Download - India Inc Oct 08
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India Inc.An Overview of the IT-BPO Sector in India
October, 2008NASSCOM
Copyright © NASSCOM 2008
About NASSCOM
2
• Apex body for the IT-BPO sector in India
• Plays a leading role in trade development, policy advocacy
and research
• Representing over 1200 IT and BPO companies (including
Indian companies, global companies including US companies
and captive centers) which make up more than 95% of the
Indian IT-BPO industry.
• Membership accounts for over 90% of exports and a majority
of the 2 million professionals employed in the sector
Copyright © NASSCOM 2008
Agenda
1. The rise of the Indian economy
• The Indian economy at a glance• Drivers of rapid growth
2. Dynamics of the Indian IT-BPO industry
3. Sustaining India’s value proposition
• Current trends• Future outlook
• Talent availability• Cost competitiveness• Risk management
• Business environment
3
Copyright © NASSCOM 2008
India Fact Sheet
DemographicsPopulation (billion) 1.13
Population growth (%) 1.6
Labor force (million) 516
Less than 30 years (%) 52
Urbanization (%) 28
EconomyGDP (nominal, US$ billion) 1171
Inflation (%) (Aug. 08) 12
Fiscal Deficit (% of GDP) 5.6
FDI (US$ billion) 32
Forex reserve (US$ billion, Jul 08) 307
Social/DevelopmentalLiteracy (%) 61
Unemployment (%) 7.2
Infant mortality (per 1000) 34.6
Life expectancy (years) 68.5
Transport/TelecomPassenger cars (million) 13
Two wheelers (million) 53
Mobile users (million) 295
Internet users (million) 52
TradeExports (US$ billion) 159
Imports (US$ billion) 240
Top 3 export markets US (13%)UAE (10%)China (7%)
Top 3 import partners China (11%)Saudi Arabia (8%)UAE (6%)
FY08 unless indicated otherwise
Sources: IBEF, EIU, RBI, CIA fact book
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Growing Domestic Market
Copyright © NASSCOM 2008
Indian Economy at a Glance
The Indian economy has experienced rapid growth buoyed by a shift from an agriculture to a services-led economy
India
Developing World Average
Developed World Average
Real GDP growthPercentage, 1991-2007
Changing Composition of India’s GDP
Source: Usda.gov Source: RBI
5
0%
20%
40%
60%
80%
100%
FY80 FY90 FY02 FY08
Agriculture Industry Services
18%
19%
63%
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0.2 32
FY 91 FY08
19
295
1998 2008
Key drivers of Growth
• Lifting of import restrictions• Streamlining of tariff structure• De-licensing and re-deregulation of sectors,
e.g., Telecom, Civil Aviation, Infrastructure• Progressive ease of FDI caps
• Free-market competition driving costs down and quality up
Telecom exampleSubscriber base (millions)
Long distance tariffs (US$ per min)
0.65
0.03
1998 2008
Progressive liberalization from 1991Impact
• Upsurge in international investment
0.05x15x
Source: Merrill Lynch
FDI growth (US$ billion)
Source: Ministry of Commerce
160x
Rating Pre-’91 2008
Maximum excise duty
105% 24%
Maximum import duty
400% 15%
Examples
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The rapid growth of the Indian economy has been driven by a unique combination of progressive liberalization…
Copyright © NASSCOM 2008
Key drivers of Growth
…in an inherently lower-cost & high volume economy
Inherent lower-cost economy
Good/ Service
Price in US (US$)
Eq. price in India (US$)
Peak mobile rate (per min.)
0.4 0.05
Taxi (per km) 1.33 0.2
Skilled labor – manufacturing (per hour)
25 1.5
5.2 4.5
1997 2007
US/India GDP (PPP) ratio
Price comparison US vs. India*
* Indicative based on ranges
Sustained PPP* advantage
7* A purchasing power parity exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods.
