NASSCOM deck on the Germanic report


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Indian companies earning less than USD 2.6 Bn from this region across the IT, BPO and engineering services space as against the addressable market size of more than USD 53bn.

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  • High preference for Packaged products on account of the need for streamlining and standardizing processes across multiple geographies. Besides SAP, large number of specialized local suppliers provide specialized ERP products for specific manufacturing sectors. Date
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  • Strategic approach towards SME segment Partnership mode engagement Assistance on understanding the benefits of offshoring High domain and/or technology expertise Showcase nearshore capabilities SMEs more comfortable operating with the SMEs from India
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  • German supports for R&D by sector: invest in germany
  • NASSCOM deck on the Germanic report

    1. 1. Opportunities for the Indian IT-BPO industry in the Germanic Market Mr. Som Mittal, President, NASSCOM Mr. Sankar Ramamurthy Executive Director, PwC
    2. 2. Agenda May 20, 2010 <ul><li>Overview </li></ul><ul><li>Key Findings </li></ul><ul><li>Recommendations </li></ul><ul><ul><li>Outline of the Germanic region report </li></ul></ul>
    3. 3. Overview
    4. 4. Germanic region overview May 20, 2010 <ul><li>Germanic countries of Germany, Austria and Switzerland together are the 4 th largest economy with a total GDP in excess of $ 4.5 Trillion </li></ul><ul><li>Well developed & stable economies with a large service sector, a sound industrial sector, and a small, but developed agricultural sector </li></ul><ul><li>Quality and Innovation, specifically in the Engineering and Automobile sectors has been the traditionally forte </li></ul><ul><li>Dominance of the SME segment : Over 75% German companies and over 99% Swiss and Austrian companies belong to the SME segment and together employ over 80% of the working population </li></ul>
    5. 5. Current trends May 20, 2010 <ul><li>Powerhouse of Europe with heavy dependence on exports </li></ul><ul><li>Moderate to heavy impact of the Global Financial Turmoil </li></ul><ul><li>The region is leading the European recovery </li></ul><ul><ul><ul><li>Germanic countries also have the responsibility to support other failing European states suffering with unsustainable public debt </li></ul></ul></ul><ul><ul><ul><li>Helping other nations within EU may force Germanic economies to cut own spending </li></ul></ul></ul><ul><ul><ul><li>Weakening EURO poses great risks to the region </li></ul></ul></ul><ul><ul><ul><li>Very high unemployment rates in neighboring economies poses risks </li></ul></ul></ul>In spite of downturn and other issues in EU, we need to keep working on meeting long term objectives Impact of Financial turmoil on Germanic economies Germany High Switzerland Low Austria Moderate
    6. 6. Challenges facing the Germanic economies (1/2) May 20, 2010 <ul><li>Decreasing Dominance in the World Economy </li></ul><ul><li>Increasing competition from the emerging Asian economies </li></ul><ul><li>Reducing market share in most industries </li></ul><ul><li>Demographic Challenges </li></ul><ul><li>Reducing working age population </li></ul><ul><li>Reducing enrolments in Science & Technology courses in German Universities </li></ul><ul><li>Low immigration </li></ul>Direct Impact on the future capacity to innovate and sustain economic growth Working Age Population (15-59) Projections for the Germanic countries and India Source : Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision India Switzerland Austria Germany
