Your SlideShare is downloading. ×
Indian IT Industry overview
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Saving this for later?

Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime - even offline.

Text the download link to your phone

Standard text messaging rates apply

Indian IT Industry overview

36,866
views

Published on

An overview of the Indian IT Industry

An overview of the Indian IT Industry


5 Comments
10 Likes
Statistics
Notes
No Downloads
Views
Total Views
36,866
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
2,602
Comments
5
Likes
10
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. A WhitepaperThe Indian IT Industry Author Siddharth Sarawgi, Director & CEO Innoversant Solutions Pvt Ltd info@innoversant.com www.innoversant.com
  • 2. TABLE OF CONTENTSOverview of Indian IT Industry ...................................................................................................................... 4History and Evolution of IT Industry ............................................................................................................. 5Industry Segmentation ................................................................................................................................. 8 Software: ................................................................................................................................................... 9 Infrastructure Software:- ...................................................................................................................... 9 Enterprise Application Software:- ......................................................................................................... 9 IT Services: .............................................................................................................................................. 10 (a) Project- oriented services: ...................................................................................................... 10  IT Consulting: .............................................................................................................................. 10  Systems Integration: .................................................................................................................. 10  CADM: ......................................................................................................................................... 11  Network Consulting and Integration: ........................................................................................ 11  Software Testing:........................................................................................................................ 11 (b) IT Outsourcing: ........................................................................................................................ 11 When an organization contracts another organization for managing, deploying and maintaning its IT architecture or system, it is called as IT Outsourcing. It includes:...................................................... 11 (c) Training and Support: ............................................................................................................. 12 It includes three segments: ................................................................................................................. 12 IT- enabled Services: ............................................................................................................................... 12Present Industry Structure.......................................................................................................................... 15Advantage India .......................................................................................................................................... 18Established IT hubs in India......................................................................................................................... 20 Emerging IT hubs in India ........................................................................................................................ 21Growth of the Industry ............................................................................................................................... 23 1. IT Software: ......................................................................................................................................... 23 2. IT Services:.......................................................................................................................................... 24 3. ITeS- BPO Sector: ................................................................................................................................ 26Competitive Landscape of the Industry ...................................................................................................... 28 Competitive Strategies............................................................................................................................ 29 2©Innoversant Solutions Pvt Ltd
