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Industry Overview for Business Plan INGENIOUS


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Industry overview
Here we are over viewing:
5.1 Domestic Spending
5.11 Market Verticals
5.111 Connectivity
5.112 Corporate Distribution Machinery
5.113 Packaged Software
5.114 Education & Training
5.2 Software Export
5.21 Patenting Blues
5.22 BPO Sector
5.3 Knowledge Industry
5.31 Macro view
5.32 India’s Share
5.321 Digital Opportunity

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Industry Overview for Business Plan INGENIOUS

  1. 1. INGENIOUS Data, Information, Knowledge to Wisdom… INGINEOUS is an idea of unification of 5 Nation by education, information and Knowledge for wisdom. Starting with Knowing ignorance to collecting data For understanding and analyzing Comparative position. industry overview Here we are over viewing: 5.1 Domestic Spending 5.11 Market Verticals 5.111 Connectivity 5.112 Corporate Distribution Machinery 5.113 Packaged Software 5.114 Education & Training 5.2 Software Export 5.21 Patenting Blues 5.22 BPO Sector 5.3 Knowledge Industry 5.31 Macro view 5.32 India’s Share 5.321 Digital Opportunity 17
  2. 2. INGENIOUS Data, Information, Knowledge to Wisdom… 5. overview For the first time in ten years, India's domestic market growth caught up with exports. While exports slowed down a bit, fiscal 2003-04 was the 'year of the domestic market' as growth shot up from 9% to 24%. Domestic market growth increases phenomenally from 9% in 2002-03 to 24% last year. Industry pundits have often been a bit apologetic about the gap between domestic growth of IT, and that of services exports. Why was the market in "IT superpower India" kind of, well, stagnant? Where as the Indian IT industry grew 24%-to Rs 92,924 in 2003-04. And both the domestic market (Rs 33,374 crore) and exports (Rs 59,550 crore) shared the same growth: 24%. To achieve that, exports growth dropped 2 percentage points, while domestic growth jumped an impressive 15 percentage points. Dom e s tic vs Expor ts ( Rs Cr or e ) 2003-04 33,374 59,550 2002-03 26,952 47,835 24,288 Domestic 2001-02 37,846 Export 2000-01 24,670 29,896 1999-00 17,002 15,050 Source: Dataquest CyberMedia Research Domestic Industry Holds forth: While exports (Software and services, and BPO) continued to Dominate; the good news was that domestic Industry resumed is growth path. The growth in domestic IT market is driven by change and innovation by companies for optimization of resources, ICT expansion essential for harnessing opportunities like BPO and network management services, internet, mobile phones etc., and government–industry partnerships. Growth not just in terms of numbers, but also in terms of confidence, and opportunity. No wonder, then, that Infotech is one of the highest growth sectors in the country. While the overall capital goods business went up by about 13% last year, IT products and services went up by 22%. This clearly shows the increasing role of IT in businesses. Moreover, at a time when the unemployment rate was going up in most other sectors, IT was the only silver lining. While in most areas government talks about reducing expenses on infrastructure, real estate, energy and salaries, they're all looking at major investments to e-enable themselves. 18
  3. 3. INGENIOUS Data, Information, Knowledge to Wisdom… IT Segmentation2003-04 Systems Peripherals Netw orking Packaged Sof tw are Maintainance Training Domestic Services Exports Domestic IT Segmentation 2003-04 Systems Peripherals Networking Packaged Software Maintenance Training Domestic Services Others 5.1 domestic sectoral spending Domestic market up: For the first time in several years domestic market did not let exports increase its contribution in the overall industry pie and held it at 64%. According to trends it could be the domestic market, which expands its base now onwards Govt. shining: The road to e-governance finally seems to be getting smoother. Spending on e- gov. projects has been going up steadily in the last three years and if the new government remains firm the trend could continue. 19
  4. 4. INGENIOUS Data, Information, Knowledge to Wisdom… 2001-02 Private Sector Government Public Sector 2002-03 Private Sector Government Public Sector 2003-04 Private Sector Government Public Sector Source: Dataquest CyberMedia Research 5.11 market verticals (time for volumes) Desktop prices fell, notebook prices came down drastically-revenues went up by only 8% against a shipment increase of 21%. Compared to the previous year, these growth figures have nearly doubled. Yet total PC shipments are not zooming up in, say, the way cell phone usage shot up. A possible PC market driver could be notebooks which showed an 88% increase in terms of shipments last year, but the numbers are small. 20
