summer project- harshita (1)

8/7/2019 Summer Project- Harshita (1)

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INDUSTRY REVIEW OF THE INDIAN IT SECTOR

Submitted

toProf Dr.R.Venkateswarlu

and

Assist Prof Dr.B.Padma Narayan

By

R.Harshita Rao

MBA (IB)

Section ±B



Abstract

India has emerged as an µIT Super power¶, especially in the field of software and related

services export. The major characteristic of the Indian IT industry is exports and domestic.

The IT industry has a major contribution to the GDP of the country. Over the ten years time

the share of IT sector recorded a 5 fold increase from about 1.2 percent in 1997-98 to 5.5 per

cent in 2007-08. The IT sector has a major contribution to the employment in the nation.

Direct employment has grown at a compound annual growth rate (CAGR) of 26 per cent in

the last decade, making it the largest employer in the organized private sector of the country.

The IT Export has grown by value Rs 17,150 crore (US $ 4 billion) in 1999-00 and to an all

time high of Rupees 163,000 (US $ 40.8 billion) in 2007-08.There are few major tier one

companies and other players. There are many global players who have a major share in

domestic market . There is a lot of importance for the international quality standards and the

Indian companies have moved from ISO to CMM (Capacity Maturity Model). NASSCOM is

proactive in pushing this cause for ensuring that the Indian Information Security environment

benchmarks with the best across the globe.

The growth projection for the year 2011 and 2012 is very interesting. The major initiative by

the government is the formation of STPI (software technology parks of India). During the

year 2008-09, 572 new units were registered under STP Scheme. The opportunity lies ahead

targets for software export is $50 million out of a production of $87 billion. Given the present

growth rate of this sector the industry can very well achieve this target. But equally there lies

challenges- sustainability of high growth rate of software exports in future, Shortage of

skilled labour, Low diffusion of information technology in the domestic market i.e. weak

domestic software market. The future outlook will help us understand in which direction we

are heading.

Introduction

The IT-BPO sector has become one of the most significant growth catalysts for the Indian

economy. In addition to fuelling India¶s economy, this industry is also positively influencing

the lives of its people through an active direct and indirect contribution to the various socio-

economic parameters such as employment, standard of living and diversity among others.

The industry has played a significant role in transforming India¶s image from a slow moving



bureaucratic economy to a land of innovative entrepreneurs and a global player in providing

world class technology solutions and business services.

On its part, since 2009, as a result of an altered demand landscape, the sector had begun to

transform itself by actively diversifying beyond core offerings and markets through new

business and pricing models, specialise to provide end-to-end service offerings with deeper

penetration across verticals, transform process delivery through re-engineering and enabling

technology, innovate through research and development and drive inclusive growth in India

by developing targeted solutions for the domestic Indian market. When demand returned in

2010, the combined effect of all these factors helped India grow faster than its competitors,

accounting for almost 90 per cent of incremental growth in the global sourcing market.

Characteristics of the Indian Software Industry

The Indian software sector displays many unusual features from an Indian perspective. The

most obvious one is its export orientation, accounting for 65% of the total software revenue.

There are important qualitative differences between the export market and the domestic

markets. The first relates to different types of software developed. The domestic market has a

higher proportion of revenues from the sale of software packages and products. Whereas

products accounted for nearly 40% of the domestic market, they account for a little fewer

than 10% of exports. Over 80% of exports are software services including custom software

development, consultancy and professional services. The second difference between the

domestic and export sectors relates to the stages of software development.

Domestic

A large fraction of the domestic software industry consists of resale of software packages

developed by foreign, principally US, firms, thus overstating the extent of software written

for the domestic market. On the other hand, there is a great deal of in-house software written

by users, especially large Indian firms that is not being captured by these figures. A number

of Indian software firms have also developed software packages aimed at the domestic

market. However, with very few exceptions, these packages have not been very successful.

Although it is tempting to point to weak intellectual property rights as a culprit for the failure

of Indian firms to develop successful packages, our interviews suggest that at least as



important, if not more, has been the lack of experience, especially design and marketing

experience, necessary to produce a successful product. Firms that have had domestic

experience with consulting do not appear to derive any advantage from it in the export

market. Given the simpler and more routine tasks involved in current software exports, the

sophisticated capabilities and expertise that firms had developed from serving domestic

customers have not been of great value to them in the export market.