  • 3. Growth Opportunities for the industry....................................................................................................... 31Major Threats to the Industry..................................................................................................................... 32Recommendations ...................................................................................................................................... 33The Way Ahead ........................................................................................................................................... 33Conclusion................................................................................................................................................... 33References .................................................................................................................................................. 34 3©Innoversant Solutions Pvt Ltd
  • 4. Overview of Indian IT IndustryThe Indian IT industry is growing steadily despite the global meltdown in the year 2009. When the wholeof the world witnessed the negative growth, Indian IT industry still managed to register a growth of5.5%. The industry is about to register the historic landmark of US $ 50 billion exports this year,according to NASSCOM President, Som MIttal. The domestic market is also slotted to witness 12%growth, this year. Potential size of India’s offshoring industry is estimated at US $ 120 to 180 billion by2015. The industry currently employs around 1 million people and provides indirect employment toaround 2.5 million people. It is expected to add another 1, 50,000 jobs in the next fiscal according toNASSCOM.Indian IT/ ITes sector is growing substantially with its  expansion into varied verticals  well differentiated service offerings  increasing geographic penetrationThe phenomenal success of the Indian IT- ITeS industry can be attributed to the favorable governmentpolicies, burgeoning demand conditions, healthy growth of related industries and competitiveenvironment prevalent in the industry. The interplay of these forces has led to putting the industry onthe global map. 4©Innoversant Solutions Pvt Ltd
  • 5. History and Evolution of IT IndustryThe evolution of IT industry can be studied in 4 phases:Phase I: Prior to 1980The software industry was literally nonexistent in India until 1960. Software used in the computers tillthat time, were in built with the systems. Government protected the hardware industry through hightariff barriers and licensing. However, in the West, the need for software development was graduallybeing felt as the software in built in the system was not sufficient to perform all the operations. TheGovernment of India therefore, realized the potential for earning foreign exchange.In 1972, the government formulated the Software Export Scheme. This scheme made the provision ofhardware imports in exchange of software exports. TCS became the first firm to agree to this condition.The year 1974 marked the beginning of Software exports from India.Phase II: 1980- 1990Despite the government initiatives, the software exports were not picking up because of two reasonsmainly:  The exports of software, was heavily dependent on the imports of hardware, which was costly as well as the procedure for obtaining the same was very cumbersome.  Secondly, there was a lack of infrastructural facilities for software development.To counter these, the government formulated a New Computer Policy in 1984, which simplified importprocedures and also reduced the import duty on hardware for software developers. In an attempt tomake, software industry independent of the hardware industry, the government in 1986, formulatedSoftware Policy which further, liberalized the IT industry. According to this policy, the hardware importswere de-licensed and were also made duty free for the exporters. This along with the world wide crashin the hardware prices reduced the entry barriers substantially.In 1990, government established Software Technology Parks of India. This scheme was formulated toincrease the exports of software and services.Phase III: 1990- 2000 5©Innoversant Solutions Pvt Ltd
  • 6. This decade made several significant changes in the economy, including trade liberalization, opening upof Indian economy to foreign investment, devaluation of the rupee and relaxation of entry barriers.These changes attracted many foreign entities (MNCs) to our nation. These MNCs in India, introduced‘Offshore Model’ for software services, according to which, the companies used to service their clientsfrom India itself. This model further graduated to Global Delivery Model (GDM). Global Delivery Model isa combination of Onsite and Offshore Model. In this model, the Offshore Development Centre is locatedat various locations across the globe.During this period due to the entry of many players in the Indian market, the competition gotintensified. Therefore, the players started investing in research and development to distinguish theirservices from others.Phase IV: Post 2000The global problems like the Y2K, the dotcom crash and recession in the US economy, proved to be aboon to Indian IT industry. The Y2K problem demanded the existing softwares to be compatible to theyear 2000. Due to the shortage of US based programmers during this period, many mid sized firms wereforced to utilize the services of Indian firms. This had placed the Indian IT industry on the global map.Post 2002- 03, the industry had registered a robust growth rate because of increase in the number ofclients, large sized contracts and a strong global delivery model. 6©Innoversant Solutions Pvt Ltd
  • 7. [Source: D& B Industry Research Service] Figure 1: Evolution of Indian IT- ITeS Industry 7©Innoversant Solutions Pvt Ltd
