December 16, 2012 4:52 pm

New Indian IT push targets UK and US

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Indian IT and software groups are launching a renewed push to win outsourced government contracts in countries such as Britain and the US, despite controversy about the risks of taking potentially sensitive public-sector operations offshore.

Natarajan Chandrasekaran, chief executive of Tata Consultancy Services, India’s largest IT developer, told the Financial Times that his company aimed to more than double its public-sector revenues, to more than $400m, during the next five years.

“This is potentially a very large market,” Mr Chandrasekaran said. “Government systems which were put in 10 or 20 years ago now all need to be re-engineered, and new technologies must to be brought in.”

India’s IT outsourcing sector earned revenues of more than $100bn for the first time this year, according to Nasscom, a trade body, although its leading operators have tended to earn most of their income in such sectors as financial services and healthcare.

But government and defence contracts are set to become one of its most important growth areas over the next decade, according to research from consultants McKinsey, potentially creating a global market worth about $100bn for technology and business services providers.

Other Indian software companies, including Bangalore-based Infosys and Wipro, are also increasingly targeting government business, at a time when tough economic conditions have trimmed growth from their traditional private sector clients.

McKinsey’s research suggests that government IT outsourcing will increase across the developed world, as governments try to make services more efficient to meet the needs of an ageing population, while also responding to rising expectations from citizens used to conducting transactions online.

TCS last month announced a new deal with the Disclosure and Barring Service, part of Britain’s Home Office which conducts criminal records checks, the third UK government department to become its client.

The contract will see the Mumbai-based group, which earned revenues of Rs489bn ($9bn) last year, establish a new technology and support centre in Liverpool, while also undertaking software development work in India.

Mr Chandrasekaran said his group would target public sector work in a range of countries, including the US, with a focus on pension and tax departments, as well as projects using technology to deliver services directly to citizens.

But he also said that Britain could prove an especially attractive market for the Mumbai-based group, given the prominence of the Tata group, its parent company, which is the UK’s largest manufacturing employer.

Some analysts suggest that this growing market may prove challenging for Indian groups, however, given political sensitivities over data protection and the offshoring of jobs, alongside doubts over the efficiency of outsourcing itself.

“More and more public sector services are being outsourced, and once you’ve outsourced something, you very rarely bring it back in house again,” says Colin Cram, managing director at Marc1, a UK-based procurement consultancy.

“But while outsourcing is increasing there is going to be less of major system integration work that Indian companies do, where they take over finance systems, or HR. The government has become cynical about these big IT systems, and now wants more bespoke, smaller contracts.”

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