Indian middle-class household growth 2002-2006
16.5
Source: Morgan Stanley
16.5 million households (~80 million people) added over 4 years - greater than the population of UK!
Copyright © NASSCOM 2008
Summary of key messages
• As a large stable democracy with a rapidly growing market based on sound fundamentals, India has become a leading center for global sourcing of goods and services
• India’s growth is driven by a unique combination of a progressive free-market policy, a low cost structure, and a sustained demographic advantage
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Copyright © NASSCOM 2008
Agenda
1. The rise of the Indian economy
• The Indian economy at a glance• Drivers of rapid growth
2. Dynamics of the Indian IT-BPO industry
3. Sustaining India’s value proposition
• Current trends• Future outlook
• Talent availability• Cost competitiveness• Risk management
• Business environment
9
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Current Global Uncertainties
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•Signs of US Slowdown post sub-prime; impact on other
economies
•Economic instability
– Oil crisis, food prices, inflation, unstable currencies,
volatility in stock markets etc.
•Concerns over US election; forthcoming Indian
elections
•Constraints within India on talent, infrastructure etc.
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Positive growth in FY08 under clouds of uncertainty
FY04 FY05 FY06 FY07 FY08
21.6
28.5
37.4
48.1
64.03.6%4.1%
4.7%5.2% 5.5%
32%
31%
29%
28%*
US$ billion, percentage
Indian IT-BPO SectorRevenue Aggregate and Share of GDP
ExportsDomesticPercentage of GDP
• Sustained export growth – revalidates strong fundamentals
• Revenue aggregate as a percentage of GDP continues to rise
Source: NASSCOM
11* Domestic Revenue Adjusted for Currency
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0.5
4.9
8.4
18.0
0.5
6.4
10.9
23.1
Hardware
Product Dev and Engg Services
BPO
IT Services
FY2008FY2007
All segments grew well in FY 08
100% = US$ 64 billion
DomesticMarket
Exports 62-66%
34-38%
*Includes product development and engineering ** Negligible
12%
18%
70%
40%
27.5%
32%
28%
Sourcing model
BPO
IT*
Global CaptivesGlobal Providers
Indian Providers
**
29%
30%
28%
Source: NASSCOM Source: NASSCOM
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YOY growth
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FY09 outlook: Software and services revenue to grow by 21-24%; exports to reach $50bn
• FY09 software and services growth forecast 21-24% (USD)
• Recent reversal in INR appreciation trends provides an extra cushion, if sustained it will contribute to higher INR growth
• Increased focus on cost and productivity in the recessionary environment is likely to fuel demand for offshore services
• Domestic story remains strong, though sustained inflation may be a medium-term risk
$39.6
Source: NASSCOM
$62-64
$52.0
Figures may vary slightly due to rounding off
USD Billion
INR/USD 44.9 40.2 43
Growth of 21-24%(Currency Adjusted)
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Key drivers of growth in FY 09
The Indian IT-BPO industry is actively building on its leadership position to deliver beyond cost benefits to global buyers
0
20
40
60
80
100
2004 2007
Key benefits driving companies to offshore
Per
cent
age
of re
spon
ses
Cost Savings
Process redesign
Speed to market
Access to Skills
Source: Duke Offshoring Research Network (ORN)
Global delivery model
Innovation
Process maturity
• Expansion of delivery network to include nearshore and onshore centres
• Provision of 24x7 services
• End-to-end process delivery capabilities
• Active service-level improvement
• Process reengineering expertise
• Service innovation e.g., customization for new markets
• Active IP creation – increased filing of patents
Key value-add initiatives
14
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61%
18%
12%
6%2%
Geographical spread diversified
US
UK
Continental Europe1
APAC2ROW100% = US$ 31.4 billion*
30%
US
UKContinental
Europe
APAC
43%
>55%
36%
Percentage
FY2007
CAGR FY2004-07FY2007FY2004
Indian IT-BPO Exports grew at a CAGR of 35% over FY2004-07
•Excludes hardware exports1 Top 3 countries include Germany (~2.5%), Netherlands (~2%), Switzerland (~1%) 2 Top 3 countries include Australia (~1.5%), Japan (~1.5%), and Singapore (~1.3%)
Europe, APAC and Middle East markets growing rapidly
Source: NASSCOM
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• Banking, Financial Services, Insurance and Hi-tech / Telecom account for nearly 60% of Indian IT-BPO exports