  5. 5. INGENIOUS Data, Information, Knowledge to Wisdom… The server business was another trailblazer last year. In terms of numbers, it went up from 38,984 units shipped, to 57,002, growing at 46 %; value growth was 21%, to Rs 2,082 crore. The server growth was driven by unprecedented demand from the BFSI and telecom sectors on one hand, and dropping prices on the other. The workstations market continues to be small, and declining. While it grew from Rs 172 crore to Rs 221 crore, there is surprisingly little activity in the scientific and media verticals-perhaps due to the availability of high-end, graphics-ready PC’s. Vertical Market Segment(Percentage) 9 8 7 6 5 2002-03 4 2003-04 3 2 1 0 m s y O th s t. D k . co ce rg fg ov an er H & al M ne le th O R vi G e B H er Te O S E S & IT Source: Dataquest CyberMedia Research The Vertical Leaders: IT & telecom reported an impressive growth followed by banks, government and health. Looking forward, this trend could continue if India’s thrust on BPO remains high and government’s commitments to IT continue. 5.111 connectivity (impact) Networking is another factor pushing the growing Indian IT market forward. While networking penetration is high among enterprises, the networking market actually grew slower than the overall domestic IT market as well as the hardware market. While BFSI, telecom, and BPO were the big users, e-governance is a big area that remains untapped as yet. As in the case of PCs, the networking is also related strongly to Internet penetration. As the very small base of 4.6 million Internet users increases, so will the need for networking. As the industry began picking up steam steadily, in came wireless, creating a bit of a stir. CDMA operator Reliance talked about bringing the world into the mobile phone even as fixed-line player Touchtel tied up with Intel to push Wi-Fi in homes. Eyeing on Wi-Fi opportunities notebook vendors dropped prices below the Rs 40,000-mark. 21
  6. 6. INGENIOUS Data, Information, Knowledge to Wisdom… Internet subscriber growth seems to have got stuck somewhere because of poor services by the standalone ISPs, which had left many subscribers confused and dissatisfied, are winding up or getting out of the consumer dial-up game, it is expected that the Internet will see some action. Especially, after the integrated telecom operators like BSNL, MTNL, Tata Teleservices and Reliance have got aggressively into it, and are looking at new technologies like broadband and wireless. With other initiatives, like the setting up of the National Internet Exchange, along with the TRAI looking for a pro-active role, it is expected that prices will come down sharply. Broadband, which has about 2,00,000 installations, will be the big Internet usage driver, not just in homes but in enterprises too. Once again, the growth of the Internet will have a direct impact on desktop and notebook sales. 5.112 corporate distribution machinery (upcoming) IT distribution kept on the growth path. Apart from the tradition big three, HCL also stepped up its distribution business, especially for mobile phones. Redington, Tech Pacific and Ingram Micro went on an expansion mode, extending their reach to B- and C-category towns, and getting more product lines and vendors in their portfolio. The peripherals industry, primarily handled by distributors, was sailing in the same boat and showed excellent growth-from 9% to 47% during the last fiscal. The sub-segments in peripherals, which traditionally have had one or two leaders like HP in printers and Seagate in HDDs, will see stiff competition from Samsung, LG, Canon, Hitachi, Maxtor, just to name a few. But peripherals king HP continued to hold the overall leadership, shifting from inkjets to MFD/AIOs. That's a new market coming up. The storage story is one of rising demand, especially in BFSI and telecom. Huge data accumulation drove demand: HDFC, for instance, has over 25 terabytes of data. This ensured more spending on storage capacities. In addition to this, the server and storage consolidation trend has created more demand for SAN and NAS products. And now with regulatory demands, especially in the banking, telecom, stock market and BPO areas, the demand for storage is only going to go up. 5.113 packaged software (movement) First time, packaged software growth happened because of some significant factors. Vis-a-vis its 5% growth in FY 2002-03, the packaged software market in India grew by 15% this fiscal to reach Rs 2,300 crore. This is still small compared to overall domestic IT market growth. Falling hardware prices provided vendors with an opportunity to bundle some legal software, and it also gave buyers a reason to spend some money on software. The role of Linux must also be mentioned in bringing hardware prices down. 22
  7. 7. INGENIOUS Data, Information, Knowledge to Wisdom… The story of Indian packaged software continues to be the story of the big names: i-flex, Infosys, TCS, Tally, and Polaris. At 40%, the growth of this segment this time but much of their money came from selling abroad. Except for the financial accounting software, Tally, that continues to be the king in India. One noteworthy observation here is that now quite a few smaller software companies are positioning themselves as product companies. Subex of Bangalore, for instance, has productized its telecom solutions, and now has telecom software that is selling in India as well as internationally. The outlook for this segment, in the medium term, is also expected to be very sunny. 