The 3PL market in India's IT hardware sector is witnessing appreciable growth, primarily due to the increasing entry of multinational IT hardware companies, which replicate their global logistics outsourcing strategies to establish a network in the country.

Moreover, the concept is fast gaining acceptance among domestic manufacturers, and in line with these trends, revenues are expected to grow to about 3.6 times their current size (as of 2005) in the next 5-7 years. To capitalize on the resulting opportunities, 3PL providers should add more value to their services, as clients, especially domestic ones, look for tangible cost and service benefits from outsourcing.

"The growth in the 3PL market in the Indian IT hardware sector is being driven by the increasing adoption of the 3PL concept by leading hardware companies," notes Frost & Sullivan Research Associate Deepak Mohan. "As these hardware companies grow and expand into new markets, 3PLs could witness a very healthy growth."

Furthermore, the implementation of value added tax (VAT) and abolition of sales tax will set 3PLs on the growth path. The uniform nationwide implementation of VAT and the abolition of central sales tax are likely to streamline the distribution of warehouses, allowing for leaner logistics and smooth flow of material. This could result in the operation of more 3PL managed multi-user warehouses. 3PL services could hence leverage economies of scale and their usage may further increase due to reduced costs.

However, increasing penetration aside, several home-grown hardware companies, especially UPS and peripheral, refrain from following the 3PL model, owing to proprietary and cost concerns.

"This apart, rising fuel costs and inadequate infrastructure are critical restraints for the growth of the 3PL sector," notes Mohan. "Overhead costs of 3PL operators are also comparatively high, resulting in higher service prices, which serve as a significant deterrent."

Although pricing is the key determining factor in choosing a 3PL provider, appropriate service levels play an equally important role since clients expect tangible benefits in both cost and service from outsourcing logistics. Hence, companies already in the market with a healthy presence should focus on improving service levels including honoring customer commitments, prompt deliveries, flexibility, and infrastructure investment.