  • 8. Industry SegmentationIT industry can be broadly classified into three sectors:  Software  IT Services  IT enabled Services (ITeS)- BPO Indian IT Industry Software IT Services ITeS- BPO Project Customer Software Engineering and Training and Oriented IT Outsourcing Interaction Products R& D services Support Services Services Hardware Infrastructure Application Financing and IT Consulting Deployment Software Management accounting and Support Enterprise Software Systems Application IS Outsourcing Deployment HR Services Integration Software and Support Others (SOA, IT education CADM KPO Services web services, E and training commerce) Network Consulting and Integration Software Testing [Source: NASSCOM, D&B Industry Research Service] Figure 1: Indian IT Industry Segmentation 8©Innoversant Solutions Pvt Ltd
  • 9. Software:IT Software comprising of the (a) Software Products and (b) Engineering and R & D Services, forms thesmallest sector of the Indian IT industry.a. Software Products: The market for software products is growing rapidly as the Small and MediumEnterprises (SMEs) as well as large organizations are utilizing the services of software in simplifying theirworks. The sector is highly concentrated with the top 10 firms, dominating the market.IT Software comprises of the the i. Infrastructure Software ii. Enterprise Application Software.Infrastructure Software:-The Infrastructure software connects the people and systems across an organization. It helps inefficiently executing the business processes, share information and the manage the various touchpointswith the customers and the suppliers. It can be of the following types:  Application development  Application integration and middleware  Business intelligence tools  Database management systems  Data integration tools  IT operations  Security software  Operating-system softwareEnterprise Application Software:-It is a software specifically designed to solve an enterprise problem. The application software performsvarious business functionalities like accounting, production scheduling, customer informationmanagement, etc. The Enterprise application softwares currently available are: 9©Innoversant Solutions Pvt Ltd
  • 10.  Customer relationship management  Enterprise resource planning  Supply chain management  Project portfolio management  Content, communication and collaboration  E-learningb. Engineering and R & D Services: This sector has recently originated in India. Many players are trying totap this market by developing their engineering capabilities.IT Services:India is one of the leading provider of IT services. The basic model followed is known as Offshoringwherein Indian firms cater to the specific requirements of its clients by employing efficient project andquality management skills for its execution. This segment comprises of : (a) Project- oriented services: These services are delivered as individual projects. The services are catered according to the needs and wants of the clients, and the expertise of the vendor. These services can be delivered onsite or offshore, or can be a combination of both also.These services include the following services:  IT Consulting: The players in this service line advise clients to streamline their business using IT. They help them in devising IT strategy, IT architecture, IT assessment and planning etc. IT consulting in India is still at a very nascent stage. Major companies which are involved in this service are Wipro, TCS, Satyam, Infosys.  Systems Integration: This comprises a whole bouquet of services which are very specific to the requirements of the end user. The range of services included are: o Integration of various systems deployed by the organization- CRM, ERP, SCM etc. o Integration of business processes and logistics 10©Innoversant Solutions Pvt Ltd
  • 11. o Configuration of customized software o Database Maintenance o Integration of legacy systems with the new software or hardware  CADM: These services include designing, upgrading and maintainance of software to suit the user requirements. These services dominate the project oriented services market. These services are best suited for offshoring, that is why, these services dominate the Indian export basket.  Network Consulting and Integration: These services offer planning, construction and designing of data networks. The range of services in this service line includes: o Network architecture design o Network connectivity o Systems Management o Project Management o Network Maintenance etc.  Software Testing: It checks the quality of a software product or service. It is basically a technical investigation to identify and rectify errors to meet specific quality parameters. Software Testing operates in three spheres: o Response Testing: Ensures that parameters from which the responses are elicited from the target audience are operational as well as efficient enough. o Security Testing: Ensures that all the security parameters are risk free o Load Testing: Ensures that the software can handle the load density so as to reduce the down time. (b) IT Outsourcing: When an organization contracts another organization for managing, deploying and maintaning its IT architecture or system, it is called as IT Outsourcing. It includes:  Application Management: It includes management and execution of all activities involved in deploying, maintaining, and upgrading a firm’s IT systems.  IS Outsourcing: The services offered in this segment varies depending on the requirements of the client. The services offered in IS Outsourcing can be: o Desktop Management 11©Innoversant Solutions Pvt Ltd
