1. INTRODUCTIONInformation technology is the application of computers and telecommunications equipment to store, retrieve, transmit and manipulate data. This term is synonymously used for computers and computer networks, but it also includes hardware, software, electronics, semiconductors, internet and other computer services. The term information technology in the modern sense was first coined by Leavitt and Whisler in an article published in the Harvard Business Review in 1958. They commented the new technology does not yet have a single established name. We shall call it information technology.The basic concept of information technology can be traced to World War 2, alliance of military and industry in development of electronics, computers and information theory. After the 1940s, the military remained the major source of funding for research and development in IT and also for expansion of automation to replace manpower with machine power.Some of the new emerging fields in IT are bioinformatics, cloud computing, global information systems etc. The Indian IT industry has portrayed a major role in highlighting India in the global map and is now a power to reckon with. It has been predicted that the Indian IT revenues may reach US $225 billion by 2020. Surveys conducted revealed that IT industry created almost 3 million jobs and its contribution to the GDP of India is over 7.5%. Also it is capable of attracting FDI worth US $5 billion.

1.1 OUTSOURCINGIndia is preferred by many companies to delegate their back office functions. This is due to low costs and also offers skilled manpower.Some major deals: Wipro ltd signed a deal to collaborate with Hitachi Data Systems, for the purpose of offering co-branded products and services with Hitachi technology in India. TCS got an outsourcing contract from Telenor Norway, a Norway based company, to provide application maintenance and development services. HCL Technologies signed a 5 year deal with Singapore Exchange worth US$ 110 million, which is an IT infrastructure outsourcing deal. HCL also bagged an outsourcing contract from a US- based drug manufacturer, Merck Sharp and Dohme worth US $ 500 million. Mahindra Satyam signed a 4 year offshore contract with KMD, a Denmark based IT company, worth US $ 48 million. Patni computer systems won a 5 year IT and back-office contract worth US $ 200 million from US- based health insurance provider, Universal American.

1.2 OBJECTIVES OF THE STUDY To study the global and Indian scenario of the IT industry. To know the industry attractiveness both in India as well as across the world. To study the macro-environment of the IT industry. Analyzing the top global and Indian IT players. Comparison between the Indian and the Global IT industry. Conclusion

2. GLOBAL SCENARIOGlobal spending in the IT market has reached US $ 3.6 trillion during 2011 which shows a rise by 5.6% from the last year. It is expected to grow at a steady rate of 5% for the next few years and is predicted to reach the US $ 1147 billion mark by the year 2017. Even the healthcare IT market is on the rise with its worth at $99.6 billion in 2010. The experts say this will grow by a rate of 10.2% and will reach $162.2 billion by 2015. This overwhelming growth can be credited to the initiative taken by the governments all over the world regarding the IT sector.Not surprisingly, cloud computing continues to be a major factor in the corporate spending. It provides various services like storage, networking, and other application services at minimum cost. It should also be noted that spending on cloud is growing at a much faster rate than spending on IT. In 2011 the spending on cloud was almost 3% of total IT spending i.e. US 89$ billion. This is expected to rise to US $117 billion by 2015 which makes it 5% of IT spending.Another notable sector in IT is that of computer gaming which is increasingly becoming important and has the potential of turning into a segment by itself by 2015. As it is known by everyone, US has the most advanced IT industry in the world with more than 100,000 software IT services companies. The industry employs more than 2 million highly tech savvy individuals and offers a wide range of services like software publishing, supplying custom made programming services, designing computer systems etc.All the countries have realized the fact that IT industry is essential for enhancing the competitiveness and growth of the economy. For individuals smart devices and cloud services have become an essential part of their lives and enables them to do many things which were not possible before. For companys new technology have improved their operational efficiency. It has also been found that IT industry alone contributes 25% growth of GDP of Europe and value of cloud computing in Europe is expected to cross US $1 trillion by 2020.

The following is a list of top 12 IT companies as per their revenue.

RankCompanyIndustryRevenue

1Samsung ElectronicsElectronics$188.1

2AppleElectronics$156.5

3HPHardware$120.3

4FoxconnElectronics$119

5IBMComputer services$104.5

6PanasonicElectronics$99.65

7MicrosoftSoftware$73.72

8DellHardware$62.07

9Amazon.comInternet$61.09

10FujitsuHardware/Software$54.46

11IntelSemiconductor$53.34

12GoogleInternet$50.17

Table 2.1 Top 12 IT companies as per revenue

The above list includes those companies whose primary business is associated with IT industry that includes computer hardware, software, electronics, and semiconductor, internet, e-commerce and computer services. Also the annual revenues of these companies exceed $50 billion.

2.1 Global IT Investment TrendsAgainst the backdrop of the near-term economic picture described above are surprisingly optimistic longer-term prospects for global IT spending. Indeed, Tower Group forecasts that IT spend in 2010 will recover to 2008 growth rate levels of 2.5%. Beyond 2010, we anticipate a truly strong recovery, overall global growth in IT spend reaching 4.0% in 2011 and 5.1% in 2012.