5.2 software export (front) On the software exports front. Software players weathered the storms of 2003 to cross the Rs 40,000 mark, notching a growth of 17%, demand from the revival of telecom industry abroad. But reasons for worry are the appreciating rupee value and the increasing wage bill, which is increasingly putting margins under pressure. But the good news is that big players are once again on a hiring spree. Clearly the pipeline is heating up. 5.21 patenting blues Amazingly country that is one of the largest software producers in the world is light years away from thinking about future opportunities in the area of IP (Intellectual Property). It is said that in the days to come, IP revenues would contribute the major chunk of a software company's revenue. While MNC development centers in India are filing for patents in big numbers (1,108 last year), Indian companies, including some of the big names, have not really started planning for it. This is another area where the government could do well to consider stepping in, as there are some legal, financial and governmental factors involved. It could take a leaf from the Chinese government, which, for instance, is giving financial and procedural support to software companies that file patents in the US. India will have to get on top of the IP situation if it wants to translate its knowledge leadership in software into money. 5.22 bpo (party on) Despite the outsourcing "backlash", the BPO industry, with over 45 % growth, continued its dream run. This segment was so hot that several high profile mergers and acquisitions happened here. Clearly, all the hue and cry about the backlash is insignificant, and unlikely to last very long. Without a doubt, BPOs and call centers have given India another arena to prove its global advantage in IT and knowledge-based services. And at the same time it is opening up new areas 23
  8. 8. INGENIOUS Data, Information, Knowledge to Wisdom… such as remote network management services. And it's encouraging nations across the world to open their markets too. On the domestic front, the booming BPO sector was one of the reasons for the industry doing so well. As the total number of people working in IT and ITES went up by 17%, it was also the biggest employment generator in the country. Further, BPO is encouraging the IT industry to geographically spread beyond the established metros and big cities. Therefore, places like Kolkata, Chandigarh, Jaipur and Bhubaneshwar, among others, are also laying claim to their piece of the action. Regional Trends in Revenue(Percentage) 16 14 12 2000-01 10 2001-02 8 2002-03 6 2003-04 4 2 0 North South East West Source: Dataquest CyberMedia Research East side up: Eastern region, which was a blip, last year, grew significantly because of a lot of BPO related activities. A rising East is a positive indicator of the growing domestic market. There are obviously challenges too. There has been a negative impact on companies, with attrition rates touching abnormally highs at 50%. Globally, other countries are also gearing up and investing heavily on education and communications infrastructure, the two things that bring major competitive edge in the long run. Fortunately BPO and call center services are getting recognition in India too and more Indian service providers & banks are now going in for outsourcing. India's success story as a major knowledge and hi-tech services destination is gathering momentum. And the country is making its mark in areas beyond software and BPO. The new areas where Indian players have very quietly made significant progress are in network management services, IT infrastructure management, and managed services. India today boasts of providing these services to several of the Fortune 500 companies, ranging from very high-tech enterprises like AMD, to mass-market companies like Reebok, whose lifeline is its IT and networking infrastructure. In fact, some of these deals, bagged by Indian companies, like the $750-mn IBM-Bharti deal, or the $150-mn HP-Bank of India deal, where the vendor will look 24
  9. 9. INGENIOUS Data, Information, Knowledge to Wisdom… after the complete IT infrastructure and requirements, are global trendsetters. Surely in the days to come India is poised to make major inroads on this front too as it did in the BPO market. 5.23 education and training scenario (training down, opportunities up) Even though this segment continued to show negative growth, the fiscal 2003-04 seems to be bringing new winds of opportunity and change. There seems to be some recovery, with the big names like NIIT and Aptech tapping the international market. Then came BPO. This boom industry, which is employing people by the thousands every month, needed trainers. One good development was that enterprise users are getting more involved in training activities. They are asking training houses to train people in specific applications. The Indian government's talking about e-governance is an encouraging sign, as it will create huge training and education opportunities. While it is good to observe that training seems to getting back on its feet again, there is also growing demand from some sections that perhaps it is time for some government involvement. The much talked about Chinese thrust on education is getting a lot of support from the government. If knowledge workers and knowledge economies are going to drive and leads the world in the future, India not only has opportunities for a bigger global role but will also be under threat from those countries which are taking this up on a priority basis – countries like China, Russia, Mexico, Brazil, and Malaysia – and pumping huge amounts of money into education. 5.3 knowledge industry (global outlook and India) Figure 5.1 Advances in information technology ('IT') and penetration of the Internet have led to the evolution of the digital economy, characterized by significant productivity increases at the economy and business level worldwide. As a result, there has been an increasing demand worldwide for IT skills aimed at managing existing IT infrastructure as well as leveraging the capabilities of IT applications to share knowledge and generate 25
