Global slump prompts IT firms to scout for domestic revenue

The economic slowdown has seen a revamp in the offshore-oriented business model of Indian IT companies. Cut back in technology spending by the North American and European firms have forced even blue chip IT companies in India to look at the hitherto neglected domestic market to keep their cash registers ringing.
The early mover among the domestic firms is Infosys Technologies (INFOSYS.BO : 1392.25 0), which has struck a couple of deals already with a slew of state-run firms. Infosys' India business unit has reportedly given consultancy services to the Uttar Pradesh Power Corporation and three Rajasthan-based distribution companies for power reforms programmes. Its another client is the income tax department where it has set up a central processing centre (CPC) to collect, digitise, and process IT returns, which will be operational in four states soon. Thermax, a global solutions provider in energy and environment engineering, consulted Infosys to implement an end-to-end IT-enabled business programme. Similarly, TCS has gone on record saying the country's largest outsourcer is aiming at a 100% growth in its domestic business. It has developed and implemented software solutions for RBI, BSE besides implementing some e-governance projects.
Wipro Infotech has signed up with Union Bank of India and Canara Bank to provide technology solutions. The country's third largest outsourcer has also won an approximately $ 230-million contract from Employees' State Insurance Corporation. HCL Technologies recently inked a Rs 393-crore deal with the National Insurance Corporation of India.
According to market sources, Wipro, TCS, Satyam and a few others are in the race for bagging technology outsourcing orders from various central and state government agencies and a slew of PSUs such as Coal India, Nuclear Power Corporation of India, BSNL, Railways and a few other Navarathnas and smaller PSUs.
The desi IT firms shunned domestic deals citing small size, low margins and inordinate delay in payments as reasons for focussing on offshore business. However, global giants like IBM, Capgemini, and EDS have struck lucrative deals in their backyards, especially in the telecom vertical, where big money has been spent by carriers and operators to upgrade technology.
Currently, revenues from the domestic market, on an average, account for less than 10% of the topline of frontline IT companies. According to an earlier research done by IDC, the domestic IT market is expected to cross $65 billion by this year, posting an annual growth rate of over 20%, leaving enough room for many players to have a piece of action.
Analysts, however, feel that it may take some more time for the local IT firms to get a bite of the domestic IT market. "It may not be easy for Indian companies to make a dent in the burgeoning domestic IT market initially. For instance, in telecom, where big money has been spent on technology, few Indian companies had the domain knowledge. But companies like IBM came to India with their expertise in bundling hardware and software in other countries. Therefore, it is wise to assume that a long journey is awaiting Indian companies before making inroads into the market segment where real money will be spent," said an analyst with a foreign brokerage.
However, according to Alex K Mathew, head (research), Geojit Financial Services Ltd, it could be a win-win deal for all. "So far, Indian firms were avoiding domestic deals as they were considered as low-margin deals. Also, there was an apprehension about delay in payments by government and semi-government entities. However, now, with the slowdown in the West putting pressure on their margins, these firms are forced to look for opportunities in the domestic market.