2.2 Global IT Spending Trends in Financial Services through 2013: Surprising Optimism on the HorizonCompared to forecasts of gross domestic product (GDP) one year ago, the outlook for most world regions has improved. Much of the growth is driven by unprecedented deficit spending by national governments. Growth in the developed economies of North America and Europe, in particular, is characterized by public credit. Only in the developing economies of Asia will a large fraction of GDP growth come from the private sector. In the Gulf region, optimism has been muted by the decline of oil prices 50% from their July 2008 high. Latin America represents potential recovery opportunities following its recent backslide, although the region's perennial instability makes the scope of the opportunity uncertain. 2.3 GLOBAL IT INDUSTRYOver the years, the Indian IT-BPO industry has matured from offering non-core activities. However, there is a huge global market that is yet untapped. The level of the opportunity in hand can be gauged from the fact that India (domestic + exports) accounted for approximately 5% of worldwide technology products and services related spend of USD 1.5 trillion in 2009. This underlines the immense growth opportunities for the industry players to create innovative service models and broaden its geographical reach.In the future, the industry is expected to generate an increasing share of revenues from the emerging segments such as SMB, engineering and infrastructure management by offering cost-effective delivery options such as pay-per-use and outcome based pricing models, said Dun & Bradstreet.

Following is the Indian IT-BPO industry outlook for 2013 from Dun & Bradstreet: Consolidation activity is likely to pick upThe Indian IT-BPO industry is expected to adopt the inorganic growth route in order to widen their service offerings and enter new geographical markets. Several third party and captive BPO units are likely to increasingly acquire small size companies to ramp up revenue, acquire clients, and expand business segments and geographical reach. Consolidation will also be driven by international M&A deals, propelled by robustness of the Indian players. The Indian IT-BPO industry has been seeing a spurt in consolidation in recent times, with deals such as Sutherland Global Services acquisition of Adventity Global services, Hinduja Global Solutions acquisition of a UK based customer relationship management company, Careline Services, and this trend is expected to continue in the near future. Cloud computing will be the next big wave for Indian IT-BPO industryCloud computing is expected to reshape the Indian IT market by generating new opportunities for the IT vendors and driving changes in traditional IT offerings. This service offers immense opportunity to penetrate the SMB sector and offer innovative solutions by providing them an equivalent IT infrastructure, which they could otherwise not be able to afford. Several big high-tech companies such as Microsoft are now adopting the cloud computing technology to widen their market share. TCS has also launched various models within cloud computing services targeting the large number of SMB`s in India. Remote Infrastructure Management Services (RIMS) is set to emerge as a promising opportunityRIMS is touted to be a big market for Indian IT companies in the near future. The IMS segment is progressively moving towards a remote delivery model where services are delivered by vendors and captives from low-cost locations. As per the comprehensive study conducted by NASSCOM and McKinsey, the global RIMS market is estimated to be USD 96-104 billion, out of which nearly 70-75% of the infrastructure management roles can be offshored. Given its strength in offshore delivery of services, India is well positioned to capture a substantial share of this RIMS opportunity.

Small and Medium Business`s (SMB) are expected to emerge as a significant marketIndian SMB`s have realized the long-term benefits of IT implementation in terms of increased productivity and are increasingly adopting IT solutions. During 2009, expenditure on IT by SMB segment was about 30% of the total IT spends valued at over Rs. 300 billion. IT vendors have identified SMBs as the growth driver of the future and are taking steps to address them more effectively. They are offering tailored-made easy to implement IT solutions and delivery models to SMB`s. For instance, Microsoft has started to offer its ERP application to SMBs through the SaaS model. Wipro has also collaborated with Microsoft to deliver ERP software through SaaS model for an auto parts supplier. Increased government IT spending will spur growth in the domestic marketService providers are also expected to sharpen their focus on the domestic market to tap the imminent growth opportunities offered by the booming Indian economy. The rapid growth in the domestic market is likely to be driven by major government initiatives such as increased spending on e-Governance and increased thrust on technology adoption/up-gradation across various government departments to bridge the gap of digital divide. The GoI has enacted a national e-Governance Plan (NeGP) which creates a big opportunity for the IT vendors to create an effective partnership. It has separately allocated USD9 billion for investment in NeGP projects till FY14. Shift in focus from BFSI vertical to other emerging verticalsThe BFSI vertical has been the mainstay of the Indian IT-BPO industry. However, it was one of the worst hit segments due to the impact of global financial crisis. In 2009, the BFSI sector observed a decline of around 5% after witnessing a below average growth rate of 3.6% in 2008. Consequently, IT vendors, in order to de-risk their business model, have increased their focus on other verticals such as government, healthcare, retail and utilities. In the last few years, these sectors have shown signs of increasing IT expenditure. Growth in these emerging verticals is expected to be substantially faster than the core verticals. Diversifying from core geographic marketsIndian IT-BPO companies are expected to diversify their business from core markets such as the US and UK as these markets was adversely affected by the global financial crisis leading to a decline in their overall IT spends. Over the last couple of years, India`s export share to the US has declined sharply from around 68% in FY04 to 61% in FY10. On the other hand, the Indian IT companies have begun to explore opportunities offered by other growing markets such as Mexico, Ireland, Netherlands, Philippines and Brazil. Though these flourishing markets are presently small, they are expected to the drive growth in future. In addition, by concentrating on these markets, businesses can diversify their risks across regions. Ceasing of tax benefits for STPI (Software Technology Parks of India) impacts small playersSTPI have played a vital role in fostering growth of the Indian IT-BPO industry. The uncertainty ruling over continuation of tax holiday after Mar 2011 could slow down future expansion proposals. Large companies would be able to alleviate the tax burden arising from the expiry of tax holiday by moving into SEZs. However, small companies, which form the bulk of the companies registered with STPI, will find it hard to survive, as they are still struggling post-global recession and do not have the financial resources to face this challenge. Rural BPOs will make their presence feltIndian BPO companies are slowly moving towards rural areas to set up delivery centers due to rising attrition rates in urban areas and lower cost of operations in rural areas - which is also supported by growing real estate construction in rural area. As per NASSCOM, as on Feb 2010, about 35 rural BPO centers employed more than 5,000 people across the country. Rural BPO`s are also gradually moving up the value chain in terms of service offerings from basic data management tasks to content creation and validation. 2013 could well be the year in which rural BPO operations come of age.

