Economiic Analysis of IT and ITEs sector

835 views

Published on

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
835
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
37
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Economiic Analysis of IT and ITEs sector

  1. 1. IT & ITES SECTOR IN Vivaswan Pathak INDIA IIFT CPCFM OnlineThe report aims at providing an overview of the IT and ITES sector in India through and Economic viewpoint.
  2. 2. Table Of ContentsIntroduction…………………………………………………………………………………………………………………………………………………2Overview……………………………………………………………………………………………………………………………………………………..3 1. Economic Activity……………………………………………………………………………………………………………………………5 2. Industry Landscape………………………………………………………………………………………………………………………….7 3. Graphical Overview…………………………………………………………………………………………………………………………8 4. SMB…………………………………………………………………………………………………………………………………………………10 5. Geographical Scenario…………………………………………………………………………………………………………………….11Key Insights………………………………………………………………………………………………………………………………………………….14Conclusion…………………………………………………………………………………………………………………………………………………..15References…………………………………………………………………………………………………………………………………………………..16
  3. 3. IntroductionSoftware Development and technical competence , domain knowledge, informationtechnology enabled services experience and expertise for offering quality IT (ITeS)including business process outsourcing services and their exposure to working on (BPO)/knowledge process outsourcing various platforms and systems services (KPO) industry inIndia has emerged as one of the most dynamic and vibrant sectors in India’s economy.The Government of India has announces promotion of IT as one of the top priorities ofthe country . India has embarked on a policy agenda which aims to restructure itseconomy with enhanced global participation. The FDI to supplement domestic investmentfor achieving a quantum jump in growth rate is now an integral part of GOI’s policy.India’s Information Technology (IT) and Information Technology Enabled Services (ITES)segments are aligned in a way that the growth in one avenue has ripple effects onanother . The IT & ITES industry as a whole is the mainstay of Indian Technology sector asit has driven growth of the economy in terms of employment , revenue generation ,standards of living etc. and has played a major part in placing the country on the globalcanvas.
  4. 4. OverviewTheIndianIT/ITeSsector(alsoreferredtoas‘thesector’)ispredominantlyexportoriented,leveragingthecostarbitragetodeliversolutionsandservicestoclients.ThegrowthinthesectorhasbeenlargelyduetofactorssuchashighqualityEnglishspeakingskilledlabour,lowcostbaseandincreasingadvantageaccruingfromthelearningcurve.Atpresent,thesectorinIndiaispoisedtobecomeanepicenterforIT/ITeSactivities.However,theIT/ITeSsectorinIndiaisfacedwithseriouschallengesonmanyfronts–increasingcompetitionfromotherjurisdictions,fastdiminishingcostadvantageandshortageoftrainedtalenttonameafew.Sofar,ithasshownresilienceandkeptpacewiththeestimatedgrowthtopotentiallyachievethetargetssetoutfor2012However,expertsareskepticalaboutwhetherthesectorhasmaturedenoughtobeabletostandtallagainstthesechallengeswithoutanyfiscalsupport,andstillproliferate.Evenotherwise,thereisstillalongwaytogoasthereisahugeuntappedmarket.ItissurprisingtonotethatIndia’sITexportsasapercentofglobalITspendislessthan2percent.Leavingasidetheissuesintrinsictothissector,onecannotlosesightofthecontributionthatthissectorhasmadetotheemergenceofIndiaasaneconomicpower.Inlessthanadecade,thesector’scontributiontotheGDPhasincreasedmanifold,nowcontributingmorethan5percentoftheGDP.The chart given in the next page gives the socio-economic contribution of the Indian IT & ITESindustry.
  5. 5. Contents1.Economic ActivityWith exports accounting for the predominant share in overall IT revenues, theperformance of technology sector is closely linked to the overall health of the globaleconomy. The growth rates of global GDP and India’s net software earnings have beenobserved to move in sync with each other.The technology indices reflecting overall sentiments and health of the IT sectorappear as a lead indicator of world GDP growth suggesting IT based efficiencyenhancing initiatives driving global recovery.
  6. 6. 2.Industry Landscape The Indian Technology Sector – A Profile • Key contributor to the Services Sector accounting for 5.8% of India’s overall GDP • Among the largest employment generators in the organized sector employing 7.5 million people, estimated to cross the 10 million mark by 2010 • Revenues estimated at USD 71 billion in 2008-09, consistent rise in growth with 5 year compound annual growth (CAGR) at 27% • Exports constitute two-third of overall revenues with a marginally higher 5 year CAGR of 28.7% – US and UK remain the largest export geographies – 79%, steady expansion of other export destinations notably Continental Europe – CAGR more than 50% over FY 2004-08 • Domestic IT revenues estimated at USD 24.3 billion, with a 5 year CAGR of 24% • Industry’s vertical market exposure well diversified across several mature and emerging sectors – BFSI, Telecom and Manufacturing :Among the top 4 verticals for both export and domestic market • ITeS-BPO sector the fastest growing segment of the IT industry in both the export and domestic market – Domestic revenues at USD 1.9 billion – a growth of 45.3% Source: CRISIL, Nasscom