  • 12. o Help Desk Support o Management of Operation systems o Management of Applications systems o Management of Anti Virus systems o Back up equipment service etc. (c) Training and Support: It includes three segments:  Software Deployment and Support: It involves installing, configuring and maintaining software on the client’s systems.  Hardware Deployment and Support: It involves deploying specific hardware devices on the client’s systems.  IT education and Training: It is designed to educate and train the in house team for organization Information Technology systems. It is imparted to provide ‘organization specific’ skills.IT- enabled Services:It consists of those services which are delivered using software as a means of production and Internet asa means of transmission. According to AT Kearney, India is considered to be the most preferreddestination for companies which are looking for off shoring their IT and backoffice functions. The factorsfavoring the growth of this sector in India are:  Low cost advantage  Technically skilled work force  English speaking population  Superior service maturity  Friendly governmental policies supporting FDI  Robust infrastructure  A thriving indigenous software industry 12©Innoversant Solutions Pvt Ltd
  • 13. ITeS- BPO Customer Financial and Information Accounting KPO Others HR Services Services Services Research Retirement B2B Card Processing Media Services Planning Cheque Benefits Customer Care Re- modelling Publishing Processing Planning Data Capture/ Medical eCRM CAD/ CAM Recruitment management Services Document Language Email Support management Translation Insurance Technical Content claims Support Creation Processing Strategy Tele-marketing Taxation Consulting Course designing/ modelling [Source: NASSCOM, D&B Industry Research Service]Customer Information Services: These services include all the activities related to managing relationshipwith the customer i.e. capture, storage and analyisis of customer information.Financial & Accounting Services: These services manage financial and accounting aspects of businesses.These services are slowly and steadily gaining pace in the Indian IT industry. It is the second largestcontributor to exports in the ITes segment. 13©Innoversant Solutions Pvt Ltd
  • 14. Human Resource Services: It entails all the activities pertaining to human resource management. Itincludes managing employee records, payroll processing, hiring, staffing and training and developmentof the employees etc.Knowledge Process Outsourcing: The KPO segment offers a bouquet of services, ranging from marketanalysis, strategy consulting, business research, content management, medical transcription etc. Concentration of Players within KPO segment (FY 07) 1% 5% 2% 5% 18% 5% 7% 15% 7% 9% 14% 12% Content Management Market Analysis Business Research Medical Transcription Litigation Legal Research Retail Analytics Strategy Consulting Forign Language Translations CBT/ WBT Content Creation Course Designing & Modelling Re- modelling 14©Innoversant Solutions Pvt Ltd
  • 15. Present Industry StructureThe Indian IT industry comprises of well established billion dollor firms as well as start ups or theemerging players. The industry can be described as fragmented yet concentrated. In terms of theexpanse of presence of the small and medium enterprises (SMEs) and their offerings, they can betermed as Fragmented. But, on the other hand, when the dominance of the leading players are takeninto consideration, because of their earnings as well as their offerings, the industry can be reffered to asConcentrated.The industry can be categorized into:  Tier I Players  Tier II Players  Offshore Global Services Provider  Pure Play BPO Providers  Captive BPO Units  Emerging Players 15©Innoversant Solutions Pvt Ltd
  • 16. Tier I Players •No. of Players: 5- 7 •Share in Exports: 45% of IT services, 4- 5 % or BPO •Performance: Revenues greater than US $ 1 billion Emerging Players Tier II Players •No. of Players: >3000 •No. of Players: 10- 12 •Share in Exports: 10- 15% •Share in Exports: 25% of IT of IT services & 5% of BPO ser vices, 4- 5% of BPO •Performance: Revenues •Performance: Revenues less than US $ 100 billion greater than US $ 100 (IT) & Revenues less than billion 10 billion (BPO) Industry Structure Offshore Global Captive BPO Units Services Provider •No. of Players: 150 •No. of Players: 30- 40 •Share in Exports: 50% of BO •Share in Exports: 10- 15 % of IT services, 10- 15 % of •Performance: Revenues BPO US $ 25- 150 billion (top 10 units) •Perfornance: Revenues US $ 10- 500 billion Pure Play BPO Providers •No. of Players: 45- 50 •Share in Exports: 20% of BPO •Performance: Revenues US $ 10- 200 billion (excluding top provider with US $ 500 million) [Source: NASSCOM, D&B Industry Research Service] Figure 3: Present Industry StructureTier I Players: Though the number of players in this category is very low (5- 7), but they account foralmost 45 per cent of IT Services and 4- 5 percent of BPO exports. These firms have been able toincrease their sales with the help of their strong management capabilities and Global Delivery Model(GDM). This has helped them in enhancing their global presence. They are increasing venturing into newservices like IT consulting, Research and Development (R & D), testing etc. 16©Innoversant Solutions Pvt Ltd
