indian it industry overview

A Whitepaper

Author

Siddharth Sarawgi, Director & CEO

Innoversant Solutions Pvt Ltd

[email protected]

www.innoversant.com

The Indian IT Industry

2 ©Innoversant Solutions Pvt Ltd

TABLE OF CONTENTS

Overview of Indian IT Industry ...................................................................................................................... 4

History and Evolution of IT Industry ............................................................................................................. 5

Industry 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: ............................................................................................................................... 12

Present Industry Structure .......................................................................................................................... 15

Advantage India .......................................................................................................................................... 18

Established IT hubs in India......................................................................................................................... 20

Emerging IT hubs in India ........................................................................................................................ 21

Growth of the Industry ............................................................................................................................... 23

1. IT Software: ......................................................................................................................................... 23

2. IT Services: .......................................................................................................................................... 24

3. ITeS- BPO Sector: ................................................................................................................................ 26

Competitive Landscape of the Industry ...................................................................................................... 28

Competitive Strategies ............................................................................................................................ 29


Growth Opportunities for the industry....................................................................................................... 31

Major Threats to the Industry ..................................................................................................................... 32

Recommendations ...................................................................................................................................... 33

The Way Ahead ........................................................................................................................................... 33

Conclusion ................................................................................................................................................... 33

References .................................................................................................................................................. 34


Overview of Indian IT Industry

The Indian IT industry is growing steadily despite the global meltdown in the year 2009. When the whole

of the world witnessed the negative growth, Indian IT industry still managed to register a growth of

5.5%. 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 by

2015. The industry currently employs around 1 million people and provides indirect employment to

around 2.5 million people. It is expected to add another 1, 50,000 jobs in the next fiscal according to

NASSCOM.

Indian IT/ ITes sector is growing substantially with its

expansion into varied verticals

well differentiated service offerings

increasing geographic penetration

The phenomenal success of the Indian IT- ITeS industry can be attributed to the favorable government

policies, burgeoning demand conditions, healthy growth of related industries and competitive

environment prevalent in the industry. The interplay of these forces has led to putting the industry on

the global map.


History and Evolution of IT Industry

The evolution of IT industry can be studied in 4 phases:

Phase I: Prior to 1980

The software industry was literally nonexistent in India until 1960. Software used in the computers till

that time, were in built with the systems. Government protected the hardware industry through high

tariff barriers and licensing. However, in the West, the need for software development was gradually

being felt as the software in built in the system was not sufficient to perform all the operations. The

Government of India therefore, realized the potential for earning foreign exchange.

In 1972, the government formulated the Software Export Scheme. This scheme made the provision of

hardware 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- 1990

Despite the government initiatives, the software exports were not picking up because of two reasons

mainly:

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 import

procedures and also reduced the import duty on hardware for software developers. In an attempt to

make, software industry independent of the hardware industry, the government in 1986, formulated

Software Policy which further, liberalized the IT industry. According to this policy, the hardware imports

were de-licensed and were also made duty free for the exporters. This along with the world wide crash

in the hardware prices reduced the entry barriers substantially.

In 1990, government established Software Technology Parks of India. This scheme was formulated to

increase the exports of software and services.

Phase III: 1990- 2000


This decade made several significant changes in the economy, including trade liberalization, opening up

of 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 clients

from India itself. This model further graduated to Global Delivery Model (GDM). Global Delivery Model is

a combination of Onsite and Offshore Model. In this model, the Offshore Development Centre is located

at various locations across the globe.

During this period due to the entry of many players in the Indian market, the competition got

intensified. Therefore, the players started investing in research and development to distinguish their

services from others.

Phase IV: Post 2000

The global problems like the Y2K, the dotcom crash and recession in the US economy, proved to be a

boon to Indian IT industry. The Y2K problem demanded the existing softwares to be compatible to the

year 2000. Due to the shortage of US based programmers during this period, many mid sized firms were

forced 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 of

clients, large sized contracts and a strong global delivery model.


