During the last twenty years, the global trend towards
outsourcing, first for production within China and more recently for services
within India, has been the engine of spectacular growth. Wealth generated from
outsourcing has played a significant part in fuelling the stunning rise of the
worlds largest and fastest growing middle classes in history, in turn sparking
the retail revolution, requiring IT to tap the full potential of more than
two billion consumers. Now, retailers in these regions are more than ever using
IT to secure sustained growth. They are quickly learning that IT systems can
enhance their business with benefits like operations integration, real-time
data, inventory and merchandising management and reductions in processing and
warehousing costs.
As more and more companies enter this sector and rapidly
expand their operations, the retail sector will witness robust expansion in IT
takeup, with IT revenue expected to grow at a CAGR of 44 percent and 29 percent
from 2006 to 2010 in India and China respectively, according to new data from
Springboard Research. Springboards extensive research among almost 300 IT
decision makers at the major retail companies in India and China sheds new light on the transformative power of IT in retail.
IT Revenues in the India retail industry are set to explode
with IT revenue expected to grow at a CAGR of 44% from 2006 to 2010. In 2006,
the Indian retail IT market was US$253 million, and it is expected to quadruple
to US$1.07 billion by 2010. China on the other hand is already a much larger
market and while not growing at the same rate as India, it will still be roughly three times
the size of the Indian market by 2010 with the IT market opportunity in the
Chinese retail segment expected to expand at a CAGR of 29% from 2006 to 2010.
The retail IT market in 2006 was US$1.13 billion and is expected to reach
US$3.1 billion in 2010.
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What Is Driving IT Investment?
There are both common and unique trends driving IT
investment in each market. IT investments in the retail industry in India are very much motivated to gain new market opportunities. As the current economic
boom in India spreads to Tier II and Tier III cities and towns, reaching
potential consumers in these cities is high on the agenda of most retail
companies. Retail sector players consider a direct presence in these areas as
key to continued growth and profitability. In addition, international retail giants
are investing in the Indian retail segment aggressively, and Indian conglomerates
are entering the market with ambitious plans. This drive to address new market opportunities and the pivotal role technology
plays in these strategies is the key driver for IT revenue growth in the
Indian retail industry.
Reaching new markets in China is also a strategic focus,
but we are also seeing that competition is driving a lot of the IT investments
among retail firms. As the market continues to boom and more and more players
join the industry, smaller retailers in China are ramping up their IT
infrastructure to stay competitive along with the foreign multinationals.
Competitive Environment
In India, SAP leads the IT Solutions landscape, but the
market remains open to multiple suppliers. SAP was mentioned most frequently as
the primary external influencer by retailers (27%), followed by Microsoft
(14%). Local vendors (19%) also have a significant presence, boosted by their
focus on customised solutions which has helped them create a niche for
themselves in the retail market. Through end-user targeted research,
Springboard found that Indian retailers are looking for IT vendors based on
their strong service and support (listed by 22% as the primary reason for
vendor selection) followed by good prices (listed by 17% of respondents). The
next three factors were domain knowledge of solutions, the clients
business and the retail industry.