  • 17. Tier II Players: These players have their revenues greater than US $ 100 billion. The number of playersin this category is also low (10- 12), but they account for 25 per cent of IT services and 4- 5 per cent ofBPO exports. Due to limited number of clients, service lines and verticals, these players have registereda lower growth rate than the Tier I players.Offshore Global Service Providers: This category has around 30- 40 players who have registered theirsales revenue of US $ 10- 500 billion. These players are recording inorganic growth through acquisitionsin low cost destinations including India. But, due to complex local market conditions, they are facingchallenges in integrating Indian operations.Pure Play BPO providers: The number of players in this category have hovered around 40- 50. Theyaccount for around 20 per cent of BPO exports. These players are facing serious challenges in terms ofincreasing customer expectations in terms of quality and delivery of service.Captive BPO Units: There are about 150 players in this category. They account for 50 per cent of BPOexports. They are also increasing their presence in Tier II cities, primarily for cost and resourceconsiderations.Emerging Players: The number of players in this category is over 3000. They account for about 10- 15per cent of IT services exports and 5 per cent of BPO. These players are facing severe challenges as theyhave limited access to markets and the lack delivery scales. 17©Innoversant Solutions Pvt Ltd
  • 18. Advantage IndiaTechnically Skilled Professionals: India has a huge reservoir of technically sound manpower. This hasproved to be one of the most critical success factor for Indian IT sector. This growth is alsocomplimented by the demographic profile of India, where over 50 per cent of the population is below 25years of age. The growing number of world class educational institutions along with the policy foreducational loans, have geared the growth of the industry.English speaking population: Because of India’s colonial past, the medium of education in India isprimarily English. This has proved to be boon to the industry. India is the second largest nation in theworld in terms of English speaking population, first being USA.Robust Telecom Infrastructure: The telecom industry in India is well established. Thetelecommunications network in India, is the third largest network in the world and the second largestamong the emerging nations in Asia. The availability of superior, robust and reliable telecomconnectivity has added to the success of the whole industry in India.Rendering Customized, end to end and Niche Services/ Solutions: Due to the increasingpervasiveness of IT and huge potential for earning foreign exchange, Indian firms have slowly graduatedfrom giving customized solutions to end to end services and also niche solutions/ services.Lower costs of offshore outsourcing: The initial driver for offshoring to India was cost. But, India hasproved to deliver quality services at affordable costs. According to AT Kearney, offshoring to Indiaresults in saving 25- 60 per cent of the base cost. 18©Innoversant Solutions Pvt Ltd
  • 19. Technically Skilled Professionals English Quality Speaking Orientation Population Advantage India Favorable Robust Governmental Telecom Policies Infrastructure Rendering Lower cost of customized, Offshore end to end and Outsourcing niche services/ solutions Figure 4: India’s Competitive AdvantageFavorable Governmental Policies: After the liberlization of Indian economy, entry barriers for foreigninvestors have been removed. Therefore, liberlized FDI policies, tax exemptions, basic infrastructure,subsidies etc. from the government has definitely given a boost to the establishment of the industry inIndia.Quality Orientation: Indian companies are certifying themselves with ISO 9001, Six Sigma, Just inTime, COPC certifications to attract foreign clients. 19©Innoversant Solutions Pvt Ltd
  • 20. Established IT hubs in India [Source: STPI, Tramell Crow Meghraj] Figure : Established IT hubs in India1. Bangalore:  The total number of Software Technology Parks (STPI) in Bangalore in the year 2008-09 were 2085 (5% growth as compared to the year 2007-08).  Bangalore witnessed a 23% growth in the software exports as compared to the national growth of 21% in the year 2008-09.  Major IT/ ITeS in the hub: Infosys, Wipro, TCS, HP, Siemens, HSBC, Compaq  The ICT cluster in Bangalore has over 1500 IT firms out of about 3500 IT firms in India. In fiscal 2005-06, the state of Karnataka accounted for 37.6 percent of the total software exports from India and the city of Bangalore alone accounted for about 97 percent of it. Thus around one third of all of India’s software exports are from the city of Bangalore.2. Hyderabad:  Total number of STPI registered units by the end of 2008-09 were 1060  Hyderabad registered a 24% growth in software exports. 20©Innoversant Solutions Pvt Ltd