[Source: D& B Industry Research Service]

Figure 1: Evolution of Indian IT- ITeS Industry


Industry Segmentation

IT industry can be broadly classified into three sectors:

Software

IT Services

IT enabled Services (ITeS)- BPO

[Source: NASSCOM, D&B Industry Research Service]

Figure 1: Indian IT Industry Segmentation

Indian IT Industry

Software

Software Products

Infrastructure Software

Enterprise Application

Software

Engineering and R& D services

IT Services

Project Oriented Services

IT Consulting

Systems Integration

CADM

Network Consulting and

Integration

Software Testing

IT Outsourcing

Application Management

IS Outsourcing

Others (SOA, web services, E

commerce)

Training and Support

Hardware Deployment and Support

Software Deployment and Support

IT education and training

ITeS- BPO

Customer Interaction

Services

Financing and accounting

HR Services

KPO Services


Software:

IT Software comprising of the (a) Software Products and (b) Engineering and R & D Services, forms the

smallest sector of the Indian IT industry.

a. Software Products: The market for software products is growing rapidly as the Small and Medium

Enterprises (SMEs) as well as large organizations are utilizing the services of software in simplifying their

works. 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 in

efficiently executing the business processes, share information and the manage the various touchpoints

with 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 software

Enterprise Application Software:-

It is a software specifically designed to solve an enterprise problem. The application software performs

various business functionalities like accounting, production scheduling, customer information

management, etc. The Enterprise application softwares currently available are:


Customer relationship management

Enterprise resource planning

Supply chain management

Project portfolio management

Content, communication and collaboration

E-learning

b. Engineering and R & D Services: This sector has recently originated in India. Many players are trying to

tap 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 Offshoring

wherein Indian firms cater to the specific requirements of its clients by employing efficient project and

quality 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


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


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 as

a means of transmission. According to AT Kearney, India is considered to be the most preferred

destination for companies which are looking for off shoring their IT and backoffice functions. The factors

favoring 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



Customer Information Services: These services include all the activities related to managing relationship

with 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 largest

contributor to exports in the ITes segment.

ITeS- BPO

Customer Information

Services

B2B

Customer Care

eCRM

Email Support

Technical Support

Tele-marketing

Financial and Accounting

Services

Card Processing

Cheque Processing

Data Capture/ management

Document management

Insurance claims

Processing

Taxation

KPO

Research Services

Re- modelling

Medical Services

Language Translation

Content Creation

Strategy Consulting

Course designing/ modelling

Others

Media

Publishing

CAD/ CAM

HR Services

Retirement Planning

Benefits Planning

Recruitment


Human Resource Services: It entails all the activities pertaining to human resource management. It

includes managing employee records, payroll processing, hiring, staffing and training and development

of the employees etc.

Knowledge Process Outsourcing: The KPO segment offers a bouquet of services, ranging from market

analysis, strategy consulting, business research, content management, medical transcription etc.

18%

15%

14%

12%

9%

7%

7%

5%

5% 5% 2% 1%

Concentration of Players within KPO segment (FY '07)

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


Present Industry Structure

The Indian IT industry comprises of well established billion dollor firms as well as start ups or the

emerging players. The industry can be described as fragmented yet concentrated. In terms of the

expanse of presence of the small and medium enterprises (SMEs) and their offerings, they can be

termed as Fragmented. But, on the other hand, when the dominance of the leading players are taken

into consideration, because of their earnings as well as their offerings, the industry can be reffered to as

Concentrated.

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



Figure 3: Present Industry Structure

Tier I Players: Though the number of players in this category is very low (5- 7), but they account for

almost 45 per cent of IT Services and 4- 5 percent of BPO exports. These firms have been able to

increase 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 new

services like IT consulting, Research and Development (R & D), testing etc.

Industry Structure

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

Tier II Players


•Share in Exports: 25% of IT ser vices, 4- 5% of BPO

•Performance: Revenues greater than US $ 100

billion

Offshore Global Services Provider


•Share in Exports: 10- 15 % of IT services, 10- 15 % of

BPO

•Perfornance: Revenues US $ 10- 500 billion

Pure Play BPO Providers


•Share in Exports: 20% of BPO

•Performance: Revenues US $ 10- 200 billion

(excluding top provider with US $ 500 million)

Captive BPO Units

•No. of Players: 150

•Share in Exports: 50% of BO

•Performance: Revenues US $ 25- 150 billion (top

10 units)

Emerging Players

•No. of Players: >3000

•Share in Exports: 10- 15% of IT services & 5% of BPO

•Performance: Revenues less than US $ 100 billion (IT) & Revenues less than

10 billion (BPO)


Tier II Players: These players have their revenues greater than US $ 100 billion. The number of players

in this category is also low (10- 12), but they account for 25 per cent of IT services and 4- 5 per cent of

BPO exports. Due to limited number of clients, service lines and verticals, these players have registered

a lower growth rate than the Tier I players.

