Evolved role of niche capability players in the innovation focus of Indian IT industry

The exponential rise of the Indian IT sector over the years almost perfectly exemplifies how economic liberalisation combined with an entrepreneurial vision can create an industry that now contributes about 8% of the country’s overall GDP. 

With the unwavering efforts of hundreds of IT service firms created over several decades, the sector has broken the USD 200 billion revenue threshold, achieving USD 227 billion revenue in FY22, with a USD 30 billion incremental revenue in the year and a 15.5 percent overall growth rate.

India’s IT potential

India has been a bedrock for innovation in the technology sector throughout the years, since innovation has been at the heart of the industry’s strategy. To this date, we are still regarded as a powerful driving force in the software-as-a-service revolution, a startup innovation hotbed with over 100 unicorns, one of the early adopters of breakthrough technologies like AI/ML, and notably a world leader in IT services.

Over its transformational years, the Indian software service industry has evolved from providing low-cost back-office assistance to leading the digital transformation agenda in multinational corporations. Global leaders of multinational organisations, including the ones from United States and Europe, are increasingly realising India’s potential and are establishing their own R&D centres in India to capitalise on the robust Indian IT ecosystem.

Becoming the best of breed

Gradually, the IT industry has now started driving its attention towards vertical-focused services which has given rise to niche players in the sector that are innovation-driven and aim to dominate a large segment. To put this in context, the Banking and Financial Services (BFS) vertical is the largest contributor to overall IT services revenue in India, and it has maintained a significant lead over other verticals for many years.

Niche players have started winning contracts by directly competing against big IT service companies, or would compel many of them to forge a partnership for the contract. Leveraging their niche capabilities, these players are specifically focusing on digital transformations or offering software-as-a-service to verticals such as BFSI, Healthcare, Transportation and Digital, etc. 

Reversing the trend from cost-reduction to an increased demand for speed-to-market and innovation, niche IT players are redefining growth sustenance in the IT ecosystem. They are repeatedly proving that not every contract requires the scale of a global player. By making innovation a priority and inculcating deep domain expertise in a particular target segment, niche players are becoming more preferable. 

According to a report in PWC, brand trust determines buying decisions for 70% of consumers, and companies can best build trust when they are perceived as they are the go-to experts in their respective fields.  Becoming a go-to expert in fields enables businesses to explore previously untapped markets, build customised products that address specified consumer demands, and form strong connections with those customers.

The way ahead

The cloud transformation market is evolving like never-before and more players are turning ‘cloud-native’. While it is an increasing competitive threat for big companies that are betting big on the cloud segment, the end result often seen is forging collaborations and strategic partnerships with niche players to leverage their deep domain expertise. 

Effective specialisation requires concluding the size of the targeted market. With a clearly defined market, niche players can establish clear messaging of their services, create a robust team with specialised skillsets and produce high-quality products or services to position them for a long-term growth. 

For instance, niche players are helping the Healthcare industry to transition from their legacy systems to a completely digitized offline-to-online patient experience, where new-age technologies like UI/UX enhancement, AI/ML led document digitization, Digital Science and Analytics are leveraged for healthcare institutions to thrive in the new normal.

Getting visibility and awareness in niche markets is slightly easier as compared to general markets that are usually saturated. Niche players that focus on maximising market share in their specified or narrow markets, will certainly thrive in the future and create a long-term brand trust too. 

In future, we will see even greater specialisation, particularly in industries such as software, as it continues to impact our everyday lives. Niche software firms that create distinctive, high-quality solutions while focusing on long-term growth, and maximising market share will place themselves in a great position for future development.

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