india : flagship it outsourcing
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India : Flagship IT Outsourcing. Presentation By R. K. Verma. Executive Director, ER & DCI, NOIDA. Agenda. IT Industry Software and Service Industry India Advantage Government Initiative Business model – example India & Europe: evolution of I.T. collaboration. IT Industry in India. - PowerPoint PPT PresentationTRANSCRIPT
India : Flagship IT Outsourcing
Presentation ByR. K. Verma Executive Director,
ER & DCI, NOIDA
Regional Business Round Table2-4 December, 2002 Lithuania
Agenda
IT Industry Software and Service Industry India Advantage Government Initiative Business model – example India & Europe: evolution of I.T. collaboration
Regional Business Round Table2-4 December, 2002 Lithuania
IT Industry in India
In the last 5 years the industry has recorded a CAGR of more than 40%
Earned revenues worth US$ 12.2 B in 2001-02
2001-02 recorded the highest growth ever at a stunning 50%
Expected to reach US$ 80 b by 2008
2.042.88
3.85.03
6.05
8.67
10.1
12.2
0
2
4
6
8
10
12
14
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
Regional Business Round Table2-4 December, 2002 Lithuania
Software and Services Industry
India currently has a marketshare of 2% of the global market
Grossed an annual revenue of US$ 12.2b in 2001-02 Software Exports – US$ 9.5 b Domestic Market – US$ 3.7 b
Registered an overall growth of 55% during 2001-02 CAGR for the industry for the last 5 years has been
56.5%
Regional Business Round Table2-4 December, 2002 Lithuania
Indian Software and Service Sector
Traditional Strengths Legacy Systems Software Development Large Projects Outsourcing On-site services Integration
New Strengths E-Commerce / E-Business Digital Content
Development R&D services Enterprise Consulting Network Management
Services Telecom Software IT Enabled Services
Regional Business Round Table2-4 December, 2002 Lithuania
IT Software and Services Exports
A CAGR of 62.3% over the past 5 years Drivers for the market include:
Increased outsourcing Liberalisation of govt. policies and procedures Availability of good technical manpower
Expected to reach US$ 50 billion by 2008
1,0851,750
2,650
4,000
6,200
8,500*
12,200
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
US
$ M
illio
n
Regional Business Round Table2-4 December, 2002 Lithuania
Software Exports Activity
Rest of the World10.0%
Europe24.0%
Japan4.0%
America62.0%
USA
UK
INDIA
JAPAN
NORWAY
Singapore
Offshore Software Development
Destination of Software Exports
Regional Business Round Table2-4 December, 2002 Lithuania
IT Enabled Services
Estimated to grow from US$ 900 million in year 2000 to an estimated US$ 17 billion by 2008
Drivers for the market Time zone difference with USA
and Europe enabling 24x7x365 Huge pool of English speaking
and computer literate manpower
Key focus areas: Call Centres, Engineering
and Design, Back Office Operations, Revenue Accounting, other ancillary operations
257
560
900
1,340
0
200
400
600
800
1,000
1,200
1,400
1998-99 1999-00 2000-01 2001-02
Regional Business Round Table2-4 December, 2002 Lithuania
Projections
Software sector to grow steadily To attract FDI of over US$ 4 billion by 2008 Revenues expected to reach US$ 90 billion by 2008 To employ more than 2.2 million people
Domestic Software market expected to touch US$ 25 billion by 2008
Indian export revenues to touch US$ 50 by 2008 IT Enabled Services sector to witness a strong growth of
US$ 17 billion by 2008 US $9 billion business opportunity from global e-solutions
services market by 2005
India Advantage
Regional Business Round Table2-4 December, 2002 Lithuania
Ireland :
• Packaged Applications
• Localization
• Product Development
China :
• Embedded Software
• Hardware Services
• Localization
• Application Development
Canada :
• Application Development
• BPO
• Contact Centers
Israel :
• High-End Software
• Learning Systems
Country Specialization by Niche
Russia :
• High-End Software Engineering
Philippines :
• BPO
• Contact Centers
• Animation
• Application Development
India :• Application Outsourcing• ITO• BPO• Product Development• Contact Centers
Regional Business Round Table2-4 December, 2002 Lithuania
Stable Economy and Infrastructure
Stable legislative and economic framework
The GDP of India grew at 5.2% over the previous year and stands at US$ 423 B
India has 6th largest telecom network in the world and the second largest among the emerging economies (after China)
Currently there are 25m fixed phone lines and to reach 125m by 2008
