2014 was a strong year for the Indian economy, marked by rebounding confidence in the markets and a wave of optimism following the election of pro-business Prime Minister Narendra Modi. Major indicators put numbers on the trend—the Sensex was up more than 30 per cent for the year, while the MW IT Index (India Edition) is up almost 15 per cent.

This strong economic performance was also reflected in a healthy M&A landscape for Indian companies, with the total deal value increasing significantly to reach $48.4 billion, the highest level since 2010.

Expect to see these trends continue—the Indian economy is Asia’s third largest, and despite increasing troubles in the other BRIC countries has proven itself well-positioned for greater success in 2015. I have full confidence in business leaders’ abilities to remain competitive and excel in an increasingly challenging global marketplace.

But for some industries, it’s not enough to simply trust the status quo. For a long time, the Indian IT industry has enjoyed several comparative advantages. This has meant that major tier one operators have been able to pursue relatively “safe” acquisition strategy—avoiding large, strategic bets in favour of small, targeted plays designed to close specific capability gaps with competitors.

As the global IT services market grows increasingly competitive, this piecemeal acquisition strategy will no longer be enough to preserve India’s historical position. Capability and cost gaps are fast closing with major global competitors like IBM and Accenture undergo significant, transformational M&As to solidify their advantage. Remaining ahead will require identifying specific industry opportunities and filling those niches. And this requires significant commitment—one cannot achieve vertical or horizontal superiority through a series of $20-80M acquisitions.

We’re already seeing signs that this message is being received.  September saw Cognizant acquiring healthcare-focused IT services provider TriZetto Corp for $2.7 billion—a major investment in what had for them been a declining area and an acknowledgement that the company needed to make a significant move to distinguish itself from both domestic and international competitors. While it’s of course too early to comment on Cognizant’s success, by making this acquisition the company has secured a dominant position in the healthcare space and ensured a strong footprint in what is expected to be a major growth area going forward.

In the telecommunications space, Tech Mahindra’s acquisition of Lightbridge is a good example of an established Indian IT Services firm expanding into its own vertical niche.  The major acquisition, for an enterprise value of approximately $240, positions the company as the largest network engineering and managed services organisation.

And some horizontals remain especially important: in particular, the “next generation” digital technology. Accenture’s SMAC and IBM’s CAMS (both acronyms for Social, Mobile, Analytics and Cloud) are the next frontiers in business services and currently offer the greatest potential opportunities. But success will require significant investment and large upfront expenditure beyond the occasional startup acquisition. Fortunately, we’re seeing Indian tier one players taking the right steps—they just need to make sure they’re moving fast enough.

In addition to achieving strong vertical and horizontal positions, Indian companies need to move up the value chain beyond their current offerings. By and large, that means building out consulting services—and since many Indian IT leaders don’t have these capabilities already, every large consulting acquisition that is not made by an Indian IT leader is a missed opportunity. PWC’s 2013 acquisition of Booz & Company to grow its own advisory business has proven to be an early success in differentiating the company from competing accounting firms—paired with the IT services offerings of Infosys or Wipro, it would have provided similar complementary growth opportunities. Infosys’s $350 acquisition of Lodestone in 2012 is a perfect example—barring any execution or an integration problem, the company has attained a strong differentiator from its peers.

One area of potential value growth where we’ve seen strong interest is in digital strategy. Any successful digital practice has three key components: a clearly articulated overall strategy, polished customer experience management capability and a strong technological foundation. Thanks to their experience in the IT space, Indian firms already possess this strong foundation. But thanks to cultural differences and a need for polished, front-end capabilities, top-tier Indian firms have traditionally lacked in digital strategy, design and delivery.

Ensuring continued success in an industry as dynamic and fast-moving as IT will not come cheap, but is more important now than ever before as clients increasingly demand multichannel offerings beyond the traditional web-based or brick-and-mortar firms. Indian IT leaders’ new years’ resolution should be to make this year one of transformational, definitive growth, with a priority of enhancing customer experience. The right acquisition strategy today will pay dividends not just for 2015, but for the future to come.

(Gaurav Sharma is senior vice president and managing director of martinwolf’s India Practice.)

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