  10. 10. INGENIOUS Data, Information, Knowledge to Wisdom… ideas. While some countries face a shortage of relevant skills within their domestic workforce, advances in information and telecommunications technology have made it possible for them to employ these from across the world at competitive costs. This has led to a new wave of global expansion for companies the third-wave, with the earlier two waves represented by the push into global markets to sell and to establish production facilities.(Figure 5.1) Today, India has established itself as the 'service -hub of the world' with over 24 percent share of the global, off- shored IT-enabled services/ IT market in 2001, with people strengths (i.e. availability of large base of skilled personnel at relatively lower costs) being its key source of advantage. In order to perpetuate this leadership position in the longer term, however, India would need to plan to meet the manpower requirements of the ITES / IT industry in terms of volumes as well as relevant skill-sets. Offshore ITES / IT represents a significant opportunity for India to achieve rapid economic growth through employment generation and productivity enhancement. The speed with which the IT services market has evolved and the nature of skills required to support global markets put significant pressure on the existing educational system. 5.31 macro view (mid & long term perspective) The global ITES / IT market at USD 1,184 billion in 2002 and USD 1,322 billion in 2003, is expected to grow to USD 2,497 billion by 2008-09 and USD 3,391 billion by 2012,registering a compounded annual growth (CAGR) of 11 per cent between 2003 and 2012. Figure 5.2 26
  11. 11. INGENIOUS Data, Information, Knowledge to Wisdom… The size of the ITES market would continue to be around twice that of the IT services market. The US and Europe, Mid East and Africa (EMEA) regions would comprise over 77 per cent of the global market for ITES / IT. Increasing preference of clients to use offshore facilities to achieve objectives of business continuity as well as to lower operating costs will drive the global IT service market. Increasing sophistication of offshore ITES delivery model and the growing comfort and trust with offshore operations would drive growth in the global ITES market. 5.32 India's share of ITES / IT market Some of the world's leading companies across sectors are using captive and third party service providers in India for their ITES / IT requirements. India's proposition rests on the availability of a significant pool of appropriately skilled and trained resources at competitive prices. Based on its initial success, India is expected to achieve revenues of USD 62 billion by 2008-09 and USD 148 billion by 2012 in ITES / IT, at a CAGR of 35 per cent over 2003 to 2012 (Figure 5.3). This is equivalent of an increase in overall share of the global ITES / IT market from 0.8 per cent in 2002, 0.9 per cent in 2003 to 2.5 per cent by 2008-09 and 4.4 per cent by 2012. Figure 5.3 27
  12. 12. INGENIOUS Data, Information, Knowledge to Wisdom… 5.321 the digital opportunity Based on specific productivity estimates over time, this translates into a direct employed manpower requirement of around 0.97 million for IT export services and 2.72 million for ITES by 2012, compared to the employed manpower of 0.17 million for IT, 0.11 million for ITES in 2002 and 0.21 million for IT, 0.16 million for ITES in 2003 (Figure 5.4). Figure 5.4 Manpower required for domestic and captive IT services would amount to an additional 0.5 million in 2008-09 and 1 million in 2012. While demographic studies have suggested that India could be one of the few countries with a surplus of personnel within the employable age group by 2020, there is a possibility of a shortage in terms of availability of skilled personnel for ITES / IT, even in the medium term i.e. by 2009 (Figure .5.5). 28
  13. 13. INGENIOUS Data, Information, Knowledge to Wisdom… Figure 5.5 This gap could be to the tune of 235,000 for IT services and 262,00 0 for IT-enabled services and could increase in 2012 . Addressing this gap is critical for India to achieve its target market share in the IT/ ITES market. Considering the growth potential of over 25 per cent per annum, ITES / IT could become a significant contributor to the economic growth of the country. This also implies that the share of revenues from offshore services to overall GDP could grow from 1.9 per cent in 2002 to ~12 per cent by 2012. By 2012, ITES / IT could provide direct employment to approximately 5.1 million people, of which approximately 3.7 million would be for IT services (exports) and IT-enabled services (Figure 5.6). 29
  14. 14. INGENIOUS Data, Information, Knowledge to Wisdom… Figure 5.6 The overall strategy to meet the human resource requirements rests on the ability to inculcate the right skill-sets, establishing a standard to certify the quality of skills provided and attracting people to get them certified and deployed in ITES / IT. Addressing this gap requires an understanding of the specific qualifications and skills required for different ITES/ IT work (Figure 5.7, Figure 5.8) and the ability to change / supplement the education system to meet these requirements. While the formal education system provides some of the skills required by the IT services industry, this is limited to specific fields of study. Figure 5.7 30
  15. 15. INGENIOUS Data, Information, Knowledge to Wisdom… Figure 5.8 31