Building ICT trade in ASPAC NASSCOM Indian Leadership Forum 2008 Mumbai, India – 13 February 2008 IT ADVISORY ADVISORY

Change in world capital Sir Martin Sorrell Chief Executive of WPP Group “ Fundamental change is happening in the world – last two to three hundred years the West, controlled the capital…now it is shifting to the East where it will remain forever.” Sir William Castell LVO Director of General Electric “ In the future the GE Board will be one third Indian, one third Chinese and one third European…and this one will happen whether we want it or not.”

The Indian IT-ITES industry is facing challenging times… India’s rising rupee bedevils outsourcers Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible. In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion. That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to India to face stiff competition from global destinations Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible. In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion. That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to Poor infrastructure a major hurdle for growth Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible. In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion. That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to Fears of US slowdown haunt IT companies Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible. In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion. That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to High attrition rate: A big challenge Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible. In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion. That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

India’s rising rupee bedevils outsourcers

Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible.

In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion.

That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

India to face stiff competition from global destinations

Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible.

In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion.

That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

Poor infrastructure a major hurdle for growth

Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible.

In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion.

That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

Fears of US slowdown haunt IT companies

Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible.

In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion.

That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

High attrition rate: A big challenge

Newsreports a few weeks back suggested that the GDP of India had crossed the trillion-dollar mark. The recent appreciation of the Rupee since January 2007 by approximately 10% helped reach the milestone far earlier than it would have been otherwise possible.

In short, at Rs 45 to a US dollar it would still be roughly $900 billion. At Rs 40 to a US dollar, the GDP of India now stands at $1 trillion. Let us extrapolate these arguments mathematically on a 'linear scale.' At Rs 20 to a US dollar, India's GDP would be $2 trillion; at Rs 10 it would be $4 trillion, at Rs 5 it would be $8 trillion; at Rs 2.5 it would be $16 trillion and at 1 Rupee to a dollar it would be approximately $40 trillion.

That would be approximately 3.5 times the GDP of the US, which stands at approximately $12 trillion! With our population 3.5 times the size of the United States, naturally this would translate into an annual per capita income (and with it perhaps the lifestyle and consumption) that is close to

… and the Stock Market is not treating it kindly… The BSE composite index has gone up by 26% whilst the BSE IT Index has declined by 32%.

The BSE composite index has gone up by 26% whilst the BSE IT Index has declined by 32%.

… but growth in the medium term is assured India’s Share in global IT offshoring USD 10 Bn. USD 36 Bn. With an expanding global market ….. … ..coupled with India’s rising market share. While the technology revolution has led to a surge in the services sector … the increasing share of services is having a cascading effect on IT/ITES sector Source: IDC, NASSCOM, NelsonHall, KPMG Research 2010P 2006 62% 65% 38% 35% 0% 25% 50% 75% 100% 2001 2006 India Others 13.30 18.30 24.20 31.90 8.30 10.20 13.20 15.90 - 5 10 15 20 25 30 35 FY04 FY05 FY06 FY07E Revenue - USD Billion 0 500 1000 1500 2000 People Employed '000s Exports Domestic Direct Employment 3.6% 4.1% 4.7% 5.4% Rising share of IT/ITES in India’s GDP CAGR 6.3% 1,647 345 1,292 Worldwide spend on IT – ITES USD Billion

Significant headroom for growth is still available.. 23 12 25.0 2006-07E 2009-10E 10.0 The NASSCOM forecast for the Indian IT / ITES sector’s exports for the year 2010 is USD 60 billion. The IT sector is expected to contribute USD 35 billion. Additional market that can be gained through extended leadership NASSCOM target for 2010 35.0 USD Billion Addressable market Current size Addressable Global IT market* 23 13 36 India’s exports Others USD Billion 200-250 Upside potential of approx 6 – 7 x Indian IT market (Exports) 50% growth projected in next 3 years (Estimates) (Estimates) Source: NASSCOM Strategic Review 2007, NASSCOM-McKinsey Report 2005 Source: NASSCOM Strategic Review 2007, NASSCOM-McKinsey Report 2005 * Includes addressable markets in currently offshoring industries According to a NASSCOM-McKinsey study, just 18% of the off- shorable market has been addressed so far. Assuming that India will maintain its current market share, the potential market for India based IT players is as large as USD 130-160 billion Significant opportunities exist in the offshore ITO market as the current penetration levels is around 18% Potential market of USD 130 – 160 billion For Indian IT

The NASSCOM forecast for the Indian IT / ITES sector’s exports for the year 2010 is USD 60 billion. The IT sector is expected to contribute USD 35 billion.

According to a NASSCOM-McKinsey study, just 18% of the off- shorable market has been addressed so far.