2.4 Herfindahl Hirschman Index (HHI)This index is a measure of size of firms with relation to the industry. It also indicates the level of competition among them. The name is derived from names of the economists Orris C Herfindahl and Albert O Hirschman. It is defined as the sum of squares of market shares of 50 largest firms within an industry.The value of this index can range from 0 to 10000. Here an increase in HHI indicates decrease in competition and increase in market power. Decrease in HHI shows increase in competition and decline in market power.If HHI is between 0 to 1500, the industry is un-concentrated.If HHI is between 1500 to 2500, the industry is moderately concentrated.If HHI is above 2500, the industry is highly concentrated.Below is the list of 50 largest firms in the IT industry and their revenues are also mentioned. Basing on the revenues market shares have been calculated and thus HHI was found.The HHI of the IT industry is found to be 424.26.This shows it is below 1500, thus the global IT industry is un-concentrated. This shows that there are no dominant players in the industry which have the power to influence the entire global market.

CompanyRevenue billionsmarket shareMarket share square

Apple164.6910.86959391118.1480718

Hewlett-Packard118.687.83291885161.35461773

International Business Machines104.516.89769421347.57818545

Panasonic Corporation89.435.90240927634.83843526

Sony Corporation78.285.16650562626.69278038

Microsoft Corporation72.934.81340387423.16885686

Dell56.943.7580586414.12300474

Intel53.343.52045746112.39362074

Google50.183.31189642710.96865794

Cisco Systems47.253.1185154689.725138723

Nokia Oyj39.052.5773127836.642541184

Ingram Micro37.832.4967923846.233972209

Oracle Corporation37.232.4571921886.037793447

Ericsson Telephone Company34.132.2525911735.074166992

Accenture29.861.9707697753.883933506

LG.Display Company26.051.7193085282.956021814

Tech Data Corporation25.361.6737683022.801500328

Avnet25.161.6605682362.757486868

Flextronics International24.691.6295480832.655426953

Xerox Corporation22.391.477747332.18373717

EMC Corporation21.711.4328671072.053108146

Sap20.941.3820468551.910053509

Qualcomm20.461.3503666981.823490219

Arrow Electronics20.411.3470666811.814588644

Alcatel-Lucent18.871.2454261771.551086363

Whirlpool Corporation18.141.1972459381.433397837

Jabil Circuit17.461.1523657161.327946743

Taiwan Semiconductor Manufacturing17.121.1299256041.276731872

Seagate Technology16.331.0777853461.161621252

Computer Sciences Corporation15.781.0414851661.084691351

Western Digital Corporation15.651.0329051231.066892994

Kyocera Corporation15.040.9926449240.985343944

TE Connectivity13.250.8745043380.764757836

Texas Instruments12.820.8461241970.715926156

AU Optronics Corporation12.730.8401841670.705909435

Research in Motion12.60.8316041250.69156542

Catamaran9.940.6560432540.430392751

Motorola Solutions8.6980.5740708470.329557338

STMicroelectronics8.4930.560540780.314205966

Applied Materials8.1030.5348006530.286011738

Corning8.0120.5287946230.279623753

Broadcom Corporation8.0060.5283986210.279205103

Micron Technology7.9780.5265506120.277255547

Wipro7.8220.5162545610.266518771

Cognizant Technology Solutions Corporation7.3460.4848384050.235068279

Infosys7.2310.4772483670.227766004

Symantec6.8390.4513762390.203740509

Advanced Semiconductor Engineering6.5610.4330281480.187513377

Celestica6.5070.429464130.184439439

NetApp6.3180.4169900680.173880717

TOTAL1515.144424.2602412

Table 2.2 Market share of top 50 IT companies

3. INDIAN IT INDUSTRY SCENARIOTheInformation technologyindustry inIndiahas gained a brand identity as a knowledge economy due to its IT and ITES (IT-Enabled Services) sector. The ITITES industry has two major components:IT Servicesandbusiness process outsourcing(BPO). The growth in the service sector in India has been led by the ITITES sector, contributing substantially to increase inGDP, employment, and exports. The sector has increased its contribution to India's GDP from 6.1% in 2009-10 to 6.4% in 2010-11. The sector has increased its contribution to Indians GDP from 1.2% in FY 1998 to 7.5% in FY 2012. According toNASSCOM, the ITBPO sector in India aggregated revenues ofUS$100 $ billion in FY2012. The top seven cities that account for about 90% of this sectors exports are Bangalore,Chennai,Hyderabad,Mumbai,Pune,Delhi,Kolkata,CoimbatoreandKochiExport dominate ITITES industry, and constitute about 77% of the total industry revenue. Though the ITITES sector is export driven, the domestic market is also significant with a robust revenue growth.This sector has also led to employment generation. Direct employment in the IT services and BPO/ITES segment was 2.3 million in 2009-10 and is estimated to reach nearly 2.5 million by the end of financial year 2010-11. Indirect employment of over 8.3 million job opportunities is also expected to be generated due to the growth of this sector in 2010-11. Generally dominant player in the globaloutsourcingsector. However, the sector continues to face challenges of competitiveness in the globalized world, particularly from countries likeChinaandPhilippines.India's growing stature in theInformation Ageenabled it to form close ties with both theUnited States of Americaand theEuropean Union. However, the recentglobal financial criseshas deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply, and employees are looking at different sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years.India's IT Services industry was born inMumbaiin 1967 with the establishment of Tata Group in partnership with Burroughs.The first software export zoneSEEPZwas set up here way back in 1973, the old avatar of the modern day IT Park. More than 80 percent of the country's software exports happened out ofSEEPZ,Mumbaiin 80s.