    7. 7. Challenges facing the Germanic economies (2/2) May 20, 2010 Talent Shortage in Germanic Countries <ul><li>Demand for: </li></ul><ul><ul><li>Software developers </li></ul></ul><ul><ul><li>IT consultants </li></ul></ul><ul><ul><li>Project managers </li></ul></ul>TOP 10 TALENT SHORTAGE IN GERMANY, AUSTRIA AND SWITZERLAND Source : Manpower Inc, 2009 Rank Austria Germany Switzerland 1 Skilled Trades Skilled Trades Management/Executives 2 Technicians (primarily Production/Operations) Engineers Skilled Trades 3 Engineering or Maintenance Technicians (primarily Production/Operations, Engineers 4 Mechanics Engineering or Maintenance IT Staff (primarily Programmers/Developers) 5 Sales Representatives Sales Representatives Technicians (primarily Production/Operations 6 Drivers IT Staff (primarily Programmers/Developers) Engineering or Maintenance 7 IT Staff (primarily Programmers/Developers) Restaurant & Hotel Staff Mechanics 8 Secretaries, PAs, Administrative Assistants & Office Support Staff Customer Service Representatives/Support Designers 9 Accounting & Finance Staff Drivers Laborers 10 Engineers Secretaries, PAs, Administrative Assistants & Office Support Staff Sales Representatives
    8. 8. Opportunity for India and Germany to collaborate May 20, 2010 <ul><li>While economic recovery is yet to gain full steam, there is need to collaborate to ensure long term success </li></ul><ul><li>Collaboration in IT –BPO Services helps the economic leadership and competitiveness particularly in the face of deteriorating demographics </li></ul><ul><li>India, is a natural partner with its large technically qualified workforce and global expertise </li></ul><ul><li>Indian players have worked with large players. SME segment is the main focus </li></ul><ul><li>Indian companies looking to de-risk themselves from dependence on the US/European markets market have long tried to establish themselves in this market. </li></ul><ul><li>India is a large market, collaboration will pave way for acceptance of German products & solutions </li></ul>Germanic countries need to meet their long term needs of skilled professionals without job losses in the short term
    9. 9. Key Findings
    10. 10. IT adoption in the Germanic countries May 20, 2010 <ul><li>Germanic countries are large consumer of IT products and services </li></ul><ul><li>Largest market in Europe with a size of more than $176 Bn </li></ul><ul><li>SME segment large and under penetrated </li></ul>IT Market size in the Germanic Countries Source: PwC estimates <ul><li>Spend on IT Services exceeds $ 100 Bn </li></ul><ul><li>Manufacturing, Automobile, BFSI and the Public Sector are the biggest consumers </li></ul>Total Market Size : $176 Bn
    11. 11. IT budget & landscape <ul><li>Most companies have a host of legacy applications, ERP packages with heavy to moderate customisation and integration applications </li></ul><ul><li>High preference for Packaged products. </li></ul><ul><li>SAP is the ubiquitous ERP application across industry sectors </li></ul>May 20, 2010 “ Opportunity for Indian companies in Legacy Maintenance, Application Development and SAP” <ul><li>Relatively higher spend on in-house staff cost against purchased services </li></ul><ul><li>High outsourcing maturity with strong in-house program and project management </li></ul>
    12. 12. Germanic IT services market May 20, 2010 <ul><li>Very high dependence on in house highly skilled resources. Increased risk as demographics shift </li></ul><ul><li>Germany is the biggest IT services market with a share of over 75%. </li></ul>Total IT Services Market Size : $100 Bn Total Purchased IT Services : $ 46.3 Bn
    13. 13. Exposure to Offshoring <ul><li>Extent of Offshoring in the Germanics is estimated to be only 10%-12% of the total IT Services purchases </li></ul><ul><li>India is the preferred destination for Offshoring; however, Nearshoring is a favoured option </li></ul><ul><li>India preferred by Large companies because of the scalability and cost benefits </li></ul><ul><li>SMB sector favours Nearshoring to Eastern Europe </li></ul>May 20, 2010 Perceived differences between India & Eastern Europe as outsourcing destinations India Southern & Eastern Europe Labour Pool Cultural compatibility Cost Data Protection German Languages availability Attrition Political Risk Time zone differences Critical mass to cover fixed costs Scalability