• Manufacturing and retail are other large sectors
• Airlines, media, healthcare and utilities are some emerging high-growth sectors
New verticals reduce dependencyFY2007
* Excludes hardware exports
Vertical market exposure for industry exports is well balanced across several mature and emerging sectors
BFSI40%
Hi-tech / Telecom19%
Manufacturing15%
Retail8%
Media, Publishing and Entertainment
3%
Construction and Utilities4%
Healthcare3%
Airlines and Transportation
3%Other
5%
Source: NASSCOM
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Industry progressing to offer end to end service
CoveragePercentage of full service
Revenue Split by Service Offered
FY2008E
Export growth is also being supported by increasing breadth and maturity of the service portfolio.
44%
22%
3%
1%
8%
4%
18%
Customer Interaction & Support
Finance & Accounting
Human Resources Mgmt.Procurement Services
Knowledge Services
Other Horizontal
Services
Vertical-specific BPO Services
100% = US$ 10.3 billion
BPO EXAMPLE
25
15
15
14
11
42
34
35
48
22
82
76
73
100
42
Customer Interaction & Support
Finance & Accounting
Knowledge Services
Procurement Services
Human Resources Management
Best in class 2007 Median 2007 Median 2004
Source: NASSCOM Source: NASSCOM
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Copyright © NASSCOM 2008
1.1
1.6
5.5
8.0
1.6
2.2
7.9
11.5
BPO
Software
IT Services
Hardware
FY2008FY2007
Domestic Market continues to show traction
DomesticMarket
Exports 62-66%
34-38%
Domestic market is gaining momentum, driven by overall economic growth, increased adoption of technology and outsourcing
100% = US$ 64 billion
• Rapid economic growth
• Increased consumption of goods and services
• Growth in tech-related spends by enterprises
• Internet connectivity
Source: NASSCOM
44%
38%
43%
44%
18
29%
23%
29%
30%
USD INRGrowth in*
* Difference between growth in USD and INR due to impact of forex changes (INR appreciation)
Copyright © NASSCOM 2008
378450
553
700690
860
Domestic Market
BPO Exports
IT Exports
Healthy employment growthDirect Employment ‘000s
Indirect Direct TotalEmployment
8-10 mn6-8mn
~2mn
FY2007 FY2008
Direct employment to reach nearly 2 million; indirect job creation estimated at 6-8 million
FY2008 estimates
• Industry directly employs >2 million professionals
• Over 1.5 million in the exports segment; a yoy increase of ~26%
• Indirect employment multiplier estimated to be 3-4x, translating to ~6-8 million additional jobs*
Source: NASSCOM Source: NASSCOM
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Domestic technology adoption is growing rapidly – across enterprise as well as household consumers
Largest and fastest growing IT outsourcing market in the region in 2007
Increasing PC adoption and internet penetration across households
(in Million)
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Enhancing Global Delivery capabilities
Significant addition of onshore presence enabling firms to offer end-to-end service capabilities
Progressive near-shore expansion to enhance “follow-the-sun” and “multi-lingual” capabilities
Over 77 cities* across more than 25 countries
Global Delivery Footprint of Indian IT-BPO Firms
* Excludes Indian cities / India
Expanding Global Delivery capabilities complemented by a widening service portfolio is helping providers deepen client relationships
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Summary of key messages• The Indian IT-BPO market continues to grow at a robust pace despite
the current global uncertainties; however there is a need to watch closely
• While exports remains the mainstay, the domestic market is gaining momentum
• With the industry maturing, it is well distributed across a breadth of services and verticals
• While US and UK continue to be the dominant markets, Continental Europe has exhibited strongest growth over the last two years
• Going forward, the Indian IT-BPO industry is poised to expand significantly on the back of its strong fundamentals and global head-room
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Copyright © NASSCOM 2008
Agenda
1. The rise of the Indian economy
• The Indian economy at a glance• Drivers of rapid growth
2. Dynamics of the Indian IT-BPO industry
3. Sustaining India’s value proposition
• Current trends• Future outlook
• Talent availability• Cost competitiveness• Risk management
• Business environment
23
Copyright © NASSCOM 2008
Is India’s value proposition sustainable?
