Positioning In New Markets Important Differentiator
- Emerging markets continue to be a source of growth for IT spending. IT spending is expected to be up 1% for the U.S. in 2012, but down ~5% for Europe. The prospects for the emerging markets are comparatively much better. China is expected to lead the way with ~11% growth in 2012 and ~11% CAGR in 2011-2016 (Gartner). IDC has projected double digit growth in BRIC countries (Brazil, Russia, India, and China) in 2012 with Brazil +9%, Russia +11%, India +16%, and China +15%. Chinese growth is being driven by Fortune 500 companies looking for local IT partners to help capitalize on the growth, CIO’s interested in diversifying their offshore delivery concentration, and global software companies that have an R&D setup in China. Local Chinese providers who have a first mover advantage and local knowledge and relationships include VanceInfo (VIT; NEUTRAL), HiSoft (HSFT; NR), Isoftstone (ISS; NR), and Camelot (CIS; NR).
- China gaining ground as an outsourcing destination, but has a long way to go to catch India. India continues to be the world’s leading outsourcing destination (~60% of companies outsourcing selecting India). China (~25% of companies outsourcing selecting China) is less mature and growing at a faster pace, but faces headwinds. India has English capabilities and goodwill with its U.S. and European customers but faces challenges related to physical infrastructure. China has the proper physical infrastructure, but the English-speaking population is comparatively smaller. We compare the offshore delivery capabilities in the table of pg 6 of the report.
Companies best positioned for emerging markets growth. Among our non-local coverage list, IBM (IBM; BUY) and Accenture (ACN; BUY) have established the largest presence in emerging markets. IBM expects growth markets to outpace major markets growth by more than 8 points over the 2010-2015 time frame adding $17 billion in revenue from growth markets (CAGR of ~10%) which could increase growth markets as a percentage of revenue to 30% in FY15 from 22% in FY11. Emerging markets accounted for 13% of Accenture’s revenue (April 2011). Management expects revenue in these markets to double in size by 2014 (26% CAGR). For local provider VanceInfo (VIT; NEUTRAL), China is expected to increase as a percentage of revenue from 47% in 1Q12 as China grows ahead of developed markets driven by investment in BFSI and strength from domestic high tech clients.
For more information, please contact:
Joseph D. Foresi