Assuming that India will maintain its current market share, the potential market for India based IT players is as large as USD 130-160 billion

… and faster growth rate will be derived from non-traditional markets Source: Nasscom, Nelson-Hall, KPMG Analysis Note: 1) The share of Indian BPO exports is assumed to mirror total IT and ITES off shoring 2) The share of Indian BPO exports in FY10 to the total Indian BPO size is assumed at the current level Source: Nasscom, Nelson-Hall, KPMG Analysis North America Nearly half of Global IT Services. US accounts for 44% Europe Nearly a third of Global IT Services Asia Pacific Nearly 15% of Global IT Services CE, ME & Africa Nearly 3% of Global IT Services Latin America Nearly 2% of Global IT Services Growth @ 7% Growth @ 6.4% Growth @ 12% Ex - Japan Growth @ 10% Growth @ 12%

Nearly half of Global IT

Services. US accounts for 44%

Nearly a third of Global IT

Services

Nearly 15% of Global IT

Services

Nearly 3% of Global IT

Services

Nearly 2% of Global IT

Services

The sourcing phenomenon What services are currently outsourced? % of respondents According to KPMG’s Asian outsourcing survey, the next wave , outsourcing appears to be more pervasive than generally thought

While India remains a key source of outsourcing services, China is catching up fast as a provider – and more companies in Asia are tapping high-cost Singapore and Hong Kong than those that source from lower-cost Philippines The sourcing phenomenon Off shoring facilitates ICT trade

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :19.9 m Literacy Rate: 99.0% Australia The Prime years Young Old Population :1081.2 m Literacy Rate: 61.0% India

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :24.9 m Literacy Rate: 88.7% Malaysia Population :127.8 m Literacy Rate: 99.0% The Prime years Young Old Japan

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :81.4 m Literacy Rate: 92.6% Philippines Old The Prime years Young Population :48.0 m Literacy Rate: 97.9% South Korea

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :7.1 m Literacy Rate: 93.5% Hong Kong The Prime years Young Old Population :1313.31 m Literacy Rate: 90.9% China

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :3.9 m Literacy Rate: 99.0% New Zealand Old The Prime years Young Population :4.3 m Literacy Rate: 92.5% Singapore

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :222.6 m Literacy Rate: 90.4% Indonesia The Prime years Young Old Population : 22.7 m Literacy Rate: 96.1% Taiwan

Country Profiles – Human Resources and Skill Sets The Prime years Young Old Population :63.5 m Literacy Rate: 92.6% Thailand The Prime years Young Old Population : 82.5 m Literacy Rate: 90.3% Vietnam

The mega-trends we see The regional dynamics is changing fast – every 12 months Aggressive plans are now in execution for large global multinational to expand in the region Talent Acquisition and retention is becoming a major area of focus for Mature and Emerging economies The entire ASEAN region is getting closer , building better long term relationship that will dictate trade

The regional dynamics is changing fast – every 12 months

Aggressive plans are now in execution for large global multinational to expand in the region

Talent Acquisition and retention is becoming a major area of focus for Mature and Emerging economies

The entire ASEAN region is getting closer , building better long term relationship that will dictate trade

The mega-trends we see Major global multinational are plan to relocate to the region particularly to countries such as Vietnam, Malaysia, Phillipines, other than India and China There is constant raise in labour costs in countries such as India and China and controlling inflation will be a major contributor to future investment. What about “Chindia” or “Indichina” ?

Major global multinational are plan to relocate to the region particularly to countries such as Vietnam, Malaysia, Phillipines, other than India and China

There is constant raise in labour costs in countries such as India and China and controlling inflation will be a major contributor to future investment.

What about “Chindia” or “Indichina” ?

The mega-trends we see Largest and most ambitious “global” IT companies sit in India and China and increasing the market both internally and externally Paradigm shift will happen when ASPAC companies in China and India companies into Intellectual Property The ICT Trade continue to get massive boost from the Outsourcing and Telecommunications sector in the region. Investment from large companies based in India and China into other ASPAC countries including Australia, Malaysia and Vietnam will increase.

Largest and most ambitious “global” IT companies sit in India and China and increasing the market both internally and externally

Paradigm shift will happen when ASPAC companies in China and India companies into Intellectual Property

The ICT Trade continue to get massive boost from the Outsourcing and Telecommunications sector in the region.

Investment from large companies based in India and China into other ASPAC countries including Australia, Malaysia and Vietnam will increase.

ICT Trade - China Government policies and Free Trade Agreements (FDAs) will continue to facilitate trade in the region. Every major corporation is currently being impacted by China China will continue to spend on development of ICT infrastructure and telecommunications China will emerge as a destination of people resources , particularly when the English skills of Chinese people are increasing rapidly Building long term relationship with Chinese ICT will be crucial for future trade

Government policies and Free Trade Agreements (FDAs) will continue to facilitate trade in the region.

Every major corporation is currently being impacted by China

China will continue to spend on development of ICT infrastructure and telecommunications

China will emerge as a destination of people resources , particularly when the English skills of Chinese people are increasing rapidly

Building long term relationship with Chinese ICT will be crucial for future trade

Key ICT Growth sectors - Summary Telecommunications Outsourcing/ Offshoring ICT Professional Services Hardware manufacturing (Vietnam and China focus) Software development (India focus) There will be major growth in every sector Stop thinking Negative … Think Opportunities

Telecommunications

Outsourcing/ Offshoring

ICT Professional Services

Hardware manufacturing (Vietnam and China focus)

Software development (India focus)

There will be major growth in every sector

Stop thinking Negative … Think Opportunities

Presenter’s contact details Egidio Zarrella Global Partner in Charge, IT Advisory KPMG , Email: [email_address] The information contained herein [ is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2008 KPMG, an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.