IT Sector Trends in India


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IT Sector Trends in India



The Indian information technology sector has been instrumental in driving the nation's economy onto the rapid growth curve. According to the Nasscom-Deloitte study, the IT/ITES industry's contribution to the country's GDP has increased to a share of 5.2 per cent in 2007, as against 1.2 per cent in 1998.

Further, the IT and BPO industries are poised to clock revenues worth US$ 64 billion by the end of fiscal year 2008, registering a growth of 33 per cent with exports expected to cross US$ 40 billion and the domestic market estimated to clock over US$ 23 billion, according to a study. Simultaneously, the Indian IT services market is estimated to remain the fastest growing in the Asia Pacific region with a CAGR of 18.6 per cent, as per a study by Springboard Research.

India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services.

A report by the Electronics and Software Export Promotion Council (ESC) estimates software exports to register a 33 per cent growth in the current financial year with export figures during FY 2008 expected to reach US$ 45 billion. The country's IT exports have, in fact, come quite far, starting from a few million dollars in the early 1990s. The Government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum.

Outsourcing

A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. The Outsourcing Service Provider Performance Study 2007, undertaken by sourcing advisory firm Equa Terra, reported that the majority of UK businesses offshore all or parts of their IT functions to India and plan to continue with this strategy as India emerged the favourite outsourcing destination for businesses in UK in terms of satisfaction.

Another study conducted by Nasscom jointly with the Everest consulting firm reports the Indian outsourcing sector logged a 35 percent annual growth over the last five years with annual revenues touching US$ 11 billion, with the bulk coming from exports. India has ousted China as a contender for offshore services and tops the list of 30 countries on criteria’s such as language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.

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No wonder, twenty-nine India-based companies have been listed among the best 100 IT service providers in a new survey carried out with a view to assist business heads of major outsourcers identify reliable, innovative and tech savvy partners.

Multinationals in India
Information technology has been a promising sector for India, generating revenues both for the domestic as well as the global market. India's IT potential has attracted multinationals to grab a share of the pie and cash in on the IT boom. India offers a market with very high returns for multinationals flocking to invest in their India units. Also, the increase in purchasing power and the rapid business expansion of the small and medium enterprises (SMEs) holds promise for global information technology (IT) giants who look at a 100 per cent year-on-year growth in their small and medium businesses (SMBs) market in India.
• Cap Gemini, Europe's largest consulting and computer services firm is gradually moving its internal support services to India.
• After sourcing IT applications from some IT firms last year Wal-Mart will now expand its existing operations given India's impressive IT capability to cover more firms and augment its work in the United States.
• Intel –the globally renowned chip maker is looking to invest more than US$ 1 billion in India over the next three years in partnership with Indian and foreign hardware firms to prepare light weight personal computers.
• Cisco posted over 100 per cent year-on-year growth in its SME business in India.
• Oracle is expecting over 100 per cent growth in India for its CRM business on the back of increased technology awareness and need for cost-effective customer servicing.
• Yahoo! Inc and Tata Sons subsidiary firm Computational Research Laboratories (CRL) have entered into a joint agreement to make available-EKA, a supercomputer (the fourth fastest) in the world for cloud computing research in India.
• Dell India's witnessed 80 per cent sales over last year with revenues to the tune of US$ 700 million.
• World's leading chip designer firm ARM is expanding its India design centre to make it the largest outside Britain.
• IT biggies like Microsoft, IBM, Cisco, Oracle and a host of other IT entities are working overtime to tap the smaller and medium businesses.
Domestic Markets
India's domestic market has also become a force to reckon, with the existing IT infrastructure evolving both in terms of technology and depth of penetration. Global IT companies as well as domestic biggies like IBM, Accenture, HP, TCS, HCL and Wipro have witnessed a remarkable growth in their business.
The domestic information technology business has become far too attractive to ignore. India Inc's demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50-100 million up for grabs.

Nasscom vice president Rajdeep Sahrawat feels the domestic IT market has evolved significantly from what it was earlier. “There are mega deals up for grabs both in the private and public sector. For instance the railways ERP project, the BSNL systems integration, networking projects, IT work from ministry of finance and private telecom companies, banks and others are offering multi-year contracts that are over US$ 100 million”
Global market intelligence and consulting firm IDC reports that the domestic IT and ITeS market will grow at 24 per cent in 2008 to touch US$ 27.35 billion. IDC sees a higher local demand driven by growth of broadband, expansion of Software-as-a-Service (SaaS), service oriented architecture, virtualisation as also networking projects. The net margins in the domestic market are at about 9-11 per cent which has improved considerably in recent years. Of late IT service providers, MNC's and domestic firms have recognised the potential of the home market and have developed strategies exclusively for the domestic market according to a research by Gartner.
Growth
The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. Though worldwide IT budgets are expected to increase by 3.3 per cent in 2008, slightly higher than 2007, the Indian firms would report stronger-than-average IT budget increases of around 13 per cent, according to Gartner.
• India's software and services exports are expected to reach US$ 40.8 billion whereas the domestic market is expected to touch US$ 23.2 billion dollars in FY08 as per the 'Strategic Review 2008' by IT industry body Nasscom.
• With small and mid sized businesses driven by the increased use of technology the country's information and communication technology market is estimated to grow 20.3 per cent annually to reach US$ 24.3 billion by 2011.
• A survey carried out to assist business heads of major outsourcers to identify reliable, innovative and tech savvy firms had listed twenty-nine India based companies amongst the best 100 IT service providers including Tata Consultancy Services, HCL Technologies, Genpact, and WNS Global Services amongst others.
According to the global InfoTech analyst International Data Corporation, the Indian IT and ITeS market is estimated to grow at the rate of over 16 per cent to become a US$ 132 billion industry, significantly, the domestic market alone is expected to become over US$ 50 billion, with a CAGR of about 18.4 per cent. Simultaneously, the IT and ITeS exports are estimated to more than double to US$ 78.62 billion in 2012.
The Indian IT and ITeS industry had recorded a growth rate of 22.4 per cent in 2007 to become a US$ 60.57 billion industry, US$ 49.47 billion in 2006.

ITeS- Information technology enabled services

Swot Analysis
Strengths
• Highly skilled human resource
• Low wage structure
• Quality of work
• Initiatives taken by the Government (setting up Hi-Tech Parks and implementation of e-governance projects)
• Many global players have set-up operations in India like Microsoft, Oracle, Adobe, etc.
• Following Quality Standards such as ISO 9000, SEI CMM etc.
• English-speaking professionals
• Cost competitiveness
• Quality telecommunications infrastructure
• Indian time zone (24 x 7 services to the global customers). Time difference between India and America is approximately 12 hours, which is beneficial for outsourcing of work.
Weaknesses
• Absence of practical knowledge
• Dearth of suitable candidates
• Less Research and Development
• Contribution of IT sector to India’s GDP is still rather small.
• Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon come to an end.

Opportunities
• High quality IT education market
• Increasing number of working age people
• India 's well developed soft infrastructure
• Upcoming International Players in the market
Threats
• Lack of data security systems
• Countries like China and Philippines with qualified workforce making efforts to overcome the English language barrier
• IT development concentrated in a few cities only


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