Exports

As we have seen, Indian software exports consist primarily of software services. The

activities carried out by most firms in India are essentially maintenance tasks for applications

on legacy systems such as IBM mainframe computers, development of small applications and

enhancements for existing systems, migration to client-server systems, often referred to as

porting or re-engineering. Although Y2K projects were an important source of revenue, most

of the leading Indian software firms have limited their dependence on such projects.

Managers at most of the US firms agree that the type of work outsourced is neither

technologically very sophisticated nor critical to their business. Requirement analysis and

high-level design is typically done either inhouse or by US based consultants.

The projects undertaken are typically small. Although competition from other countries such

as Philippines and China is typically cited in the press, most software exporters indicate that

their main competitors are located either in the US or in India itself. Many MNCs have set up

liaison offices and subsidiaries as well. Increasingly, however, the objective is to use India as

a place for software development as well, rather than merely as a place to sell. Some

companies have established, or are in the process of doing so, software development centres

in India, and are exporting packages or components of systems to other countries from India.

The work being done at these development centres is fairly sophisticated.



IT ±sectors contribution to the GDP

The contribution of IT sector (consisting of hardware, software and services) to the GDP of

the country has been significantly increasing from US $ 6 billion in 1997-98 to US $ 64

billion in 2007-08. Within ten years time the share of IT sector recorded a 5 fold increase

from about 1.2 percent in 1997-98 to 5.5 per cent in 2007-08. It is to be remembered that the

major share of this contribution is by Software and related service exports. IT revenues in

2004-05 were about 20 per cent higher than construction sector and almost three times higher

than in mining and in electricity, gas and water supply. The gross revenue from IT services

exceeded 12 per cent of GDP generated in India¶s service sector that accounts for about 54

per cent of the GDP. These estimates, however, appears to involve some underestimate

because it does not include telecommunication (both equipment and services) mass

communication output like Television and some of the other electronic products that are

integral part of ICT sector. Viewed thus the real contribution of IT to the GDP would be

much higher.

Employment generated by IT sector

The phenomenal contribution of IT sector to the employment generation has been noteworthy

especially in the context of declining/slow employment growth in the organized sector in the

post reform phase (i.e. after 1991 when liberalization was adopted) in the Indian economy.

According to the latest Information Technology Annual Report 2008 of DIT, the total IT

Software and Services employment is expected to reach 2.0 million mark in 2007-08

(excluding employment in Hardware sector), as against 1.63 million in 2006-07, a growth of

22.7per cent YoY (year on year). This represents a net addition of 375,000 professionals to

the industry employee base. The indirect employment attributed by the sector is estimated to

about 8.0 million in the year 2007-08. This translates to the creation of about 10 million job

opportunities attributed to the growth of this sector. The industries direct employment has

grown at a compound annual growth rate (CAGR) of 26 per cent in the last decade, making it

the largest employer in the organized private sector of the country.

Performance of IT exports

Indian IT - BPO Industry Exports Touched USD 50 Billion Landmark.



Industry emerges stronger from the global economic meltdown to post encouraging results

y Domestic market expected to witness 12 percent growth in FY09-10; to reach INR

662 billion.

y Industry will continue to be a net hirer; direct employment expected to grow by 4

percent and cross 2.3 million with over 90,000 jobs added in FY09-10.

y FY 10-11 outlook; Software and Services exports revenues to grow by 13-15 percent

and domestic revenues to grow by 15-17 percent.

y According to the findings, export revenues for the Indian IT-BPO industry have

recorded a growth of 5.5%, to reach USD 49.7 billion in FY 09-10.

y The growth was led by domestic market buoyed by increased Government spending

in IT. In addition, new areas such as Engineering Services and Product Development

displayed phenomenal momentum clocking combined revenue of over USD 10

billion.

y With 450 delivery centres in 60 countries across the world, the industry has an

unparalleled global value chain. The industry has also enhanced its global workforce,

hiring specialized talent in developed markets and building a truly global delivery

model.´

K ey Highlights

y Government IT spend estimated at INR 150 billion in 2009; expected to reach INR

250 billion by 2011

y USD 9 billion business opportunity in e-Governance

y APAC is the fastest growing geography with an estimated growth of 10%

y Indian IT-BPO industry continues to dominate the global market place with 51

percent market share

y Growth in emerging verticals such as retail and healthcare 3x faster than core verticals

y Infrastructure services to be a key growth driver for the industry with an estimated

growth of 10.5%.