  • 21.  Major IT/ITeS in the hub: HP, Amazon, Verizon, Convergys, EXL, Infosys, TCS3. NCR- Delhi:  Total number of STPI registered units by the end of 2008-09 were 1938  IT/ITeS majors: IBM, Genpact, Oracle, Am Ex, Convergys, HP, General Motors4. Kolkata  Total STPI registered units by 2006-07: 166 (28 added in 2006-07)  IT/ITeS majors: IBM, Cognizant, TCS, Infosys, Wipro5. Mumbai  Total STPI registered units by 2006-07: 630 (40 added in 2006-07)  IT/ITeS majors: TCS, Infosys, Wipro, Siemens, Accenture6. Pune  Total STPI registered units by 2006-07: 635 (108 added in 2006-07)  IT/ITeS majors: Cognizant, Convergys, EXL, KPIT, Msource7. Chennai  Total STPI registered units by 2006-07: 900 (131 added in 2006-07)  IT/ITeS majors: Infosys, Wipro, Accenture, CognizantEmerging IT hubs in IndiaSlowly and steadily the Tier 2 and Tier 3 cities are also emerging to become IT hubs. The majoradvantage which these cities provide are  Higher savings in administration  Lower infrastructural costs  Large pool of talent in the form of skilled professionals 21©Innoversant Solutions Pvt Ltd
  • 22. [Source: STPI, Tramell Crow Meghraj] Figure : Emerging IT Hubs in India 22©Innoversant Solutions Pvt Ltd
  • 23. Growth of the IndustryThe Indian IT industry has been growing at a rapid pace by offering a wide range of products andservices. This growth can be attributed to the exports of lower end services, but slowly and steadily theIndian IT industry is moving towards rendering higher end services.The growth of the industry can be studied by observing the growth in all the segments of the industry.There has been a growth in the exports as well as domestic sales.1. IT Software:This segment represents the smallest segment of the Indian IT industry. It comprises of (a) the Softwareproducts and (b) engineering and R& D services. Growth of Software Sector 10 20 9 18 8 16 7 14 6 12 5 10 4 8 3 6 2 4 1 2 0 0 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 US $ Billion Percent [Source: NASSCOM, D&B Industry Research Service] Figure : Growth of IT Software sectorBefore FY ’03, Engineering and R & D services was not a part of this segment. Therefore, there was notmuch scope for exports. But after the advent of Engineering and R & D services, Indian IT firms have 23©Innoversant Solutions Pvt Ltd
  • 24. been making a historic progress in the export orientation. The export orientation has been increasingyear after year. Looking at the graph below, representing the increase in exports, after FY ’03, we canconclude that this segment is extremely lucrative and going to flurish in the future. Software: Share of Exports and Domestic Sales 100% 90% 80% 42.86 50 70% 60% 78.95 75.48 75.76 75.59 83.34 81.58 50% 40% 30% 57.14 50 20% 10% 21.05 24.52 24.24 24.41 16.66 18.42 0% FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 Domestic Sales Exports [Source: NASSCOM, D&B Industry Research Service] Figure : Share of Exports and Domestic Sales2. IT Services:India is an expert in provinding customized IT services which are very specific to the needs andrequirements of the clients and the end user. These services have always dominated the Indian ITindustry, accounting for over 60%. Before the advent of engineering and R & D services, the share of ITservices in the overall revenue of the industry was above 71%. Nonetheless, the segment is growing at aCAGR of 26% since FY ’00, and is expected to reach US $ 29.7 billion in FY ’08.This segment is divided into three categories: (a) Project- oriented services, (b) IT Outsourcing and (c)Training and Support. 24©Innoversant Solutions Pvt Ltd
  • 25. Growth of IT Services Segment 35 90 80 30 70 25 60 20 50 15 40 30 10 20 5 10 0 0 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 IT Service Revenue (US $ billion) Share in Industry Revenue (%) [Source: NASSCOM, D&B Industry Research Service] Figure : Growth of IT Services Segment 100% 90% 80% 70% 3.1 5 5.8 5.5 7.3 60% 10 13.3 18 23.2 50% 40% 30% 20% 1.5 2 2.4 3.1 10% 2.1 3.5 4.5 5.6 6.5 0% FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 Domestic Sales Exports [Source: NASSCOM, D&B Industry Research Service] 25©Innoversant Solutions Pvt Ltd
  • 26. Figure : Share of Exports and Domestic Sales Share of Exports of IT Services 16,000 14,000 12,000 US $ Million 10,000 8,000 6,000 4,000 2,000 0 FY 06 FY 07 FY 08 FY 09 Project Oriented Services Outsourcing Training and Support [Source: NASSCOM]3. ITeS- BPO Sector:The Indian ITeS- BPO sector was known to specialize in offering the lower end services. But with theinitiation of reforms in the early 1990s, the industry is moving up in the value chain by offering higherend services. 26©Innoversant Solutions Pvt Ltd
  • 27. Growth of ITeS Sector 14 30 12 25 10 20 8 15 6 10 4 2 5 0 0 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 Total Revenues (US $ billion) Share in Industry Revenues [Source: NASSCOM, D&B Industry Research Service] Figure : Growth of ITeS Services Segment Share of ITeS Exports 6000 5000 4000 US $ Million 3000 2000 1000 0 FY 05 FY 05 FY 05 FY 05 CIS F&A HR KPO [Source: NASSCOM, D&B Industry Research Service] Figure : Growth of ITeS Services Segment 27©Innoversant Solutions Pvt Ltd