3.1 HISTORYThe Indian Government acquired the EVS EM computers from theSoviet Union, which were used in large companies and research laboratories. In 1968Tata Consultancy Servicesestablished inSEEPZ,Mumbaiby theTata Groupwere the country's largest software producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru(office: 15 August 1947 27 May 1964) the economically beleaguered country was able to build a large scientific workforce, third in numbers only to that of the United States of America and the Soviet Union. On 18 August 1951 the minister of educationMaulana Abul Kalam Azad, inaugurated theIndian Institute of TechnologyatKharagpurinWest Bengal. Possibly modeled after theMassachusetts Institute of Technologythese institutions were conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship of N. R. Sarkar.TheNational Informatics Centrewas established in March 1975. The inception of The Computer Maintenance Company (CMC) followed in October 1976. During 1977-1980 the country's Information Technology companies Tata InfoTech,Patni Computer SystemsandWiprohad become visible. The 'microchip revolution' of the 1980s had convinced bothIndira Gandhiand her successorRajiv Gandhithat electronics and telecommunications were vital to India's growth and development.MTNLunderwent technological improvements. During 1986-1987, the Indian government embarked upon the creation of three wide-area computer networking schemes: INDONET (intended to serve the IBM mainframes in India), NICNET (the network for India's National Informatics Centre), and the academic research oriented Education and Research Network (ERNET).

3.2 POST LIBERALISATIONRegulatedVSATlinks became visible in 1985. Desai (2006) describes the steps taken to relax regulations on linking in 1991:In 1991 the Department of Electronics broke this impasse, creating a corporation calledSoftware Technology Parks of India(STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients office.Videsh Sanchar Nigam Limited(VSNL) introduced Gateway Electronic Mail Service in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible scale in 1992. Election results were displayed via National Informatics Centre's NICNET.The Indian economy underwent economic reforms in 1991, leading to a new era ofglobalizationand international economic integration. Economic growth of over 6% annually was seen during 1993-2002. The economic reforms were driven in part by significant the internet usage in the country. The new administration underAtal Bihari Vajpayeewhich placed the development of Information Technology among its top five priorities formed the Indian National Task Force on Information Technology and Software Development.The New Telecommunications Policy, 1999(NTP 1999) helped further liberalize India's telecommunications sector. TheInformation Technology Act2000 created legal procedures for electronic transactions and e-commerce.Throughout the 1990s, another wave of Indian professionals entered the United States. The number ofIndian Americansreached 1.7 million by 2000. This immigration consisted largely of highly educated technologically proficient workers. Within the United States, Indians fared well in science, engineering, and management. Graduates from theIndian Institutes of Technology (IIT)andIndian Institute of Information Technology - Allahabad ( IIIT-A ) became known for their technical skills. ThusGOIplanned to establish new Institutes especially for Information Technology to enhance this field. In 1998 India got the firstITinstitute nameIndian Institute of Information Technologyat Allahabad. The success of Information Technology in India not only had economic repercussions but also had far-reaching political consequences. India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies. The relationship between economy and technologyvalued in thewestern worldfacilitated the growth of an entrepreneurial class of immigrant Indians, which further helped aid in promoting technology-driven growth.The economic effect of the technologically inclined services sector in Indiaaccounting for 40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25% of its workforceis summarized by Sharma (2006):Today, Bangalore is known as theSilicon Valley of Indiaand contributes 33% of Indian IT Exports. India's second and third largest software companies are head-quartered in Bangalore, as are many of the global SEI-CMM Level 5 Companies.Mumbaitoo has its share of IT companies that are India's first and largest, likeTCSand well established like Reliance,Patni,LnT InfoTech,i-Flex,WNS, Shine, Naukri, Jobspert etc. are head-quartered inMumbai. And these IT and dot com companies are ruling the roost of Mumbai's relatively high octane industry ofInformation Technology.Such is the growth in investment and outsourcing, it was revealed that Cap Gemini will soon have more staff in India than it does in its home market of France with 21,000 personnel+ in India.

3.3 INDIAN IT INDUSTRY INFORMATION

India's IT industry (in USD bn)

ParticularsFY 2004FY 2005FY 2006FY 2007FY 2008

IT Services10.413.517.823.531.0

-Exports7.310.013.1318.023.1

-Domestic3.13.54.55.57.9

ITES-BPO3.45.27.29.512.5

-Exports3.14.66.38.410.9

-Domestic0.30.60.91.11.6

Engineering services, R&D and Software products2.93.95.36.58.6

-Exports2.53.14.04.96.4

-Domestic0.40.71.31.62.4

Hardware5.05.97.08.512.0

-Exports0.50.50.60.50.5

-Domestic4.45.16.58.011.5

Total IT industry (including hardware)21.628.437.448.064.