Sources: i

¡

¢ sscom ii

£ epar tment of Information Technology, Government of India

Source:Nasscom

From the above table we can see the expor ts for the year 2008-09 is $ 47.1(USD bn) and the

domestic market is $590(INR bn).There has been a growth in the next year i.e 2009-10 to $

49.7 (USD bn) in expor ts and $662 (INR bn) domestically. For the year 2010-11 the expor ts

are 56-57(USD bn) and domestically 761-775(INR bn).

Key Pl yers i Indi

The following are India¶s Tier 1 companies in the IT sector:

T Consul ncy Services Ltd

Tata Consultancy Services Limited (TCS) is an Indian IT services, business solutions and

outsourcing company headquar tered inMumbai, India. TCS is the largest provider



of information technology in Asia and second largest provider of business process

outsourcing services in India. TCS has offices in 47 countries with more than 142 branches

across the globe. The company is listed on the National Stock Exchange and Bombay Stock

Exchange of India.

TCS is one of the operative subsidiaries of one of India's largest and conglomerate company,

the Tata Group or Tata Sons Limited, which has interests in areas such as energy,

telecommunications, financial services, manufacturing, chemicals, engineering, materials,

government and healthcare.

Wipro Technologies Ltd

Wipro Limited is a global information technology (IT) services company headquartered

in Bangalore, India. According to the 2010 revenue, Wipro is one of the largest IT services

company in India and employs more than 119,491 people worldwide as of September 2010. It

is 9th most valuable brand in India according to an annual survey conducted by Brand

Finance and The Economic Times in 2010. Wipro provides outsourced research and

development, infrastructure outsourcing, business process outsourcing (BPO) and business

consulting services. The company operates in three segments: IT Services, IT Products,

Consumer Care and Lighting.

Wipro Technologies, the global technology and consulting services division of Indian

conglomerate Wipro Limited.

Infosys Technologies Ltd

Infosys defines designs and delivers technology-enabled business solutions for Global 2000

companies. Infosys also provides a complete range of services by leveraging our domain and

business expertise and strategic alliances with leading technology providers.

There offerings span business and technology consulting, services, systems, product

engineering, custom software development, maintenance, re-engineering, independent testing

and validation services, IT infrastructure services and business process outsourcing.

Infosys has a global footprint with 64 offices and 63 development centers in US, India,

China, Australia, Japan, Middle East, UK, Germany, France, Switzerland, Netherlands,

Poland, Canada and many other countries. Infosys and its subsidiaries have 130,820

employees as on March 31, 2011.

Mahindra Satyam



Mahindra Satyam is a Brand identity of Satyam Computer Services Limited. Satyam

Computer Services Limited was founded in 1987 by B Ramalinga Raju. Mahindra Satyam is

a part of the Mahindra Group which is one of the top 10 industrial firms based in India. The

company offers consulting and information technology (IT) services spanning various

sectors, and is listed on the New York Stock Exchange, the National Stock Exchange (India)

and Bombay Stock Exchange (India). In June 2009, the company unveiled its new brand

identity ³Mahindra Satyam´ subsequent to its takeover by the Mahindra Group¶s IT

arm, Tech Mahindra. Mahindra Satyam has offices in 5 countries.

Mahindra Satyam provides services in the following areas:

Aerospace and Defence

Banking, Financial Services & Insurance

Energy and Utilities

Life Sciences & Healthcare

Manufacturing, Chemicals & Automotive

Public Services & Education

Retail

Consumer Packaged Goods

Travel, Transport, Logistics

Telecom, Infrastructure, Media and Entertainment & Semiconductors

Global IT players in India

There are a large number of multi-national IT enterprises operating in India in sectors such

as: Integrated Chip Design, System Software, Communication Software, R&D Centres,

Technology Support Sector, Captive Support Sector, BPO Sector etc reaping the cost and

quality advantages.