Cellular penetration in India is currently 4.5 million and is growing steadily
Regional Business Round Table2-4 December, 2002 Lithuania
Large reservoir of skilled workforce
With over 410,000 employees, India is the 2nd largest employer in IT software and services industry
Huge pool of English speaking and computer literate manpower
Annual output of 178,000 engineering graduates
160 universities and 500 institutes provide computer education at degree level
70,000 private training institutes for computer education – 1 million trained every year
73,000 to 85,000 professionals are ready to join the industry every year
Regional Business Round Table2-4 December, 2002 Lithuania
India’s value proposition goes beyond costs
Dramatic cost reductionDramatic cost reduction
Faster time to marketFaster time to market
Well established quality processes
Well established quality processes
Large, high quality talent poolLarge, high quality talent pool
Tested and robust business models
Tested and robust business models
The India Value
Proposition
The India Value
Proposition
Annual cost of a FTE* in India could be as low as 30% of the cost in a Financial hub like New York or London
24X7 production runs by synchronizing work between onshore and offshore teams
Over 50% of the SEI CMM Level 5 companies are based in India
Almost all relevant players are ISO 9000 certified
Pool of over 410,000 technical professionals growing at 20% p.a
Second largest English speaking scientific manpower pool with 62% having more than 4 years experience
Stable economy with strong government support for IT growth
Entrepreneurial know-how and business mgmt skills
Source: McKinsey
* Full Time Equivalent
Regional Business Round Table2-4 December, 2002 Lithuania
India is a very competitive location for outsourcing
Size of circle corresponds to number of qualified workers
Capabilities of workers• Qualifications/capabilities• Foreign languages (primarily English)• Quality of work/work ethic• Cost differential
High
Low
Low High
Singapore
Hong Kong
Holland
Ireland
U.K.
Australia
China
Philippines
Mexico
India
Location attractiveness• Infrastructure
- Communication- Basic infrastructure
• Country risks/FDI incentives- Attractive incentives- Political environment
• Time zone attractiveness
Source: McKinsey
Government Initiatives
Regional Business Round Table2-4 December, 2002 Lithuania
Government Initiatives
IT on National Agenda (IT and Communications Ministry) Strong Telecom and IT Policy
National Telecom Policy The Information Technology Bill The Convergence Bill
100% customs duty exemption Zero duty on import of Software Zero Tax on Venture Capital Gains Income Tax Exemption to IT Software & Services Opening of the long distance and International telephony sectors
for private participation Internet Telephony by April 2002
Regional Business Round Table2-4 December, 2002 Lithuania
Government Initiatives..contd
Special Schemes - Software Technology Parks (STP) and Special Economic Zones (SEZ) 21 STPs all over in India Income Tax holiday till 2010 STP building or Virtual Units Free Imports Minimum value addition required High speed Datacom Connectivity
E-Governance 19 State Governments have IT Policies 1-3% of Government spending towards IT
Enforcement of Anti-Piracy laws Signed ITA at WTO
Regional Business Round Table2-4 December, 2002 Lithuania
An attractive IT destination
India exports software to 102 countries around the globe
Software exports account for a substantial 10.5% of India’s total exports
185 of the Fortune 500 companies outsource from India
23 CEOs of Fortune 500 companies are of Indian Origin
More than 1000 domestic IT service providers exist
Regional Business Round Table2-4 December, 2002 Lithuania
An attractive IT destination
Indian vendors adhere to strict quality standards such as CMM, PCMM and ISO certification
Global software majors such as Microsoft, Compaq, i2 Technologies, Oracle, Novell, Adobe, SAP etc. have their operations in India
Leading MNCs setting up back-office operations in India Prominent among them include GE Capital, American
Express, Citigroup, HSBC, Standard Chartered, Ford and Deutsche Bank
Regional Business Round Table2-4 December, 2002 Lithuania
Top 5 Positives
Great Quality at Good Price
High overall customer satisfaction
Passion and Commitment
Availability of Technical Skills
Enterprise move up “Quality” Chain
Customer Feedback - Positives & Challenges
Challenges
Cross cultural issues
Change Management
“Subservient” approach
Industry / Process Skills
Account Mgmt. vs. Project Mgmt.