Table 3.1 Information about Indian IT

3.4 STRUCTURE OF THE INDUSTRYThe top players of IT industry and their market share in India are as below

COMPANYFY 11 REVENUE IN CRORESMARKET SHARE

TCS37.32524.9

INOSYS27.50118.3

WIPRO23.60615.7

COGNIZANT20.65513.8

HCL TECH15.73010.5

MAHINDRA SATYAM5.1453.4

TECH MAHINDRA5.1403.4

MPHASIS LTD5.0373.4

iGate Patni 4.4032.9

ORACLE FIN2.3601.6

ROLTA1.8051.2

POLARIS1.5861.1

MIND TREE1.5091

NIIT TECH1.2320.8

HEXAWARE1,0540.7

Table 3.2 Top 15 Indian IT companies Market Share

Top 5 companies share 83% and top 10 share 95% of market share.

Figure 3.1 Market share of top15 Indian IT Industry

Net profit of major player in IT industry Here we compared net profits of top 9 companies in India of IT industry of two financial years. We found out % increase (or) % decrease in net profits with previous financial year. This profit of companies has the major significance in the growth of the industry. Where some companies have the increase in the profit percentage some companies decreased there percentage of percentage compare to the previous year.

Net profit growth in different it industry in 2011CompanyNet profit(2010-11)Net profit(2009-10)% Increase

Cognizant Tech1,337.852229.75-40

HCL Technologies1049.51912.61715

Infosys Tech.57555813.13-0.999

MphasiS996.88837.71419

Oracle Fin.Serv.661.62735.133-9.999

Patni Computer503.3635243

Polaris Soft.130.64111.65817

MAHINDRA Satyam1061.71309.3-18.91

TCS5498.074659.3818

Wipro4871.742917.2166.999

Others3684.453240.56513.698

Table 3.3 Net profit Growth of Indian IT industry Source: capitaline

The net profit of the different companies of IT industry some major companies have the negative growth in there profit margin compare to the previous year but also there is the positive growth in the some companies. From the above table we can see that major companies like cognizant tech, Infosys, oracle and Mahindra satyam have registered the negative profit growth in the 2011 year compare to 2010. Also in the whole industry the highest growth in the profit has registered by the wipro with 66.99% and then followed by the patni computers with 43% and then TCS with he 18% growth in the profit compare to the FY 2010. Now if we see that the overall growth in the industry profit is a positive growth with the increase of 11.171% in the FY 2011 compare to the FY2010.

3.5 HerfindahlHirschman Index (HHI):It is defined as the sum of the squares of the market share of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry. HHI = 24.92 +18.32+15.72+13.82+10.52+3.42+3.42+3.42+2.92+1.62+1.22+1.12+12+0.82+0.72= 1552.51The market share of the companies below this list is negligible for the HHI index as the squares of values < 1 will not affect the HHI index to a greater extent.The HHI index value of 1552 indicates that the industry is moderately concentrated. From the past records of the market shares of the companies, the HHI index is increasing over the years.

Concentration ratio: The most common concentration ratios are the CR4 and the CR8, which means the four and the eight largest firms. Concentration ratios are usually used to show the extent of market control of the largest firms in the industry and to illustrate the degree to which an industry is oligopolistic.The Four-Firm Concentration Ratio (CR 4) measures the total market share of the four largest firms in an industry.CR 4 = 24.9 + 18.3 + 15.7 + 13.8= 72.7 This falls in the range of 50 80 which indicates that the industry is medium concentrated and is likely oligopoly.

4. MACROENVIRONMENT ANALYSISMacro environmentanalysis is a review of all the factors that a company is unable to control. Companies conduct this analysis to stay abreast of the issue in the current business environment. We will be discussing about PESTEL framework to understand the IT industry scenario.

4.1 POLITICAL FactorsThe political factors which affect a business can include government rules and regulations toward that particular business environment and industry. For the IT industry in the Indian scenario, the following enlist the political factors affecting it. The Indian political structure is stable, but there are fears of hung parliament which means there is a lack of clear majority in the parliament, thus creating fear of wrong investing in the minds of investors thereby reducing capital. U.S government has declared that U.S firms that outsource IT work outside the U.S will not get tax benefits, this has caused reduction in the BPO contracts from the U.S in the last fiscal year as companies try to keep jobs within their country borders and not outsourcing to India, thereby reducing revenue from the U.S. Indian government has decided to contract IT job to Indian IT companies creating more opportunities and more jobs for the companies and the industry at large. In software development different countries configuration rules and regulation are considered since client demand differs because of different system requirements. Other factors to be considered are customer protection law, competitive regulations, and terrorist attacks.

4.1.1 Political StabilityIndia suffered political instability for a few years due to the failure of any party to win an absolute majority in Parliament. However, political stability has returned since the previous general elections in 1999. However, political instability did not change India's economic course though it delayed certain decisions relating to the economy.Economic liberalization (which is what foreign investors are interested in) has been accepted as a necessity by all parties including the Communist Party of India (Marxist).Thus, political instability in India, in practical terms, posed no risk to foreign direct investors because no policy framed by a past government has been reversed by any successive government so far. As for terrorism, except for Kashmir in the north and parts of the north-east, terrorist activity is either non-existent or too weak to be of any significance. Hence, political risk in India is practically non-existent.

