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Indian IT firms eye emerging markets as US slows

Bangalore, May 12, 2008

India's export-driven software services companies are shifting focus to emerging economies, such as the Middle East and Africa, where technology spending is growing twice as fast as in developed countries.

As the United States, which contributes more than half these companies' sales, lurches towards recession in the wake of the subprime crisis, companies such as Satyam Computer Services, Infosys Technologies and Wipro are looking farther afield, as well as to their home market, to take up the slack.

Spending on information technology in Asia-Pacific, Latin America, the Middle East, Africa and Eastern Europe is on course to hit $1.1 trillion this year, up from $964 billion in 2007, according to research and advisory firm Gartner.

Spending in 2011 will reach $1.3 trillion, posting compounded annual growth of around 8.5 percent, compared with 4.3 percent growth in mature markets, the Gartner report added.

Many Indian companies, which forged close ties with the United States having rewritten the programming code that helped overcome the millennium 'Y2K' issue, have already started diversifying their customers.

Satyam, India's fourth-largest software exporter, is negotiating a score of deals worth $10-$30 million in Asia-Pacific, the Middle East and Africa, its director Virender Aggarwal said.

"The deals we are seeing in emerging markets now are just the beginning," said Tejas Doshi, analyst at broker Sushil Finance.

India's software and back-office outsourcing industry is on course to ring up sales of $64 billion in the fiscal year just ended, up from $48.1 billion, the National Association of Software and Service Companies says.

Exports are around $41 billion of that total, up from $32 billion a year ago when the United States accounted for around 60 percent of those sales.

"I see the US accounting for 50 percent of the sector's exports in three years, down from 60 per cent now," said Avinash Vashistha, chief executive of outsourcing consultancy Tholons.

Led by Tata Consultancy Services and Infosys, India had focused on the US partly because it was the easy option. "They have been trying to get the low hanging fruit," Sushil Finance's Doshi said.

But a weakening US economy and a rupee that gained more than 12 percent against the dollar last year have forced Indian software services companies to broaden their horizons.

They face tough competition from global majors such as IBM N> , Accenture and Microsoft for outsourcing contracts from fast-growth markets such as China and India.

Analysts expect the US giants, which are also seeing a decline in demand at home, will use their size and scale to muscle their way ahead in emerging markets.

"We've got a broad footprint," Hewlett-Packard Co Chief Executive Marc Hurd said at the company's earnings. "There's some exciting growth in those emerging markets and we want to compete for it."

While all four big Indian outsourcers missed market estimates for net profit last quarter and issued cautious outlooks, IBM and Accenture reported better profits and raised their guidance.

"They are larger and have a more diverse revenue base," said Karl Keirstead, analyst with Kaufman Bros, referring to IBM and Accenture. "They may be able to weather that downturn a little bit better than the Indian vendors."

Despite the challenges, booming technology demand in developing Asian countries, Latin America or the Middle East and Africa continues to attract Indian companies.

"Recent events in the US have only re-confirmed companies' belief in diversifying risk," said Satyam's Aggarwal, who heads the business in Asia Pacific, Africa, India and the Middle East. "China and India are the two economies that look promising."

Analysts said booming economies in India, the Middle East and Australia were stepping up outsourcing of work such as building and managing


Tags: Software | India | US | market | slowdown | emerging |

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