  7. 7. A Graphical OverviewIndustry growth by Major ComponentsComponent wise breakupInterms of overall growth and presence the services industry dominates the market and hence a breakup of servicesindustry has been provided.
  8. 8. Geography wise split of India’s IT Exports.
  9. 9. 4.Small and Medium IT/ ITeS providers.Contributing almost USD 18 billion and generating employment for around 700,000 people directly and in multiplemillions through cross employments, the Small and Medium IT/ITeS Providers (SMPs) in India are integral to the growthengine of the industry in particular and the Indian economy in general. The prevailing growth trends are expected tocontinue into the near future on account of the increasing maturity of this segment and the emergence of newopportunities into the future .
  10. 10. 5.Geographical ScenarioA 100 million English speaking demographic was one of the key reasons why it was initially easy for Indian companies toalign themselves with businesses in US and UK. However, with the pipeline slowing down, we see the emergence of newgrowing markets across Continental Europe, Latin America and the Asia Pacific poised to fuel the growth into the comingyears. Europe, the Middle East, and Africa (EMEA) are expected to reach 35.8% of the worldwide offshore IT servicesmarket in 2013. At the same time, we see the domestic market in India opening up with the government pushsubstantially for better governance through increased transparency and speed of operations. With increasingcompetition, homegrown industries are scrambling to keep up with the external entrants through systems automationand process re-engineering, giving the Indian IT/ITeS industry a greater geographical spread to target. This trendtowards a broader geographic market exposure is positive for the industry, not only as a de-risking measure but also as ameans of accelerating growth.On the delivery front, we observe several emerging countries —where wages are low, competencies are high, andforeign investment is encouraged—that are making increasingly sophisticated efforts to enter the market and take ashare of this fast-growing industry. Other developing countries with a significantly underutilized university-educatedpopulation are trying to replicate what India has done by providing incentives to attract outsourcing business. China, forexample, has designated 20 cities as outsourcing hubs to attract more international investment and has provided themwith tax breaks, labor hour systems, and employment subsidies. Similarly, the Philippine government has declaredoutsourcing a priority industry and has implemented policies (e.g., formation of economic zones and income-taxholidays) to boost foreign investment.The increase in government intervention with private sector industries, such asfinance and manufacturing, coupled with rapidly increasing unemployment, particularly in the United States, isheightening citizen reaction to the use of offshore resources as undermining employment opportunities. The impacts ofthese events are moving governments to consider greater levels of protectionism in Europe and the United States.Hence we see on-shoring / near-shoring gaining momentum among companies currently offshoring and thoseconsidering it. Media reports point to a substantial number of companies making changes or planning to bring theiroffshoring closer to their home country.The five-year CAGR (from 2008 to 2013) for the offshore IT services market will be lowest in the United States,increasing at just 4.0%, with EMEA growing at 8.8% over this same period of time. Canada and Asia/Pacific will begrowing the fastest over this five-year period at 16.5% and 19.0%, respectively. While the United States continues tocompose about 65% of the market over the forecast period, EMEA is expected to grow to 35.8% of the global total in2013. Due to the economic slowdown in the United States, many offshore providers have increased their strategic focuson EMEA in a bid to shift their mix of customers to include a greater percentage of European companies.