    14. 14. BPO <ul><li>BPO has not been able to win strong momentum in the Germanic market </li></ul><ul><li>HR and Finance are the most popular services for BPO </li></ul>May 20, 2010 <ul><li>German companies have set up SSC and captive units through vendors </li></ul><ul><li>India’s share of the BPO market is around USD 949 Mn </li></ul>“ Total BPO market size is around USD 4 Bn growing at a CAGR of around 11%”
    15. 15. Engineering services May 20, 2010 <ul><li>Quality Engineering is a differentiator for Germanic firms </li></ul><ul><li>Collaboration necessary to remain competitive and increased time to market </li></ul><ul><li>Services worth $3.4 Bn are currently offshored </li></ul><ul><li>Offshored engineering services are expected to grow at a CAGR of 22% to around $ 9 Bn by 2015 </li></ul>Germanic Offshored Engineering Services market in USD Bn Source : PwC estimates “ An important sector for keeping competitive edge over competition”
    16. 16. Who serves this market? <ul><li>Highly fragmented market with large SME population </li></ul><ul><li>T- systems, IBM, HP, Siemens and Accenture are the top 5 providers </li></ul><ul><li>Large number of IT subsidiaries of large German companies </li></ul>May 20, 2010 “ Top 5 players have a market share of less than 40%” <ul><li>Most of these players have significant offshore presence in India </li></ul>Major IT services Suppliers in Germanic region Source: PAC consulting and PwC estimates
    17. 17. Indian experience <ul><li>Total revenues from Germanic : approx. USD $ 2.6 Bn. Most large Indian companies have a presence in the region. </li></ul><ul><li>Have engaged with large German companies for Application maintenance, testing and development and Package implementation </li></ul><ul><li>BFSI, Manufacturing, Pharmaceuticals, Infrastructure and Transportation have been the target sectors </li></ul><ul><li>Indian companies trying to penetrate the market through acquisitions, rep. offices and strategic cooperation. </li></ul>May 20, 2010 Estimated exports to Germanic region from India (US$ Mn) -2009 Source : NASSCOM IT BPO Engg Services Total Germany 768 759 182 1,710 Switzerland 605 185 43 834 Austria 7 5 2 14 Total 1,381 949 228 2,558
    18. 18. Challenges faced by May 20, 2010 “ Language competency is the single largest factor for success in the Germanics” Germanic clients Indian providers <ul><li>Language Barriers </li></ul><ul><li>Preference for Near-Shore Locations </li></ul><ul><li>Micro-Management by Germanic clients </li></ul><ul><li>EU Data Protection Directives and Regulations </li></ul><ul><li>Lack of Offshoring Maturity of Processes; micro management </li></ul><ul><li>Lack of German language expertise </li></ul><ul><li>Insufficient domain expertise </li></ul><ul><li>Insufficient service quality &Project coordination </li></ul><ul><li>Transactional approach </li></ul>
    19. 19. Recommendations
    20. 20. <ul><li>Strategic long term approach to this market </li></ul><ul><li>German language skills </li></ul><ul><li>High domain expertise and strong project management </li></ul><ul><li>Partnership approach for the Germanic SME segment </li></ul>Critical success factors May 20, 2010 “ Indian companies need to communicate a long term commitment to the region” Strategic options for Indian companies <ul><li>Acquisition </li></ul><ul><li>Setting up development center in Eastern Europe </li></ul><ul><li>JV or partnership with Germanic IT service provider/s to assist offshoring </li></ul>
    21. 21. Sectors to collaborate- IT <ul><li>Manufacturing </li></ul><ul><li>BFSI </li></ul><ul><li>Automobile </li></ul><ul><li>Logistics </li></ul>May 20, 2010 “ These four sectors consume ~ $30 Bn worth of IT services in aggregate”
    22. 22. Go-To-Market (Services) - IT <ul><li>Package Implementation </li></ul><ul><li>Remote Infrastructure Management </li></ul><ul><li>Application Maintenance </li></ul><ul><li>Customer Application development </li></ul>May 20, 2010 “ Package Implementation is a low hanging fruit for Indian companies with SAP competencies”
    23. 23. Sectors to collaborate - BPO <ul><li>HR & Payroll </li></ul><ul><li>Banking back office operations </li></ul><ul><li>Customer care </li></ul><ul><li>Data digitisation and processing </li></ul>May 20, 2010 “ Indian companies should first target the non-voice BPO segment”
