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Sunday, February 24, 2008

Changing IT Landscape of India

As per the Nasscom estimates, total revenue of the IT-IT enabled services (ITES) industry is expected to be $47.8 billion this year up from $37.4 billion last year. Software and services export continues to grow at around 30% and has reached $31.4 billion. The contribution of IT-ITES industry to country’s GDP grew to 5.4% from 4.7% of last year, thus providing employment to more than 1.6 million of our youth. Please find the video from the Nasscom where, Azim Premzi, MD of Wipro Technologies puts his views for the growth of India.

However, the US credit crisis and appreciating rupee are posing strong challenges to the Indian IT industry. The once darling of investors, the IT companies have lost their sheen in the stock market. Is the Indian IT industry at the inflexion point of decreasing growth rate? We point out below four major transitions that are reshaping the Indian IT-ITES landscape. First is the growth in domestic demand for IT-ITES services which has increased to $5.4 billion. While traditionally Indian IT bigwigs such as Infosys, Wipro and TCS have concentrated on the US and European market for their businesses, the multinationals, notably IBM has made significant inroads in the domestic market. IBM today has one-fifth of its workforce in India accounting for the largest employee base next only to the US. Not only has IBM increased headcount, but also received large multi-million dollar orders from domestic clients. Though most of the organisations in India still keep their IT operations in-house, the advantages of outsourcing to service providers are being actively considered. Bharti and Vodafone alone have reverse outsourced the IT operations to IBM for more than $2.5 billion. Even the government contracts such as the prestigious IT infrastructure modernisation project of the income-tax department went to IBM. This has prompted Indian IT companies to tap the domestic market. Recently Wipro won a nine-year business transformation contract from Aircel. In tune with this trend in IT services, the domestic ITES/BPO sector has also shown an impressive growth, reaching about $1.6 billion and is expected to reach $11 billion by 2012. Companies such as Bharti Airtel, Dish TV, Barclays and State Bank of India have all outsourced their business process management and call centre operations locally. Hence the time has come for the Indian companies to actively look at domestic IT-ITES industry, not only to hedge against the global risk, but also to fuel demand for more services in the years to come. Secondly, the global delivery models perfected by the Indian IT giants for software services export that have resulted in significant shift of operations from onsite to offshore is being challenged. Portion of offshore revenue has increased from 43% in 1999-2000, to more than 75% currently, with a corresponding decrease in onsite revenue. However, security issues, legal requirements, clients’ demand for end-to-end services combined with the reduced cost arbitrage due to increasing domestic salaries of IT professionals and appreciating rupee are forcing IT companies to increase their on-site or near-shore presence. For example, Wipro plans to open a near-shore centre at Atlanta in the US while others such as Infosys, TCS and Satyam already have development centres outside India in places such as Hungary, Romania, China and Canada. To better serve customers Indian companies have also acquired businesses near customer locations such as Botnia Hightech Oy in Finland by Sasken Communication Technologies, Infocrossing in the US by Wipro, and Answer Call Direct in Irleland by HCL Technologies. The above trend is likely to continue. Thirdly, an analysis of revenue of the Indian IT sector shows a clear positive correlation between the strength of the workforce and revenue. With more than 50% of the 750,000 graduating IT and engineering students being not directly employable, the IT industry is taking its own steps to grow talent than banking on government institutions such as AICTE. TCS has accredited more than 400 technical colleges while Wipro also is following its footsteps. Infosys has started “campus connect” programs to participate actively in curriculum design, course material preparation and mentoring of faculty and students in select institutions to hone the students skills and knowledge levels for a better fit in the industry. Fourthly, with the objective of providing full life cycle management and increasing billing rates, companies such as Infosys and TCS started their consulting practices a couple of years back. SETLabs at Infosys undertakes technology research relevant to its businesses. Though the revenue from R&D and products contribute to just about 13% of the IT industry revenue and consulting practices of IT companies contribute to a mere 3% of their respective revenue, companies need to invest their resources in these high value-added activities to compete effectively with multinationals such as IBM, EDS, and Accenture. Emphasis on domestic market, having an optimal mix of onsite-nearshore-offshore presence, active collaboration with educational institutions, and investment in R&D, products and consulting, will see our IT industry tide over the challenging times ahead. (The author is professor, MDI, Gurgaon)

The Poll about the growth and view point is shared in this link. Pls checkout the out come.


mohammed thiab said...

The challenge is very often not growth, but sustainable and even increasing growth. It is like speed (distance/time) and acceleration (speed/time) analogy.

George Johnston said...

I expect growth to continue and for a significant period of time. There is so much undeveloped opportunity there.

Kris Lakshmikanth said...

The Big will become Bigger. The Tier 2 companies will be under pressure as the big orders are going to the Biggies.
The currency appreciation is hitting / has hit companies hard. I expect 2008 to be a blood shedding year overall, although the industry will grow.

Amit Yadav said...

Dear Dibyendu,

I agree with you . The IT landscape in India is changing. IT companies will try to make it less dependant on USA. There would be focus on other untapped sectors like railways etc. IT companies will try to look at other markets like Europe, Asia, Australia, UK etc.


Amit Yadav

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