The Indian information technology sector is likely to witness heavy consolidation in the coming months as mid-size companies struggle to sustain growth amid a rising anti-outsourcing tirade in the United States.
"We expect many mergers and takeovers in the IT sector. It will be among Indian companies and also overseas deals. This is very important for mid-size companies," P.N. Sudarshan, senior director at global consulting firm Deloitte Touche, said.
He said the focus of Indian outsourcing companies in the coming months will be on Europe and the Asia-Pacific region.
"The map is much wider now. There are good opportunities in European countries like Germany and France and also in Asia-Pacific. Outsourcing companies will have to diversify revenue base to sustain growth," Sudarshan said.
The $50-billion Indian IT industry gets over 60 per cent of its revenue from the US. Nearly 20 per cent of the revenue come from Europe and rest of the world accounts for 20 per cent.
Eric Isabey, chairman of Pierre Audoin Consultants, who is advising the Indian IT firms on European ventures, said recently that software giants like Infosys, Mahindra Satyam, MindTree and HCL Technologies were looking for local partners in Germany and France to expand their business in the European countries.
"We see a lot of value creation in cross-border deals. It will help Indian companies in getting a strong foothold in Europe," said Sudarshan, adding such deals were very important for mid-size companies.
According to a Deloitte survey, smaller IT companies have not been able to catch up with their larger counterparts in the last three years.
Deloitte is conducting the sixth India edition of Technology Fast 50 survey, which ranks 50 fastest growing companies in technology and related sector by comparing their three-year revenue growth.
Sudarshan said Deloitte would publish the survey result in the second week of November. "Nomination is closed and we are now analysing the data. The findings will be available in November."
On changing dynamics of the Indian technology sector, Sudarshan said software companies have increased their dominance in the last few years. The share of software in the sector has increased to 80 per cent while that of telecommunications and networking declined to six per cent, according to the 2009 survey of Deloitte's Technology Fast 50.