    24. 24. Engineering services <ul><li>IT & Telecom R&D </li></ul><ul><li>Energy Technologies </li></ul><ul><li>Automotive </li></ul>May 20, 2010 “ Engineering service is the quick win opportunity for Germanic companies ” German Government Support for R&D by Sector Source: Invest in Germany
    25. 25. Focused actions for Germanic countries & Indian Industry May 20, 2010 <ul><li>Leverage / Popularise Germany as a location for International Studies </li></ul><ul><li>Help build capacity in India for language and cultural training </li></ul><ul><li>Work together on issues such as data security / protection </li></ul><ul><li>Work towards a Pan EU wide accepted ICT (intra-corporate transferees) visa </li></ul><ul><li>Encourage SME service providers to collaborate </li></ul>
    26. 26. <ul><li>Germanic region </li></ul><ul><li>Access to large pool of technical manpower at a competitive cost </li></ul><ul><li>Sustain the innovation leadership across sectors and improve speed to market </li></ul><ul><li>To enlarge footprint in the promising growing market for Germanic region products </li></ul><ul><li>Leverage the better security and IP process maturity as compared to other destinations </li></ul><ul><li>SME’s reap the benefits by growing their market and remain competitive </li></ul>The Win-Win Opportunity May 20, 2010 <ul><li>India </li></ul><ul><li>Opportunity of over $ 50 Bn across IT-Services, BPO and Engineering Services. </li></ul><ul><li>Access to 3rd largest IT-Services market. </li></ul><ul><li>Opportunity to leverage the strong cultural, trade and historical affinity with India </li></ul><ul><li>De-risk from over dependence on the English speaking markets </li></ul><ul><li>Opportunity for SME’s to collaborate on world class products </li></ul>
    27. 27. Outline of the report
    28. 28. Table of contents May 20, 2010 Germanices : Overview <ul><li>Political, economic and demographic snapshot </li></ul><ul><li>Indo-Germanic relations </li></ul>IT landscape in the Germanics <ul><li>Technology services landscape </li></ul><ul><li>Outsourcing & Offshoring market size </li></ul><ul><li>IT budgets & consumption across industries </li></ul><ul><li>IT services composition </li></ul><ul><li>IT service providers and vendor hierarchy </li></ul><ul><li>Factors for vendor selection </li></ul><ul><li>ICT related laws & regulations </li></ul><ul><li>Characteristics of Outsourcing & Offshoring </li></ul>Opportunity Assessment <ul><li>Opportunity by sector </li></ul><ul><li>Go-to –market services </li></ul><ul><li>SWOT Assessment of Indian companies </li></ul><ul><li>Opportunity by customer segment </li></ul><ul><li>Opportunity for business service providers </li></ul><ul><li>Baseline expectations for success </li></ul><ul><li>Imperatives to succeed </li></ul><ul><li>NASSCOM Action steps </li></ul>Human Resources <ul><li>Manpower profile </li></ul><ul><li>Hiring employees, Salaries </li></ul><ul><li>Employment & work ethics </li></ul><ul><li>Challenges faced by Indian resources </li></ul><ul><li>Internal IT organisation </li></ul><ul><li>Visa Regulations </li></ul><ul><li>Cost of Living </li></ul><ul><li>Cultural viewpoints on work & life </li></ul>Doing Business <ul><li>Setting up office in Germanics </li></ul><ul><li>Corporate & Individual taxes </li></ul><ul><li>Business etiquettes </li></ul><ul><li>Reaching Germanics </li></ul><ul><li>Where to stay </li></ul><ul><li>Important trade fairs & events </li></ul><ul><li>Good to know : Currency, Communication,, exchange rates, Business hours & holidays, </li></ul><ul><li>Finding assistance in Germanics- Facilitating agencies, Indian cultural organisations </li></ul>
    29. 29. <ul><li>Besides the strategic guidance, the report also provides a grounded perspective on what it takes to do business in Germanic region including </li></ul><ul><li>Cost estimation for setting up office </li></ul><ul><li>Salaries & remuneration </li></ul><ul><li>Remuneration mix </li></ul><ul><li>Cost of living </li></ul><ul><li>Communication at work </li></ul><ul><li>Business etiquettes </li></ul>May 20, 2010
    30. 30. Thank You