  • 28. Competitive Landscape of the IndustryThe competitive landscape of the industry can be understood using the Porter’s five forces model. Bargaining Power of Buyers Bargainig Rivalry among Power of Players Suppliers Threat of New Indian IT Threat of Entrants Substitutes IndustryThreat of New Entrants: When the barriers of entry are low, the threat of new entrants becomesvery high. Since in IT software and services, the players enjoy significant economies of scale and theswitching costs are also very high, therefore, the entry barriers for the IT Software and Services are veryhigh. In contrast to this, in ITeS- BPO, lower economies of scale are reached and the switchingcost is also very low. This leads to very low entry barriers.Therefore, there is high threat of new entrants in the ITeS- BPO sector while it is low in the case of ITsoftware and services.Rivalry among players: When the number of players increases in a sector, the intensity of rivalry alsoincreases. With the increase in rivalry, the players resort to a number of strategies being followed by theplayers to acquire new customers or to retain older ones. Earlier players used to provide customizedservices to attract customers, but now this practice, also fails to attract them. Therefore, they resortedto providing end to end solutions, niche services etc.Bargaining Power of Buyers: Since the switching costs in case of IT Software and Services, is veryhigh, the Bargaining power of the buyers becomes low. But just opposite to this, in case of ITeS- BPOsector, the switching cost is relatively very low, which makes the bargaining power of the buyer veryhigh. 28©Innoversant Solutions Pvt Ltd
  • 29. Bargaining Power of Suppliers: Suppliers for the industry can be categorized into: (a) KnowledgeProfessionals, (b) Hardware Manufacturers and (c) Telecom industry players.Knowledge Professionals have a high bargaining power in the IT Software and Services sectors becausethey demand high level of skill and expertise to render their services. In the ITeS- BPO sector, the level ofskill and expertise required is low, therefore, they have a lower bargaining power on the industry.For the IT industry to function properly, proper hardware infrastructure is required. Therefore, thebargaining power of hardware manufacturer grows. This is supported by the fact that hardwaremanufacturing industry is very concentrated (HP, IBM, Dell etc.)While a robust telecom network is a pre-requisite for proper functionality of the IT industry, but thepresence of a number of players in the industry reduces their bargaining power.Threat of Substitutes: Since the IT industry is driven by technology, which itself is ever eveolving,therefore, there is a high risk of substitutes for the industry.Competitive StrategiesAfter studying the competitive landscape of the industry, the following competitive strategies can befollowed by the players:1. Consolidating Business from ‘Repeat Clients’ and win new clients: TCS, Infosys and Satyam have a major chunk of their revenues from their ‘repeat clients’. In the year 2007, the revenues from repeat clients for TCS, Infosys and Satyam were 96.8%, 95.0% and 90.0% respectively. These figures highlight the importance of Customer Relationship Management. In order to retain their clients, the companies increase the size and number of projects and also, extend the range of services they offer.2. Focus on Niche Service Lines: Some mid size players have adopted this model where they render specialized services rather than offering end to end services. This helps them to differentiate themselves amongst other players. 29©Innoversant Solutions Pvt Ltd
  • 30. Consolidating business from repeat clients and win new clients Wide spectrum Setting up of service ODCs offerings Competitive Strategies Focus on Focus on niche Product service lines Innovations Higher Capital Mergers and Expenditures Acquisitions Figure : The Competitive Strategies followed by the players3. Mergers and Acquisitions: M& A help in consolidating the whole industry. It enables firms to expand, enhance its skill sets, expand its service offerings and enter new geographies.4. Higher Capital Expenditure: This can help in enhancing business activities as well as increasing the operational effectiveness of these companies.5. Setting up ODCs: Offshore Development Centres have helped in instilling customer satisfaction to a great extent. It also has helped in reducing the operating expenses of the companies.6. Wide Spectrum of Services: The players are constantly extending their bouquet of services to attract the new clients as well as retain the existing ones. They are also offering higher value added services which ensures greater earnings and on the same time lower resource utilization as well. 30©Innoversant Solutions Pvt Ltd
  • 31. Growth Opportunities for the industryThere are two ways in which the industry can witness growth:-  Increasing the domestic sales  Moving up the value chainThe industry is right now predominantly export oriented. When we look at the growth in exports andthe growth in domestic sales, we can observe that the domestic sales growth are left far behind. So ifthe domestic sales increases, growth of the overall industry will happen. Therefore, the players as wellas the government should take initiatives to increase the domestic consumption.The Indian IT players are pre dominantly involved in rendering lower end services to their clients.Therefore, the industry can grow only when it starts moving up in the value chain. Presently, the IndianIT industry is basically focusing on the Application Maintenance and Infrastructure Management. But thefocus on rendering higher end services will help in strengthening the brand image of the industry. Business & IT Strategy Business Intelligence Solutions, Business Application Design Process Redesign and Development, Package Implementation Application Management, System Integration Infrastructure and Network Management Figure : The IT Value Chain 31©Innoversant Solutions Pvt Ltd