• “High attrition and wage inflation… is India’s talent pool running dry?”Talent availability
Cost competitiveness
Risk management
Business environment
Common questions...
• “With cost increases, is India still cost competitive?”
• “How have quality and security standards matured?”• “What is the geo-political risk exposure?”
• “Will policy and infrastructure keep pace with the industry’s rapid growth?”
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Talent Availability & Crunch
India has large talent capacity. There is a need to make them employable.
Technical Graduates
‘000s
Non-technical Graduates
‘000s
Annual Output
Year Net employee addition (‘000s)
FY 08 389
FY 06 328
FY 05 234
IT-BPO Demand
Source: NASSCOM
Source: NASSCOM
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Pressure Points
• Talent is trainable – need to make them employable• Demand from other sectors increasing• Tier 3 colleges yields low
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Comprehensive Plan for making India’s large talent base “employable”
Recognizing this imperative, the industry is proactively working on several initiatives to strengthen India’s long-term cost advantage
Short Term
Medium Term
Long Term
• Enhance overall yield• Improve employability• Expand to tier 2
locations• Lower skill dependence
Objectives Initiatives
• Industry to enhance investments in training • Entry-level assessment for BPO and IT,
finishing schools : Through NAC, NAC-Tech• New locations identified; govt’s engaged
• Lower training investment
• Enhance specialist and project management expertise
• Add education capacity• Promote education
reform
• Faculty Development Program: to increase the suitability of teachers
• Facilitating industry access to specialist programs offered by independent agencies
• Expansion of higher-education infrastructure: government to set-up 20 new IIITs
• Program to increase PhDs in technology• NASSCOM VC fund focused on technology
innovation
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Overcoming Talent Crunch : Supply will not be a constraint in future
Source : BCG
47Mn
19Mn 7
Mn
3Mn
5Mn3Mn
India
Bangladesh
PakistanIran
Brazil
Mexico
Philippines
5Mn
4MnVietnam
2Mn
Turkey
-10Mn
China
-6Mn
Russia
5Mn
Indonesia
1MnMalaysia
0Mn
Ireland
Israel0Mn
Iraq2Mn
-1Mn
CzechRepublic
4Mn
Egypt
-17MnUS *
-2 MnUK
-2 Mn
Italy-3 Mn
France-9 Mn Japan
* -5.6 m in 2010
Global working age population 2020
With an increasing imbalance in the global workforce, India’s demographic advantage is likely to be a key driver of future growth
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Cost Competitiveness is sustainable…
Despite cost increases, India continues to leverage its cost structure to deliver a compelling cost advantage. Additionally, India’s long-term cost advantage is likely to remain robust.
Loaded Costs per IT FTE p.a.2007, US$ ‘000s
Source: Everest, NASSCOM
28
2007 2008 2009 2010 2011 2012 2013 2014 2015
India @ 28K
US @ 100K
~67%
~60%
~53%
~72%
Cost Saving
Projected cost comparison, 2007-2015 US$
CAGR increases
@ 3%
Wage @ 15% Other @ 5%
Wage @ 10% Other @ 5%
Wage @ 5% Other @ 5%
Source: NASSCOM estimates
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Industry is responding well to economic pressures
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•Wake up call 9 months ago when USD touched Rs. 39
•Focus on productivity, efficiency, resource utilization
•Wage moderation, reduced lateral hiring, reduced
attrition
•More efficient asset utilization – real estate, IT etc
•Expansion into tier 2/3 cities
These improvements will have lasting impact over
years!