These multinationals include Siemens, Philips, Intel, Texas Instruments etc. (Chip Design);

Siemens, Motorola, Lucent Technologies, Sony, Nortel etc. (Communication Software);

Microsoft, Oracle, Sun Microsystems, HP, Compaq etc. (Systems Software); Google, Yahoo

etc. (R&D Centres); Axa Business Services, Swiss Shared Services, Siemens Shared Services

etc. (BPO Sector); Accenture, DELL, HSBC, GE Capital, Fidelity etc. (Captive Support

Sector).



International quality certificates

Indian software industry continues to get international recognition for quality in software

development. No doubt, µIndia has moved rapidly on the quality front. Indian software

organizations adopted the ISO model soon after it came and then when the Capability

Maturity Model (CMM) started becoming more important, rapidly transitioned to the CMM.

This has given the Indian companies solid project and process management strength these

models are supposed to bring.

This is a tremendous strength that is not easy to emulate. For example, China, despite the fact

that it has about a 1000 software companies in Beijing area alone, has probably none at level

4 or 5 and is now actively looking at CMM as part of the country-level strategy to tap the

global market. The situation in the rest of Asia (not counting the developed countries) is

similar. The situation in Latin America is no different. In fact, outside of the developed

countries, it is only India that has companies that have been able to successfully implement

these global quality models.

Based on experience of Indian companies transitioning from ISO to CMM, most Indian

companies moved from ISO to Level 4 or above with a matter of a year or two. Overall, the

project and process management abilities of Indian companies are very advanced and

compare well with the best in the world. In fact, many Indian companies are now getting

requests from their customers seeking help in setting up quality systems in their

organizations.

The following statistics help us empirically prove our argument. µIn 2005-06 among the 401

firms that reported different international quality standards 82 had SEI CMM level 5, the

highest level of quality accreditation across the globe, which that accounted for more than

two-thirds of such firms in the world over. As many as 123 firms had SEI CMM level 2

certification or above and 330 had ISO 9001 (see below table). If the evidence presented in

table is any indication most of the Indian software enterprises have strived to attain

excellence in their professionalism and best practices.

Status of quality Certification obtained by Indian IT firms



Description No. Of firms

ISO 9001 330

ISO 9002 23

ISO 9001/9002 345

ISO 9001:2000 72

SEI CMM level 5 82

SEI CMM level 2,3,4 41

CMMi level 5 32

CMMi level 2,3,4 14

PCMM level 5 13

PCMM LEVEL 2,3,4 11

Six sigma 44

Others 41

Total 401

Note: take from Journal of Theoretical and Applied Information Technology

Source: Quoted from Joseph 2007 (Complied by him based on NASSCOM (2006)

Quality certification assures export customers that the supplier can deliver the contracted

service on time, in full as well as within budget. Many studies have found that companies

with quality certification have faster revenue growth than companies without them.

Role of NASSCOM in IT industry

National Association of Software and Services Company (NASSCOM) acts as an advisor,

consultant and coordinating body for the IT-BPO industry in India, and has played a key role

in enabling the government in India to develop industry friendly policies. NASSCOM was set

up in 1988 to facilitate business and trade in software and services and to encourage

advancement of research in software technology. It is a not-for-profit organization, registered

under the Indian Societies Act, 1860.

NASSCOM has been proactive in pushing this cause for ensuring that the Indian Information

Security environment benchmarks with the best across the globe. As a part of its Trusted

Sourcing initiative, NASSCOM is in the process of setting up the Data Security Council of

India (DSCI) as a Self Regulatory Organization (SRO) to establish, popularize, monitor and



enforce privacy and data protection standards for India¶s ITeS-BPO industry. DSCI shall

function as an enabler to the IT and ITeS industry to grow at a rapid pace by facilitating the

adoption and enforcement of the prescribed security standards and best practices.

Software technology parks of India(STPI)

Software Technology Parks of India was established and registered as an autonomous society

under the Societies Registration Act 1860, under the then Department of Electronics (the

present Department of Information Technology), Ministry of Communications and

Information Technology, Government of India on 5th June 1991 with an objective to

implement STP/EHTP Scheme, set-up and manage infrastructure facilities and provide other

services like technology assessment and professional training.

Objectives of the Society

The objectives of the Software Technology Parks of India are:

(a) To promote development and exports of software and software services.

