MUMBAI, India, August 13, 2008 View All Press Releases

Gartner says TCS, Infosys and Wipro are Likely to Emerge as The Next Generation of IT Service Megavendors by 2011

IBM, Accenture and EDS to Face Stiff Competition from Emerging Megavendors

Tata Consultancy Services (TCS), Infosys Technologies 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 capitalization 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 (See Table 1).

“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.

Additional information can be found in the report “India-3 Are the Emerging Megavendors” which can be found on Gartner’s Web site at http://www.gartner.com/DisplayDocument?id=713207&ref=g_fromdoc

Contacts

About Gartner

Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the valuable partner in over 13,000 distinct organizations. Through the resources of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 5,500 associates, including 1,400 research analysts and consultants, and clients in 85 countries. For more information, visit www.gartner.com.

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.