London: Technology consulting has driven growth and dominates the Indian consulting market to a degree not seen elsewhere — accounting for nearly half of all revenues in 2013 ($674m). But, as the Indian economy grew at a disappointing pace in 2013 compared to the past, its consulting market largely mirrored its performance — growing by 3.1 per cent to $1,373m.
These findings are included in a new report from leading global consulting market analysts, Source Information Services (Source). It says that after a period of pre-election stagnation, the new government (the first majority in a generation) is introducing business-friendly policies, which will ultimately benefit consultants.
The report says that while technology consulting continues to dominate and grow, its future success will depend on consultants moving from an old fashioned IT approach to one of offering integrated solutions combining technology with other offerings.
B.J. Richards, Senior Analyst at Source Information Services and author of the report commented: "Technology is a service area that continues to grow in importance as IT becomes more central to all parts of business, but as an emerging market, India has a lot of catching up to do. Furthermore, the frequent absence of legacy systems means a lot of leapfrogging straight to the latest and greatest, creating some very sophisticated opportunities for Indian clients and the need for consulting help to make the most of them."
Ram Sarvepalli, Advisory Leader, India from EY said: "Technology has become a driver of change in the Indian market. Looking at the government, for example, they're making a big shift to using technology as the main platform for serving 1 billion people, so there's a lot of work around moving to adapting technology to enable citizen services and inclusiveness."
The Source report also revealed that digital firms have begun to notice client interest in integrated services and are threatening to fill the gap themselves. Source believes this should be received by Indian consultants with some alarm: Digital agencies are coming for consultants where they live.
B.J. Richards from Source added: "To protect the business they've built here and to keep advancing toward a more mature market, Indian consultants must launch a two-pronged attack: they will need to develop their other services across the board in order to provide a more well-rounded offering, and they will need to follow the West's lead in consistently combining these services with technology to provide holistic, integrated, modern solutions to client challenges."
Aside from a strong performance in technology consulting, operational improvement was 2013's fastest growing service area, thanks in large part to interest in cost reduction initiatives.
Financial services, India's biggest consulting sector, experienced the most rapid growth in 2013 — growing 4.9 per cent to $412m. Government policies aimed at growing and liberalising the industry have generated a lot of activity and a lot of consulting work. Source predicts that the sector will grow by 5 per cent in 2014.
Nat Radhakrishnan, Senior Vice President & India CEO, Capgemini, said: "We expect the banking sector to do well, especially in 2015 when the new banking license policy will positively impact consulting. At that time, many new banks will need support from consulting firms to setup shop in India."
The healthcare sector also did very well last year (up by 4.2 per cent to $34m) as Indian consumers are becoming more sophisticated and demanding users of health services.
The market as a whole
The Source report says that as the Indian consulting market grows and matures, it also becomes more competitive. Clients are getting choosier, but no less cost conscious, just as talent is becoming more expensive. As a result, some consulting firms report that it's very hard to make a profit despite good levels of growth. There is also a view that a move to success-based fees and the acceptance of milestone payments would ultimately allow consulting firms to bill at sustainable rates. But, others fear that such flexibility on the part of firms is only causing the environment to become even more cutthroat and could, ultimately, make India a less attractive global consulting destination.
Neil Ramchandran, CEO, Capco India, concluded: "The Indian market continues to be extremely focused on value, which is always linked to financial return. Quality is and has always been taken as a given. Clients now are placing even greater emphasis on a measurable, financial return from any consulting engagement."