At least two Indian service providers will be in the global top 10 by 2010, according to a new report published by analyst Gartner.

The top six Indian providers, collectively referred to as SWITCH - Satyam, Wipro, Infosys, TCS, Cognizant and HCL Technologies - achieved an average growth rate of 42.2 per cent in 2006. During the same period, IBM, the market leader, only grew by 4.3 per cent, the report said.

Dean Blackmore, a senior Gartner analyst, said the Indian providers are in a strong position because of their “bottom feeding model”. In India, the businesses are hiring around 25,000 graduates straight out of university and making huge investments in their training, Blackmore said. In contrast, the US is suffering from technical skill shortages and an ageing population.

Now that multinational companies, such as Accenture and IBM, have set up in India, the competition between domestic and multinational firms is increasing and businesses will find it tougher to recruit so many graduates in a few years’ time, Blackmore said.

IBM is chiefly responsible for luring away graduates but the Indian companies have an advantage in that graduates want to work for a native provider, according to Infosys, Blackmore said.

Although sceptics point to the small revenue base as the reason for the high growth rate, the Indian providers are outperforming, in dollars growth, organisations much larger in size, explained Blackmore. In 2006, TCS grew by $1.2bn, whereas IBM only grew by $840m, Blackmore said. “In the future, it is likely that business from traditional service providers in the US will shift to Indian shores,” he added.

However, Mark Kobayashi-Hillary, director of the National Outsourcing Association, said the report that many Indian companies are on an upward track breaks no major news. The Indian providers’ growth is not going to trouble IBM, he said. The Indian companies have aggressive targets for 2010 because it’s the end of the year and they want to look good, Kobayashi-Hillary argued.

“They can’t play the low-cost card anymore because both IBM and Accenture are out there,” Kobayashi-Hillary said. If the “Indian players” are really going to succeed, they need to recognise buyers want partnership and experience rather than just lower costs, he added.

Blackmore disagreed. He described the Indian providers’ business strategy as a “snowballing model,” where providers typically go in at ground level on mundane issues with a $1m contract but then, once they have built up a relationship, they start providing the value-added services of consultancy and outsourcing.

Indian providers are also having more success competing against the multinationals than they had in previous years because they now have the case studies and years of experience they once lacked, said Blackmore.

One area of potential conflict for Indian providers is the US federal government’s insistence on supporting purely US service providers, said Blackmore. This is limiting the penetration Indian providers are achieving in the US market.

Blackmore gave two future forecasts. He said it will take the Indian providers a number of years to appear in the top three market-share leader roles — unless they make a major acquisition. Also, their “organic growth” will continue unless a large contract goes awry and the negative publicity reflects on all the Indian businesses because of their group status.

Kobayashi-Hillary said the market trend that is particularly playing to the Indian vendors is multi-sourcing, with an increasing number of companies wanting a team of suppliers, all from different places.

Duncan Aitchison, partner at TPI outsourcing, said organisations are moving toward a global service delivery model where businesses will adopt service providers from all over the world according to cost, knowledge and availability. Although India is succeeding in applications, development and maintenance, it still has a long way to go in the areas of infrastructure, business processes and HR, he argued.