  11. 11. Key Insights1. Favorable outlook: The growth rates of global GDP and India’s net software earnings have been observed to move insync with each other. The recent upward revisions to global growth for 2010, including the significant improvements inthe growth forecast of the advanced economies (US, UK and the Euro Area) along with the favorable GDP outlook for theIndian economy are likely to strengthen the growth prospects of the Indian IT sector, benefiting both export anddomestic revenues.2. Small is Large:The Small and Medium players will continue to be an integral part of the IT/ITeS growth story. They willemerge as winners if they focus on the right markets, develop niche offerings, increase operational efficiencies, tapappropriate capital and improve talent management.3. Harvesting the Cloud:Though adoption of cloud computing involves dealing with fundamental changes in thetraditional business operation and outlook, this model has the potential to improve agility while streamlining coststhrough centralization of resources and multi-tenancy. This would be a boon for companies looking to expand theirdelivery reach and scalability while maximizing their operational economy.4. Emerging Consumption centers:While momentum has to be maintained with innovation and climbing up the valuechain to grow the large markets of US and UK and protect them from growing competition, Indian providers have tomake investments to tap emerging overseas consuming territories like China and Latin America. The Indian domesticmarket is poised to be a significant growth driver, in addition to delivery capacities, providers should also invest in salesand account management structures for the India geography.5. Shifting centers of Delivery: It is becoming imperative for Indian providers to expand their delivery presence beyondIndia. While some of them have started making investments, we believe this process has to accelerate accompaniedbyintake of local human capital. This would enable them to ramp up to speed and establish a presence across both thedemand as well as the supply end of the business thus increasing client proximity while mitigating risks6. ThoughtInnovation: The need for creation of high value IP to sustain growth is no longer a luxury. Having established the globalbenchmarks, the delivery engine should now be the channel to bring Indian IP to the clients7. Partnering with Clients:Service Providers need to align themselves with client and market requirements and becomeone-stop Solution Providers for their clientele. For this purpose, they would increasingly need to use non-linear models(OBP) and services (SaaS) to maximize returns on investment8. Green Apple Strategy: Indian IT/ITeS service providers need to differentiate themselves from the pack. The focusshould be to avoid being perceived as a commodity services provider through a combination of niche markets andservices and differentiated branding and marketing. The explosion in social networking also gives a great platform toreach out to prospective clients and employees.
  12. 12. ConclusionThe IT/ITES industry has made a beginning and with the encouragement and support of NASSCOM and NASSCOMFoundation, it is on track to set an example that would encourage others to emulate and help change the face of India.It is apt to conclude with a remark made by Nobel Laureate Dr. Amartya Sen, about the Indian IT/ITES industry, duringhis keynote address at the NASS-COM India Leadership Summit 2007 –“My point is not that the IT industry should do something for the country at large, for that it doesanyway. It makes enormous contributions: it generates significant in-comes for many Indians; it hasencouraged attention to technical excellence as a general requirement across the board; it hasestablished exacting standards of economic success in the country; it has encouraged many brightstudents to go technical rather than merely contemplative; and it has inspired Indian industrialists toface the world economy as a potentially big participant, not a tiny little bit-player. My point, rather, isthat it can do even more, indeed in some ways, much more. This is partly because the reach ofinformation is so wide and all-inclusive, but also because the prosperity and commanding stature ofthe IT leaders and activists give them voice, power and ability to help the direction of Indian economicand social development.”
  13. 13. References1. IDC Report on Worldwide and US Business Process Outsourcing Services2. The State of Development Of The IT Services Global Delivery Model (Forrester)3. Centre for Monitoring Indian Economy Pvt. Ltd. ( CMIE) Database4. Eleventh 5-Year Plan 2007-12, Vol III – Planning Commission, Govt. Of India5. Top 50 Emerging Global Outsourcing Cities – Study by Tholons6. CNX- IT Sector Index – NSE Market Indices7. NASDAQ -100 Technology Sector Index Data – NASDAQ Market Indices8. Global Services Location Index – AT Kearney9. CRISIL Data Sources10. Nasscom Data sources11. Security Implications of Cloud Computing– Information Security Forum12. India Information Technology report13. Price Waterhouse Coopers Data Sources

×