4.2 ECONOMICAL FactorsThese includes factors affecting IT industry ranging from rising working pay, global recession, competition, contract availability and fee. Domestic IT spending which was hindered by recession started growing soon after; it grew by 20% and reached $20 billion in 2009.During the recession, real estate prices decline resulted in rental expenditure forcing customer to leave luxuries goods such as electronic and computers that need software to work. India economic attraction has helped in convincing investors due to low cost advantage. 4.2.1 Domestic IT SpendingIT spending in India is projected to total $71.5 billion in 2013, a 7.7 percent increase from the $66.4 billion forecasted for 2012, according to Gartner, Inc.4.2.2 Global IT SpendingGlobal IT spending is to hit $ 3.7 trillion in 2013 with a growth of around 4.2% from the last year. (Gartner)

4.2.3 Economic attractionThere is a lot of economic attraction towards IT sector due to low cost advantage and other factors. India, with its low cost advantage and emergence of several private players, represents the fastest growing market.Further the geographical location of India serves it the advantage of being exactly halfway round the world from the US west coast, which is another reason why India is preferred destination of many big brands. Indias development and contribution in worlds information technology sector is of highest reputation. Cities like Bangalore have become the favorite(most preferred) destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multinational firms like Infosys Technologies, Wipro, and Microland who have set up their offices in the city. It is because the city offers good infrastructure, with large floor space and great telecom facilities. This can be judged on the basis of the high growth statistics of India and the changing outlook of the companies towards India.Also, the presence of a large number of Indians, especially engineers, in the US gave India an easy entry into the US software market.

4.3 SOCIAL FactorsThese are social factors affecting IT industry which ranges from employee right, language barriers, race nationality of company or other issues. English language being widely spoken in India has help in fostering the industrys relationship and interaction in India and on the global stage. India is one of the few countries to have an increasing share of working population, since there is great availability of both skilled and unskilled labour force. Great number of institute and universities offer IT course creating room for availability of IT professional at lower cost since there is job competition. India continues to produce IT professionals each year in large numbers. Cultural differences in different countries affect the products offered by the industry, namely who the software is meant for, age difference of users, life style of the different countries of supply and so on so forth. There will always be difference in client behaviours which is supported by the fact that different customers have different taste.

4.3.1 CAREER Prospects

Table 4.1 Employment Opportunity Due to recession, it is visible that the IT industry has lost jobs from the period of 2000-2010 by 919.7 thousands of jobs but is projected to grow by 140.3 thousand jobs till 2020.

4.4 TECHNOLOGICAL FactorsTechnologicalfactors include technological aspects such asR&Dactivity,automation, technology incentives and the rate oftechnological change. They can determine barriers, minimum efficient production level and influenceoutsourcingdecisions4.4.1 Telephone: Cellular mobile telephony tariffs in India are the lowest in the world. A comparison of Indian cellular tariffs vis--vis the tariffs prevailing in comparative emerging economies in South America & Asia-Pacific region, clearly brings out the affordability of Indian cellular mobile telephone services. This allows easy and inexpensive flow of communication aiding the industry to do business with the global world, also increasing the prospects of outsourced jobs for the country.1. India has the second largest telephone network after china.2. Enterprise telephone services, 3G, WI-MAX and VPN (Virtual Private Network) are poised to grow.

4.4.2 INTERNET

Table 4.2 Top 3 Internet usersIndia lies third in the top 20 countries with the highest internet usage. This allows the industry to grow at a higher rate than many other countries on the globe.

4.4.3 New IT Technology: The IT industry is characterized by innovation in new low cost technology to improve their services to their clients and to efficiently compete with companies at the global level. With cloud computing at a rise, the IT industry can provide easy and fast solutions to all businesses. In thebusiness modelusing software as a service, users are provided access to application software and databases. Cloud providers manage the infrastructure and platforms that run the applications.End users access cloud-basedapplicationsthrough aweb browseror a light-weight desktop or mobile appwhile thebusiness softwareand user's data are stored on servers at a remote location. Proponents claim that cloud computing allows enterprises to get their applications up and running faster, with improved manageability and less maintenance, and enables IT to more rapidly adjust resources to meet fluctuating and unpredictable business demand.

4.5 LEGAL FactorsLegalfactors includediscrimination law,consumer law,antitrust law,employment law, andhealth and safety law. These factors can affect how a company operates, its costs, and the demand for its products.

4.5.1 IT Act 2000: India became the 12th nation in the world to adopt a cyber-law during 2000. Information Technology Act 2000 addressed the following issues:1. Legal Recognition of Electronic Documents2. Legal Recognition of Digital Signatures3. Offenses and Contraventions4. Justice Dispensation Systems forCybercrimes

4.5.2 Indian Copyright Act: The copyright of computer software is protected under the provisions of Indian Copyright Act 1957. Major changes to Indian Copyright Law were introduced in 1994 and came into effect from 10 May 1995. Copyright Act clearly explained: The rights of a copyright holder Position on rentals of software The rights of the user to make backup copies Most importantly the amendments imposed heavy punishment and fines for infringement of copyright of software.

4.5.3 IT SEZ REQUIREMENTS: IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax benefits and fiscal benefits. Software Technology Parks of India (STPI), is a society set up by the Department of Communication & Information Technology, Government Of India in 1991, with the objective of encouraging, promoting and boosting the Software Exports from India. Companies operating in software technology park (STPI), Scheme will continue to get tax benefit till 2010. STPI maintains internal engineering resources to provide consulting, training and implementation services. Services cover Network Design, System Integration, Installation, Operations and maintenance of application networks and facilities in varied areas ranging from VSATs to ATM based networks.Thus India is a perfect solution for all those companies which seek for cheap, yet technically skilled labor who have innovative minds and state of art to work over a project. The ample of facilities provide in a perfect working conditions. For rest, cyber laws are there to monitor and safeguard everyone's interest related to IT sector. All these reasons contribute for India to be as the most adored destination to many companies.