(b) To provide statutory services to the exporters by implementing STP/EHTP Scheme.

(c) To provide data communication services including various value added services to IT

industries and corporate houses.

(d) To provide Project Management and Consultancy services both at national and

international level.

(e) To promote small and medium entrepreneurs by creating a conducive environment in

the field of Information

STP Units

During the year 2008-09, 572 new units were registered under STP Scheme. As on 31st

March 2009, 8455 units were operative out of which 7214 units were actually exporting. The

remaining units are at various stages of gestation as the scheme allows three years for

companies to start commercial production. The growth in the number of operating and

exporting units during the last 8 years is as under :



Growth of IT-ITes sector

The Indian IT-ITeS sector (including hardware) grew by 33 per cent in FY 2008 to reach US$

64 billion in aggregate revenue. Of this, the ITeS/BPO sector contributed US$ 12.5 billion as

against US$ 9.5 billion in FY 2007, an increase of 31 per cent.

The Indian ITeS-BPO exports grew significantly from US$ 8.4 billion in FY 2007 to US$

10.9 billion in FY 2008 while the revenues of domestic BPO grew to US$ 1.6 billion in FY2008 from US$ 1.1 billion in FY 2007. The sector provided direct employment to 700,000 in

FY 2008 up from 553,000 in FY 2007.

Source: From the report by the Indian law office



Opportunities of future growth in IT sector

Despite the commendable performance of the industry so far, it is estimated that there is still

significant room for growth. As pointed out earlier, though India now accounts for only less

than 2 per cent of the world software and related service market, with far sighted policies it

could become a major force capturing 5-8 per cent of the software and related service market.

Broader base of the market, high quality standards and domain expertise attained by Indian

players in niche areas etc are favourable factor for further growth of India software export. It

is also expected that the rate of flow of work to India through offshoring would increase

considerably, in the context of mounting pressure on developed countries and global majors

to resort to further cost cutting. It is in this context that lot of projections for the further

growth of the software industry is made by industry association and committees and task

forces appointed by the Government of India.

The IT task force 1998 appointed by Government of India had put the following targets for

the Computer industry. The target for software export is $50 million out of a production of $

87 billion. Given the present growth rate of this sector the industry can very well achieve this

target. Out of the US $50 billion $ 23 billion is expected from IT services whereas Software

products contribute $ 8 billion. And $15 billion and $ 4 billion are expected from IT enabled

services and E-business respectively.

Challenges pertaining to the IT sector

Despite these bright and encouraging facets of the software industry there are certain areas of

concern, which need to be given the desired attention and weight age. Some of these areas of

concern or challenges are:

1).The most formidable challenge facing Indian software industry is sustainability of high

growth rate of software exports in future. Foregoing analysis suggests that while software

export registered an annual average growth of above 50 per cent during the period 1990-00, it

has come down (or stabilized around) 28 to 30 per cent since 2001. The main reason has been

slowdown in US economy since 2000 as 60 per cent of our software exports are sourced to

US. Hence, any slowdown in US will have adverse impact on Indian software export.

Further, a number of countries such as China, Russia, Philippines, Canada, and Ireland etc.



Future outlook

The underlying theme of 2010 has been the steady recovery from recession. Worldwide GDP,

which had declined by 0.6 per cent in 2009, grew 5 per cent in 2010 and is expected to

stabilise at about 4.4 per cent in 2011. Developing nations continue to grow faster than the

developed countries by at least three times. IT spend is directly linked to growth in GDP and

in line with this trend, IT spend in 2011 is expected to grow nearly 4 per cent. Worldwide IT

spending will also benefit from the accelerated recovery in emerging markets, which will

generate more than half of all new IT spending worldwide in 2011. In 2011, growth will

reflect new demand for IT goods and services, not pent-up demand from prior years. 8

NANSASCSOSMCO SMT RSTARTEAGTIECG RICE RVIEEVWIE W20 120011

IT services is expected to grow by about 3.5 per cent in 2011 and 4.5 per cent in 2012. While

focus on cost control and efficiency/productivity remain, customers are also evaluating how

investments in IT impact can further business goals ± ROI led transformation - leading to an

increase in project-based spending. Services such as virtualisation, consolidation, and

managed services that focus on ROI in the short term will drive opportunities in the market.