Business Models
Regional Business Round Table2-4 December, 2002 Lithuania
A variety of business models can be considered
Single entity formed by combination1 set of shareholdersPooling or purchase of assets/stock
Characteristics
Creation of “Newco” equity companyContributions and ownership by 2 or more partners
Parent-to-parent equity investment, plusOngoing activity involving joint contributions; shared risk and
reward
Contractual parent-to-parent alliance with substantial shared risk/reward or exclusivity
Parent-to-parent Relationship without shared control, ownership, or risk
Arms lengthArms lengthcontractcontract
NonequityNonequityalliancealliance
Minority equityMinority equitystakestake
Joint venturesJoint ventures
M&AM&A
Source: McKinsey
Regional Business Round Table2-4 December, 2002 Lithuania
Off-Shore Models: Services Delivery
Regional Business Round Table2-4 December, 2002 Lithuania
Companies like GE are leading the way in leveraging the Indian opportunity (example)
Aims to become biggest
provider of remote
services with 10% share of global remote
services
Call centers Transaction processing e.g. mortgage, insurance claims, credit cards
Accounting payment Insurance Engineering & research
Moving up the value chain into task analysis, planning, forecasting, underwriting and other value services
Internal (mainly supporting GE US)
Internal (supporting GE worldwide)
Supporting 270 GE processes of thirty different business
Internal and external
<1,500 at one location 1,500-9,500 at 3 locations At least 12,000 in 4 locations
1994-19981998-2001
2003
~ $ 300 million per annum Tested concept for one year Demonstrated cost and quality
benefits to end users within GE Invested in infrastructure and
built scale
> $ 450 million per annum
“India’s potential to become a global R&D platform is acknowledged worldwide. Our focus is to board base this talent from information technology to multidisciplinary research engineering and technology enterprise”
Main activity
Resources
Estimatedbottom lineimpact
Client
Source: Interviews, Press clippings, McKinsey analysisCEO, GE India
India & Europe: I.T. Collaboration
Regional Business Round Table2-4 December, 2002 Lithuania
Several factors explain limited European activities historically
Moderate economic pressureModerate economic pressure Slower uptake in Europe for most technology trends Less competitive pressures
Minimal exposure to India/ Indian playersMinimal exposure to India/ Indian players
US focus of Indian companies – group mentality Smaller NRI population Perception of low cost but poor quality
Language barriersLanguage barriers Challenge of working through an on-site model
Socio Cultural barriersSocio Cultural barriers
Limited exposure to Indians Acclimatization challenges Value experience over youth and quality over price
Access to lower cost East European MarketsAccess to lower cost East European Markets
Poland, Hungary, Ireland and now Russia were viable options
Visa restrictionsVisa restrictions More control than US
Source: McKinsey
Regional Business Round Table2-4 December, 2002 Lithuania
However, a large number of these factors now stand addressed in favour of fostering an Indian partnership
Companies engaging in in-house training Number of trained language savvy Indians is increasing steadily Setting up a local front end to cross language and cultural barriers
Language barriersLanguage barriers
Still real but Indian companies are becoming more sensitive As India deals more with Europe the cultural comfort level will rise Aggressive off shoring resolves much of the socio cultural conflict
Socio Cultural barriersSocio Cultural barriers
Changing as European companies aspire to be globally competitive
Indian IT companies are exploring Europe seriously Setting-up key local offices and near-shore development centers Increasing student population in Europe (in particular U.K)
Minimal exposure to India/ Indian playersMinimal exposure to India/ Indian players
Inability of East European markets to meet the demand Indian companies often have better quality processes and a
highly skilled staff
Access to lower cost East European MarketsAccess to lower cost East European Markets
This matter is being addressed as the need is growing The off shoring model puts less pressure on Visa effortsVisa restrictionsVisa restrictions
Moderate economic pressureModerate economic pressure
Source: McKinsey
Regional Business Round Table2-4 December, 2002 Lithuania
To counter this and target the European markets, India its and its companies will have to significantly overhaul their front end processes
Increase new business development momentum
Increase penetration into existing key accounts
Step up marketing and brand building efforts
Recruit seasoned local professionals Target at decision making level Tailored value propositions Robust sales toolkit
Define clear positioning Focused reputation building/ networking
efforts Clear 1 year event/networking plan Identify events/forums to participate
Cross-functional account team Robust Key Account plans Clear incentives Meaningful top management involvement Quality reviews
Source: McKinsey
Regional Business Round Table2-4 December, 2002 Lithuania
Summary
Partnering with India for offshore IT Services is a working model and a proven success
Cost as well as strategic benefits are obtainable
Alternative engagements models should be evaluated
NASSCOM & the MCIT is suited to enable dialogue between Transition Economies and India’s IT Sector