providers have invested heavily to establish frameworks and have aggressively marketed these capabilities as evidence of being able to deliver in a consistent, predictable manner.

Supporting the levels of growth witnessed by the 'India-3' has required a high level of HR excellence and capabilities. This has helped them to create a world-class human resource management (HRM) infrastructure. For the past few years, these companies have been adding more than 30,000 people to their workforce every year. The recruitment, training, induction and overall onboarding challenges of this kind of scale could only be supported by the creation of a world-class HRM infrastructure, which has been a significant competitive differentiator for Indian companies.

By combining process excellence to deliver higher quality with the less expensive (and larger) workforce available in India, the India-3 providers were able to create the combination of low-cost, high-quality services, which has proved to be the most alluring factor for clients. These qualities have resulted in a higher level of mindshare among clients and prospects globally that is significantly disproportionate to their revenue and overall size, as compared with the incumbent megavendors.

However, the challenges facing emerging megavendors to truly achieve this status are also evident in Table 1. Looking at the "revenue per employee" data, it is clear that there is a divide between today's megavendors and the aspiring Indian megavendors.

The Indian providers will have to address the issue of moving away from resource-intensive revenue growth to a model that provides higher leverage and increases revenue without a linear relationship to head count, which is the situation that exists today. They will have to achieve similar (to the current megavendors) levels of revenue per employee benchmarks to truly achieve megavendor status. Furthermore, they will increasingly have to deal with the business constituency that is often deeply involved in these higher-end projects and develop strong relationships with the business stakeholders.

''There are strong indicators that 'India-3' (TCS, Infosys and Wipro) will be the next megavendors in IT services. However, to achieve this, the current standing of the India-3 will need to expand quickly to keep pace with the changing client environment for IT delivery in the future,'' said Mr. Iyengar. ''Revamping and continually reinventing their delivery capabilities, even as they address the challenges of managing their growth opportunities, will determine how and when these emerging megavendors will actually achieve megavendor status.''

'India-3' is an acronym devised by Gartner for Tata Consultancy Services, Infosys Technologies and Wipro for the purpose of this research.


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TCS, Infosys, Wipro set to emergeIT service megavendors by 2011: Gartner