Emerging Asian enterprises across multiple industries will continue to accelerate services

spending in their efforts to challenge existing global MNCs. Organisations will look for

alternative IT models - Cloud, on-demand services and SaaS ± in order to reduce hardware

infrastructure costs and provide scalability on demand.

Worldwide packaged software revenue is estimated to reach USD 297 billion in 2011, a Y-o-

Y growth of over 5 per cent, led by emerging regions, such as APAC and LATAM. These

regions are expected to invest heavily in enterprise software initiatives as they continue to

round out the IT infrastructure necessary to do business. Business Process Outsourcing

spending is expected to be driven by analytical services, F&A and industry-specific BPO

solutions.

In the future, the global IT-BPO industry is likely to go through a paradigm shift across five

parameters-

Markets ± Growth will be driven by new markets ± SMBs, Asia, public sector and

government-influenced entities which will become a priority customer base.



Customers ± Customers will demand µtransformative¶ value propositions, that go beyond

lower-cost replication; as technology creates virtual supply chains, customers will require a

seamless experience across time zones and geographies; increasing demand for innovation

and end-to-end transformation.

Service Offerings ± Offerings that are high-end, deeply embedded in customer value chains

will emerge. Services and delivery will become location-agnostic leading to new

opportunities such as design services in manufacturing, Remote Infrastructure Management

(RIM), etc. Solutions for the domestic market will be a key focus area.

Talent ± Government pressures to create local jobs and the need for local knowledge will

alter the employee mix - a higher proportion of non-Indians with multilingual and localised

capabilities. There will be a much greater focus on ongoing development of specialised skills

and capabilities.

Business models ± Driven by a focus on expertise and intellectual property, offerings will

shift from piecemeal, technology-centric applications to a range of integrated solutions and

higher-end services, spanning new service lines (e.g., green IT).

While developed markets constitute the largest share of IT spend, increasingly emerging

markets are spearheading growth as a large consumer base becomes increasingly tech-savvy

and enterprises adopt IT solutions to improve their global competitiveness. Given this

scenario, the Indian supply base has begun to explore market opportunities beyond US and

UK. By 2020, new segments (SMBs), new verticals (Public sector and Defence, Healthcare,

Utilities, Printing and Publishing) and new geographies (BRIC) will account for 50-55 per

cent growth in the addressable market. India supply base is well placed to tap this potential,

with their two decade long experience, mature service capabilities, presence in almost all

verticals, global footprint and an abundant talent pool.

Suitably exploiting these emerging opportunities both in the global and domestic markets can

help India reach USD 130 billion in IT-BPO revenues by FY2015, a CAGR of 14 per cent.

By FY2015, the Indian IT-BPO industry is expected to contribute about 7 per cent to annual

GDP and create about 14.3 million employment opportunities (direct and indirect).



The government will be a key driver for increased adoption of IT-based products and

solutions. It has embarked on various IT-enabled initiatives including in Public services

(Government to citizen services, citizen identification, public distribution systems),

Healthcare (telemedicine, remote consultation, mobile clinics), Education (eLearning, virtual

classrooms, etc) and Financial service (mobile banking/payment gateways), etc. These

initiatives are expected to substantially improve the economic conditions of a large, under-

served population, thereby reducing the government¶s fiscal burden.



References

1)Asheref Illiyan, 2008, ³Performance Challenges and Opportunities of Indian Software

Export´, Working Paper, Jamia Millia Islam University,

http://www.jatit.org/volumes/research-papers/Vol4No11/11Vol4No11.pdf

2)Software Technology Parks of India, 2009, ³Annual Report´,

http://www.stpi.in/writereaddata/links/50428173332534218955annuarl1.pdf

3)NASSCOM, 2011, ³The IT-BPO Sector in India´,

http://www.nasscom.in/upload/Publications/Research/140211/Executive_Summary.pdf

4)Indian Law Offices, 2008, ³Indian Information Technology Sector´,

http://www.indialawoffices.com/pdf/informationtechnology.pdf

5)Wikipedia, 2010, ³Information Technology in India´,

http://en.wikipedia.org/wiki/Information_technology_in_India

6)Infosys, ³What we Do´, http://www.infosys.com/about/what-we-do/pages/index.aspx

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