  • 32. Major Threats to the Industry1. High Attrition Rate: Staff shortage can prove to be a major bottleneck to the growth of the industry. According to McKinsey & Co., only 25 percent of the technical graduates are competent enough to work in the offshore IT industry in India. In the BPO sector also, only 10- 15 per cent of the graduates are suitable for employment. Therefore, managing attrition rate is becoming a big task for the IT companies in India. High attrition rate results in loss of skilled manpower, loss of skill sets etc. Apart from loss in skill sets, cost of recruitment, training and development of the new recruits also becomes a major investment for these companies.2. Competition from other emerging nations: Chinese IT hubs like Beijing and Shanghai are set to overtake Indian hubs by the year 2011, according to a report by IDC. These cities are competing with India on account of their stable socio- economic environment, excellent infrastructure, low attrition rates and skilled talent pool.3. There is a need for improvement in the urban infrastructure. According to McKinsey, further growth of the industry has to come from small districts, outside the Tier 1 and Tier 2 cities.4. Lack of fluency in languages other than English, e.g. French, Spanish, Italian etc. is proving to be a weakness of the Indian IT industry.5. End of Tax Benefits at STPIs: There is a dissimilarity in the tax regimes at STPIs. This would lead to conversion of these STPIs into SEZ units.6. Overdependence on US Economy: Almost 70% of the IT industry revenues comes from USA. Therefore, any downscale in the US market, adversely impacts the Indian market too. E.g. recent downsizing and job cuts due to recession in the US market.7. Rupee Appreciation: As most of the earnings are in foreign currencies, therefore Rupee appreciation becomes an area of concern for the industry.8. Lack of Product Innovation: India specialises in services but not in products. The nation lacks in product innovation, which can be considered a major area of concern. It will be difficult to maintain competitive advantage if product innovation doesn’t occur.9. Limited Domestic Market: The domestic market is still in the nascent stage in India. This makes the whole industry vulnerable to export market only. 32©Innoversant Solutions Pvt Ltd
  • 33. RecommendationsBuilding Domain Knowledge: If the players in the industry have to move up the value chain, the firstpre requisite is building up domain knowledge. Only this can help them in satisfying their customers andin turn winning their confidence. Once this is achieved, they will become ‘repeat customers’ for them.Investing in Research and Development: This will help in innovating new products and serviceswhich will help in the growth of the company as well as the industry as a whole.Knowledge Management: The industry faces a high attrition rate which deprives the company of itstalents. Knowledge management is a technique which helps in retaining the knowledge in the firm, evenwhen these knowledgeable persons leave the organization. It is a technique of assembly, preservation,transfer and management of data and knowledge in companies.A boost in the domestic sales can occur with more favourable government policies and alsoimprovement in the infrastructure which is a pre requisite for the growth of IT industry as a whole. The Way AheadThe future of the industry is very bright provided it overcomes the challenges noted above. The industrywill witness a surge in the Engineering and R & D services. Along with there will be more penetration innew service lines such as packaged software support and installation, IT consulting, IS outsourcing, ITtraining and education etc. The domestic market will also gain more attention and focus. IT spendingacross verticals like Banking and Financial Sector Institutions (BFSI), healthcare, manufacturing, retailetc. would increase, with the increase in the internet usage. Slowly and steadily, the Tier II and Tier IIIcities will also witness increase in the number of IT companies. ConclusionThe Indian Information Technology industry represents one of the most successful industry showingconsistent rapid growth. In a report, ‘Perspective 2020: Transform Business, Transform India’, preparedby Mc Kinsey, the export revenues of Indian IT industry will touch US $ 175 billion by the year 2020. Thedomestic sales revenue will also contribute US $ 50 billion by the year 2020. Therefore, we can say thatthe industry is shining and will continue to do so as well. 33©Innoversant Solutions Pvt Ltd
  • 34. Referenceshttp://www.businessweek.com/adsections/indian/infotech/2001/growth.htmlhttp://timesofindia.indiatimes.com/biz/india-business/IT-exports-to-touch-50-billion/articleshow/5536663.cmshttp://blog.nasscom.in/nasscomnewsline/2009/02/a-view-on-the-indian-it-bpo-industry-in-2009/http://www.blr.stpi.in/pop_stpindustrygrowth.htmwww.blr.stpi.inhttp://www.infoworld.com/t/business/indias-outsourcing-valued-60-billion-2010-684www.hyd.stpi.inhttp://www.naukri.com/nri/article2.htmhttp://www.dnb.co.in/TopIT_08/overview.asphttp://www.mindbranch.com/India-Information-Technology-R302-10603/‘Indias offshore outsourcing revenue grew 34.5%’ at networkworld.com -http://www.networkworld.com/news/2005/060205-india-outsourcing.htmlhttp://www.ibef.org/artdispview.aspx?in=38&art_id=25847&cat_id=121&page=2Perspective 2020: Transform Business, Transform Indiahttp://www.nasscom.in/upload/Perspective%202020%20Press%20release%20presentation.pdf 34©Innoversant Solutions Pvt Ltd