Offshore Global Service Providers: This category has around 30- 40 players who have registered their

sales revenue of US $ 10- 500 billion. These players are recording inorganic growth through acquisitions

in low cost destinations including India. But, due to complex local market conditions, they are facing

challenges in integrating Indian operations.

Pure Play BPO providers: The number of players in this category have hovered around 40- 50. They

account for around 20 per cent of BPO exports. These players are facing serious challenges in terms of

increasing 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 BPO

exports. They are also increasing their presence in Tier II cities, primarily for cost and resource

considerations.

Emerging Players: The number of players in this category is over 3000. They account for about 10- 15

per cent of IT services exports and 5 per cent of BPO. These players are facing severe challenges as they

have limited access to markets and the lack delivery scales.


Advantage India

Technically Skilled Professionals: India has a huge reservoir of technically sound manpower. This has

proved to be one of the most critical success factor for Indian IT sector. This growth is also

complimented by the demographic profile of India, where over 50 per cent of the population is below 25

years of age. The growing number of world class educational institutions along with the policy for

educational loans, have geared the growth of the industry.

English speaking population: Because of India’s colonial past, the medium of education in India is

primarily English. This has proved to be boon to the industry. India is the second largest nation in the

world in terms of English speaking population, first being USA.

Robust Telecom Infrastructure: The telecom industry in India is well established. The

telecommunications network in India, is the third largest network in the world and the second largest

among the emerging nations in Asia. The availability of superior, robust and reliable telecom

connectivity has added to the success of the whole industry in India.

Rendering Customized, end to end and Niche Services/ Solutions: Due to the increasing

pervasiveness of IT and huge potential for earning foreign exchange, Indian firms have slowly graduated

from 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 has

proved to deliver quality services at affordable costs. According to AT Kearney, offshoring to India

results in saving 25- 60 per cent of the base cost.


Figure 4: India’s Competitive Advantage

Favorable Governmental Policies: After the liberlization of Indian economy, entry barriers for foreign

investors 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 in

India.

Quality Orientation: Indian companies are certifying themselves with ISO 9001, Six Sigma, Just in

Time, COPC certifications to attract foreign clients.

Advantage India

Technically Skilled

Professionals

English Speaking

Population

Robust Telecom

Infrastructure

Rendering customized,

end to end and niche services/

solutions

Lower cost of Offshore

Outsourcing

Favorable Governmental

Policies

Quality Orientation


Established IT hubs in India

[Source: STPI, Tramell Crow Meghraj]

Figure : Established IT hubs in India

1. 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.


Major IT/ITeS in the hub: HP, Amazon, Verizon, Convergys, EXL, Infosys, TCS

3. 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 Motors

4. Kolkata

Total STPI registered units by 2006-07: 166 (28 added in 2006-07)

IT/ITeS majors: IBM, Cognizant, TCS, Infosys, Wipro

5. Mumbai


IT/ITeS majors: TCS, Infosys, Wipro, Siemens, Accenture

6. Pune


IT/ITeS majors: Cognizant, Convergys, EXL, KPIT, Msource

7. Chennai


IT/ITeS majors: Infosys, Wipro, Accenture, Cognizant

Emerging IT hubs in India

Slowly and steadily the Tier 2 and Tier 3 cities are also emerging to become IT hubs. The major

advantage which these cities provide are

Higher savings in administration

Lower infrastructural costs

Large pool of talent in the form of skilled professionals


[Source: STPI, Tramell Crow Meghraj]

Figure : Emerging IT Hubs in India


Growth of the Industry

The Indian IT industry has been growing at a rapid pace by offering a wide range of products and

services. This growth can be attributed to the exports of lower end services, but slowly and steadily the

Indian 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 Software

products and (b) engineering and R& D services.