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43 tier 2/3 Delivery locations identified
Bangalore 36%
Mumbai, Pune
15%
Chennai 15%
New Delhi, Noida, Gurgaon
17%
Hyderabad 14%
The industry is well spread across multiple locations. Tier 2/3 cities emerging
Others 3%
Source: NASSCOM
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Leader Cities
New Emerging Cities
• 7 centers account for over 95% of exports• 43 tier 2/3 cities emerging; will reduce pressure on these centers• On an average, costs in tier 2/3 cities is 28% less than leader cities• By 2018, it is forecasted that 40% of IT-BPO exports will originate from non-leader locations
Employment Distribution Amongst Location Categories (‘000s)
1,996
8,0742
Non-Leader
Leader1
CAGR
40%
60%
34%
10%
>18X
>2.5X
Note: 1. Leader locations are Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR (Delhi, Noida, Gurgaon, Faridabad), Pune 2. Assuming a conservative growth in employment at 15% CAGR over next decade
Copyright © NASSCOM 2008
Information Security & Risk Management
Standards
Physical security
Personnel security
• Compliance with global standards e.g., ISO 27001, CoBIT
• Contractual safeguards, robust BCP/DR planning
Network security
Laws
• Secure design, documentation & implementation of network e.g., firewall, antivirus encryption
• Isolation of sensitive areas• Access control systems e.g., CCTV
surveillance, security guards
• Background checks• Non-disclosure agreements
• Compliance with international laws• Strengthening of Indian legal system
• Maximum ISO 27001 certifications obtained globally
• Data Security Council formed
• Documented security policies covering use of information, mobile computing, user access
• Robust and uniform best practices
• National Skills registry (NSR) to facilitate personnel background checks
• Cyber security training and awareness• Amendments to strengthen the IT Act
2000 and Indian Penal Code being enacted
Objectives Initiatives/Impact
In addition, the industry continues to evolve its already high standards for data security and IP protection.
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Business Environment
SEZs are expected to build on the success of STPI at a larger scale
IT SEZs
Other SEZs
IT-BPO Sector Accounts for the Highest Number of Proposed SEZs (Total# = 572)
SEZ highlights
Term 15 years
Fiscal benefits
• 100% tax holiday for first 5 years, 50% for next 5 years, and up to 50% for balance 5 years
• Exemption from excise duties, service and sales taxes
Location and size
Restricted to prescribed zones with a minimum area of 25 acres
Other Procedural ease, single-window clearance
Source: NASSCOM, CLSA
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Sector Current status FY 07 spend (US$ bill.)
Roads • 10% of national highways four-laned
• Average speed less than 50 km/hr
7.8
Telecom • India has done well here. Average per min cost decreased by 90% over 7 years
2.1
Airports • Top 6 airports (~75% of traffic) currently overstretched
3
Power • High cost of electricity, losses due to theft
15.7
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Summary of key messages• Reducing product / service life cycles
• Demographic shifts & war for talent will drive innovation & increased globalization of services
• India’s talent pool large; needs focused attention & yield improvement; improve employability
• India’s value proposition strong and sustainable. In spite of inflationary pressures, cost advantage to continue. Moreover, operation efficiencies will have a lasting effect
• Global focus on information security & privacy driving more robust processes
• Proactive government policy is helping address existing infrastructure gaps. Further, SEZs will take over from STPI in propelling industry growth.
• Providers are maturing their service delivery capabilities to actively deliver value-adds through global delivery models, process expertise, and innovation
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