4.6 ENVIRONMENTAL FactorsEnvironmental conservation and protection is an issue which has gained prominence because of deteriorating environmental balance which is threatening the sustainability of life and nature. Largely, business is also held responsible for such situations as emissions from industries polluting the air, excessive chemical affluents drained out in water making it poisonous and unfit for use, usage of bio non-degradable resources affecting the bio-chain adversely and exposure of employees to hazardous radiations bring their life in danger. All these have been taken very seriously by different stakeholders in the society including the government and legislations and movements are creating pressure for an environment friendly business. These have far reaching implications for business ranging from the kind of business, the product being manufactured, how it is manufactured and how waste is being disposed of.

5. COMPETITIVE ANALYSIS

THREAT OF NEW ENTRANTS(High)

BARGAINING POWER OF BUYERS(Moderately high)THREAT AMONG EXISTING COMPETITORS(High)SBARGAINING POWER OF SUPPLIERS(Low)

THREAT OF SUBSTITUTE PRODUCTS OR SERVICES(Low)

Figure 5.1 Competitive analysis of IT Industry

5.1 Bargaining Power of CustomersThe bargaining power of the customers is moderately high. There is enough room for expansion for existing players and new entrants. There are large numbers of IT companies vying for IT projects resulting in high competition for projects. The MNCs are opening their operations in India to leverage the low cost advantage provided by India. Examples such as HP, Dell etc. However, for the existing products and services, the clients continue the old companies. Service Level Agreements: Companies survive with existing service level agreements they have with clients. These long term agreements help both the IT company and the clients.

5.2 Bargaining Power of SuppliersAs there exist many competitive suppliers in the market the supplier has very little or no power in this industry. The IT workforce in the country is quite large. Due to slowdown, the job-cuts, the layoffs and bleak IT outlook, the bargaining power of the talented professionals has gone down. Demand and supply of IT professionals is no longer that favourable to employees. The system providers have very low bargaining power over the IT companies as there are lot of providers like Dell, HP etc.

5.3 Threat from New EntrantsThreat from new entrants is high. The reasons are listed as follows: An IT company can be started with very low initial cost. For example , if we want to start a small software firm, all we need is a room and few computers and professionals to work on the systems to produce efficient softwares. Profitable market yielding high returns attract new firms. Cost: Softwares have a very low marginal cost, as it could be easily duplicated. Production and duplication: Unlike hardwares and other manufactured products, once we produce generic software, same can be sold to any number of customers. Easy Distribution: The additional cost of selling software is very low or even nil in some case. The forecasting states that the future demands for small softwares highly promising that it encourages new software firms to enter the industry. MNCs are ramping up capacity and employee strength. This doesnt encourage new firms because MNCs pay higher salary for skilled software professionals and so the employees who get a chance to work in a MNC will leave any local firm and join the company.

5.4 Existing RivalryThis factor is high. The reasons stated below: IT industry comprises of large and small firms, where smaller firms tend to lower prices to increase market share; and larger firms follow. Value proposition: 'Low-cost, little-differentiation' positioning. The customers often dont find any differentiation between the softwares offered by different IT companies. So, project approval is mainly based on the proposed budget and value proposition. Strong competitors: Few numbers of large companies. There is a strong competition between these companies in covering foreign clients.

5.5 Threat of SubstitutesThis component is comparatively low. There is a boom in the piracy market. But these services have a lot of drawbacks. The losses suffered as a result of software piracy directly affect the profitability of the software industry. Because of the money lost to pirates, publishers have fewer resources to devote to research and development of new products, have less revenue to justify lowering software prices and are forced to pass these costs on to their customers. Consequently, software publishers, developers, and vendors are taking serious actions to protect their revenues.Using pirated software is also risky for users. Aside from the legal consequences of using pirated software, users of pirated software forfeit some practical benefits as well. Those who use pirate software: Increase the chances that the software will not function correctly or will fail completely; Forfeit access to customer support, upgrades, technical documentation, training, and bug fixes; Have no warranty to protect themselves; Increase their risk of exposure to a debilitating virus that can destroy valuable data; May find that the software is actually an outdated version, a beta (test) version, or a nonfunctioning copy.Thus due to all these reasons the pirated softwares cannot be a substitute for the original products and services. India is not the only global centre for outsourcing china, Philippines are providing huge competition. They offer lesser costly products with the same quality. Price quoted for projects is a major differentiator, the quality of products being same.

6. CONDUCT ANALYSISSeveral key factors must be considered as you analyze your industry: Pricing Strategy Advertising intensity R&D intensity Technology intensity Expansion strategy Performance analysisWe will try to analyses the IT industry on these various factors.

6.1 PRICING STRATEGIES There are multiple approaches to pricing of information technology products and services. Although pricing strategies differ based on whether the software or system is getting sold as a product or getting leased as a service, there are certain basic generic strategies for pricing the same. These strategies are:-

6.1.1 COST BASED PRICINGCost-based pricing of technology is historically the most popular method since it relies on more readily available information from the cost-accounting system. Since often, information technology post deployment is treated with Activity based costing, while developed in-house for many firms, a cost based pricing strategy becomes extremely lucrative to developers for the simplicity of development.

6.1.2 FUNCTION POINT ANALYSISAnother pricing strategy for software products and services is based on Function Point analysis and Full Function point analysis. Function Point Analysis is one of the most popular techniques for pricing of technology. Function Point Analysis has been proven as a reliable method for measuring the size of computer software in terms of Kilo Lines of Code (and more recently, Millions of Lines of Code), based on which and its complexity of development the software is priced. Function Point Analysis has been established as being extremely robust in estimating projects, managing change of scope of implemented engagements, measuring productivity, and communicating functional requirements.