Figure : Growth of IT Software sector

Before FY ’03, Engineering and R & D services was not a part of this segment. Therefore, there was not

much scope for exports. But after the advent of Engineering and R & D services, Indian IT firms have

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US $ Billion Percent


been making a historic progress in the export orientation. The export orientation has been increasing

year after year. Looking at the graph below, representing the increase in exports, after FY ’03, we can

conclude that this segment is extremely lucrative and going to flurish in the future.


Figure : Share of Exports and Domestic Sales

2. IT Services:

India is an expert in provinding customized IT services which are very specific to the needs and

requirements of the clients and the end user. These services have always dominated the Indian IT

industry, accounting for over 60%. Before the advent of engineering and R & D services, the share of IT

services in the overall revenue of the industry was above 71%. Nonetheless, the segment is growing at a

CAGR 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.

57.14 50

21.05 16.66 18.42 24.52 24.24 24.41

42.86 50

78.95 83.34 81.58 75.48 75.76 75.59

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20%

30%

40%

50%

60%

70%

80%

90%

100%

FY '01 FY '02 FY '03 FY '04 FY '05 FY '06 FY '07 FY '08

Software: Share of Exports and Domestic Sales

Domestic Sales Exports



Figure : Growth of IT Services Segment


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Growth of IT Services Segment

IT Service Revenue (US $ billion) Share in Industry Revenue (%)

1.5 2 2.1 2.4 3.1 3.5 4.5 5.6 6.5

3.1 5 5.8 5.5 7.3 10 13.3 18 23.2

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Domestic Sales Exports


Figure : Share of Exports and Domestic Sales

[Source: NASSCOM]

3. ITeS- BPO Sector:

The Indian ITeS- BPO sector was known to specialize in offering the lower end services. But with the

initiation of reforms in the early 1990s, the industry is moving up in the value chain by offering higher

end services.

0

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Share of Exports of IT Services

Project Oriented Services Outsourcing Training and Support



Figure : Growth of ITeS Services Segment


Figure : Growth of ITeS Services Segment

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Share of ITeS Exports

CIS F & A HR KPO


Competitive Landscape of the Industry

The competitive landscape of the industry can be understood using the Porter’s five forces model.

Threat of New Entrants: When the barriers of entry are low, the threat of new entrants becomes

very high. Since in IT software and services, the players enjoy significant economies of scale and the

switching costs are also very high, therefore, the entry barriers for the IT Software and Services are very

high. In contrast to this, in ITeS- BPO, lower economies of scale are reached and the switching

cost 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 IT

software and services.

Rivalry among players: When the number of players increases in a sector, the intensity of rivalry also

increases. With the increase in rivalry, the players resort to a number of strategies being followed by the

players to acquire new customers or to retain older ones. Earlier players used to provide customized

services to attract customers, but now this practice, also fails to attract them. Therefore, they resorted

to providing end to end solutions, niche services etc.

Bargaining Power of Buyers: Since the switching costs in case of IT Software and Services, is very

high, the Bargaining power of the buyers becomes low. But just opposite to this, in case of ITeS- BPO

sector, the switching cost is relatively very low, which makes the bargaining power of the buyer very

high.

Indian IT Industry

Threat of New Entrants

Rivalry among Players

Bargaining Power of Buyers Bargainig

Power of Suppliers

Threat of Substitutes


Bargaining Power of Suppliers: Suppliers for the industry can be categorized into: (a) Knowledge

Professionals, (b) Hardware Manufacturers and (c) Telecom industry players.

Knowledge Professionals have a high bargaining power in the IT Software and Services sectors because

they demand high level of skill and expertise to render their services. In the ITeS- BPO sector, the level of

skill 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, the

bargaining power of hardware manufacturer grows. This is supported by the fact that hardware

manufacturing 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 the

presence 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 Strategies

After studying the competitive landscape of the industry, the following competitive strategies can be

followed 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.


Figure : The Competitive Strategies followed by the players

3. 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.

Competitive Strategies

Consolidating business from 'repeat clients' and win new

clients

Wide spectrum of service offerings

Focus on niche service lines

Mergers and Acquisitions

Higher Capital Expenditures

Focus on Product

Innovations

Setting up ODCs


Growth Opportunities for the industry

There are two ways in which the industry can witness growth:-

Increasing the domestic sales

Moving up the value chain

The industry is right now predominantly export oriented. When we look at the growth in exports and

the growth in domestic sales, we can observe that the domestic sales growth are left far behind. So if

the domestic sales increases, growth of the overall industry will happen. Therefore, the players as well

as 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 Indian

IT industry is basically focusing on the Application Maintenance and Infrastructure Management. But the

focus on rendering higher end services will help in strengthening the brand image of the industry.

Figure : The IT Value Chain

Infrastructure and Network Management

Application Management, System Integration

Application Design and Development, Package Implementation

Business Intelligence Solutions, Business Process Redesign

Business & IT Strategy


Major Threats to the Industry

1. 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.


Recommendations

Building Domain Knowledge: If the players in the industry have to move up the value chain, the first

pre requisite is building up domain knowledge. Only this can help them in satisfying their customers and

in 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 services

which 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 its

talents. Knowledge management is a technique which helps in retaining the knowledge in the firm, even

when 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 also

improvement in the infrastructure which is a pre requisite for the growth of IT industry as a whole.

The Way Ahead The future of the industry is very bright provided it overcomes the challenges noted above. The industry

will witness a surge in the Engineering and R & D services. Along with there will be more penetration in

new service lines such as packaged software support and installation, IT consulting, IS outsourcing, IT

training and education etc. The domestic market will also gain more attention and focus. IT spending

across verticals like Banking and Financial Sector Institutions (BFSI), healthcare, manufacturing, retail

etc. would increase, with the increase in the internet usage. Slowly and steadily, the Tier II and Tier III

cities will also witness increase in the number of IT companies.

Conclusion

The Indian Information Technology industry represents one of the most successful industry showing

consistent rapid growth. In a report, ‘Perspective 2020: Transform Business, Transform India’, prepared

by Mc Kinsey, the export revenues of Indian IT industry will touch US $ 175 billion by the year 2020. The

domestic sales revenue will also contribute US $ 50 billion by the year 2020. Therefore, we can say that

the industry is shining and will continue to do so as well.


References

http://www.businessweek.com/adsections/indian/infotech/2001/growth.html

http://timesofindia.indiatimes.com/biz/india-business/IT-exports-to-touch-50-

billion/articleshow/5536663.cms

http://blog.nasscom.in/nasscomnewsline/2009/02/a-view-on-the-indian-it-bpo-industry-in-2009/

http://www.blr.stpi.in/pop_stpindustrygrowth.htm

www.blr.stpi.in

http://www.infoworld.com/t/business/indias-outsourcing-valued-60-billion-2010-684

www.hyd.stpi.in

http://www.naukri.com/nri/article2.htm

http://www.dnb.co.in/TopIT_08/overview.asp

http://www.mindbranch.com/India-Information-Technology-R302-10603/

‘India's offshore outsourcing revenue grew 34.5%’ at networkworld.com -

http://www.networkworld.com/news/2005/060205-india-outsourcing.html

http://www.ibef.org/artdispview.aspx?in=38&art_id=25847&cat_id=121&page=2

Perspective 2020: Transform Business, Transform India

http://www.nasscom.in/upload/Perspective%202020%20Press%20release%20presentation.pdf

http://www.businessweek.com/adsections/indian/infotech/2001/growth.html

http://timesofindia.indiatimes.com/biz/india-business/IT-exports-to-touch-50-billion/articleshow/5536663.cms

http://timesofindia.indiatimes.com/biz/india-business/IT-exports-to-touch-50-billion/articleshow/5536663.cms

http://blog.nasscom.in/nasscomnewsline/2009/02/a-view-on-the-indian-it-bpo-industry-in-2009/

http://www.blr.stpi.in/pop_stpindustrygrowth.htm

http://www.blr.stpi.in/

http://www.infoworld.com/t/business/indias-outsourcing-valued-60-billion-2010-684

http://www.hyd.stpi.in/

http://www.naukri.com/nri/article2.htm

http://www.dnb.co.in/TopIT_08/overview.asp

http://www.mindbranch.com/India-Information-Technology-R302-10603/

http://www.ibef.org/artdispview.aspx?in=38&art_id=25847&cat_id=121&page=2

http://www.nasscom.in/upload/Perspective%202020%20Press%20release%20presentation.pdf

indian it industry overview

Documents

tramell crow

earning foreign

niche service

high attrition

english speaking

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customer relationship

captive bpo