A few other pricing techniques are MIPS-based pricing, tiered pricing, user based pricing, flat pricing and usage based pricing.

6.1.3 MIPS BASED PRICING In a MIPS-based pricing strategy, software prices are based on the on the theoretical throughput of the system (MIPS) on which the software is running.

6.1.4 FLAT PRICINGIn a flat pricing contract, customers pay a fixed price for unlimited use of the software product. This approach enables customers to more easily predict what they will pay for the use of the software. In a tiered pricing strategy, vendors attempt to package software benefits according to user requirements and their willingness to pay. This approach to pricing is an attempt to link software product costs to perceived customer value.

6.1.5 USER BASED PRICINGIn an user based pricing strategy, the customer is charged based on the number of users that utilize a collection of software features over a given period of time by assigning costs to a particular number of users or workstations and sum up individual cost allocation.6.1.6 USAGE BASED PRICINGIn an usage based pricing strategy, customers is charged by the vendor firm only for what they actually use on a transaction basis, during a contract period, say in months, but more popularly for larger IT firms and engagements, in years.

6.1.7 VALUE BASED PRICINGToday another popular pricing technique is based on the economic value that a client firm may get from a technology product or service level agreement. Such a pricing strategy is called value based pricing. This is slowly becoming the most popular pricing strategies followed in research labs for emergent technologies, like that of IBM Research, Microsoft Research and SAP labs.

Now lets take an example of an IT firm to understand their pricing better.For this lets take APPLE.Apple Inc., is known the world over for its stylish products and impressive annual growth rates. But what you may not know is how the company manages to post high growth rates year after year. Lets analyze its pricing strategy as most analysts agree that the companys pricing strategy, apart from its passion for design, is what drives sales and profits.6.1.8 BUNDLINGBundling is a marketing strategy where the seller combines two or more products and/or services and sells these as a single unit for a slightly reduced price. For buyers, buying bundled products may result in increased savings. And for a seller, it usually results in higher sales and in higher profits, too. Apple is a master at bundling. Only Apple doesnt combine two or more products and sell these at a reduced price. It sells the hardware at a seemingly attractive price, knowing that the customer will pay later for the software that will play on the hardware. For example, Apple TV sells for US$ 99 an attractively low price. But what customers might not realize is that they will have to cough up a lot more in dollars to buy software such as movies, videos, etc. in order to make use of their new purchase. Unlike several media players in the market, the Apple TV doesnt have any in-built storage.

6.1.9 REFERENCE PRICINGHuman psychology dictates that we compare prices of everything that we buy. Marketers make use of this tendency by adopting reference pricing. However, the important question is what do you compare the prices of the products that you intend to buy with? If Apple had its way, it would want every one of us to compare the prices of Apple products with other Apple products. If we go by Apples sales figures, it seems that the company is succeeding. Apple benefits from reference pricing by launching a slew of products at various price points. So, a buyer wouldnt mind paying more for versions with higher capacities or better features as he/she compares the product with lower priced versions that usually wont have most of the cutting edge features. For example, one wouldnt mind paying US$ 199 for the iPod Touch 8GB as it has many sought-after features such as HD recording, iCloud, etc. that, say, an iPod Nano 8GB, priced at US$ 129, doesnt have. And if youre someone who is willing to pay more for higher storage capacity, youd choose the iPod Touch 32 GB, at US$ 299.

6.1.10 DIFFERENTIATIONThe most potent weapon in Apples pricing strategy is differentiation. Differentiation is what allows Apple to price its products at a premium and compel customers to compare Apple products with other Apple products, rather than with lower-priced products from other reputed marketers. Apple products look, feel and seem very different from competitors products. So, most people who buy an Apple product buy it not because it offers more features or its cheaper but because the company has succeeded in creating a unique identity for its products. If that was not the case, why would you buy an iPod Nano 8GB for US$ 129, when you can buy Sonys E Series 16GB for US$ 109?

6.2 R & D ACTIVITIESLets take a look at the recent R & D projects of a few IT companies. This is just a brief description of what these companies are developing.

MICROSOFTR&D budget: $9.18 billionPercent of net sales: 12.93Imagine Star Trek's virtual-reality holodeck for your office desk and you've got the idea for the Holodesk from Microsoft. This interactive system, lets users touch and move virtual objects. Holodesk uses a Kinect camera and an optical transparent display to give people the illusion that they're interacting with 3D graphics.

INTELR&D budget: $7.71 billionPercent of net sales: 15.07At Intel, researchers have started the Tomorrow Project to look at the future of computing and the broader impact of technology on humans and the planet. "The nature of computing is changing; it's not just about PCs anymore," says Brian David Johnson, Intel's futurist. "It's finding its way into our pockets, TVs, and walls."

IBMR&D budget: $6.28 billionPercent of net sales: 6.03IBM revealed a new generation of experimental computer chips designed to emulate the brain's abilities for perception, action, and cognition. These chips will be used to make so-called cognitive computers that can learn through experience, find correlations, create hypotheses, and remember outcomes.

CISCOR&D budget: $5.82 billionPercent of net sales: 13.47Cisco announced a makeover of its flagship Catalyst 6500 Series Switches. One of the additions is a new 2-terabit card that can quadruple the number of devices or users that can connect to a network. Now a single Catalyst 6500 switch can support up to 10,000 mobile devices.

GOOGLER&D budget: $4.92 billionPercent of net sales: 12.83Google is working to develop one gigawatt of renewable energy capacity. The Internet search company's project, called RE