A naly zing I ndia n IT i ndus try |1

Analyzing Indian IT industry

Introduction
The IT sector has become one of the most significant growth catalysts for the Indian economy. In addition to fuelling Indias economy, this industry is also positively influencing the lives of its people through an active direct and indirect contribution to various socioeconomic parameters such as employment, standard of living and diversity. The industry has played a significant role in transforming Indias 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. The Indian Information Technology- Information Technology-Enabled Services (IT-ITES) industry has continued to perform its role as the most consistent growth driver for the economy. Service, software exports and BPO remain the mainstay of the sector. Over the last five years, the IT & ITES industry has grown at a remarkable pace.

Current economic position

Poised to become a US$ 225 billion industry by 2020, the Indian information technology (IT) industry has played a key role in putting India on the global map. The sector is estimated to have grown by 19 per cent in the FY2011, clocking revenue of almost US$ 76 billion as against US$64 billion in FY2010. Indias outsourcing industry has witnessed a rebound and registered better than expected growth according to NASSCOM. (National Association of Software and Services Companies).The major chunk of this figure of industry revenue is taken by BPO (Business Process Outsourcing) sector.

Indian IT Industry
80 70 60 50 40 30 20 10 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 IT/ITES Exports IT/ITES Domestic Total

Figure: Indian IT industry growth

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A naly zing I ndia n IT i ndus try |2 According to NASSCOM the IT business and services revenue accounted for 6.1% of GDP in FY2010, up from 1.2% in 1998.

The government's five-year e-government plan was assigned a nominal budget of INR23, 000 crore through 2011. The budget covered 26 core projects including agriculture, income tax, pensions, land records and passports. However, at the start of 2010, many of these projects had yet to be awarded, or even tendered. A key driver of informatisation in the government sector is likely to be the UID/Adhaar card programme, It has been estimated that the total cost of the project could be at least INR1.5bn lakh crore. The project received a boost in 2010 when a court suggested that national ID cards should be made mandatory for all citizens. The exports for IT and ITES are estimated to a figure of USD$59 billion FY2011 and domestic business is estimated to USD$17.5 billion. Here we can see the exports are mainly coming from Europe, UK and USA. As we can see in the figure above exports have been the mainstay of business revenue. Let us see the region wise breakdown as from where Indian IT industry is generating revenue.
Export -Region wise breakup Market/year Europe (incl.UK) Americas Rest of the word(incl.APAC) 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 68.3 67.18 61.4 60 64 69.2 23.1 25.13 30.1 31 26.4 22.3 8.6 7.69 8.5 9 9.6 8.5

Figure: IT export wise breakup

Trends
Vertical industry trends BFSI, Hi-Tech, Telecom continued to account for more than 60% of the market. Healthcare industry is likely to witness increased IT investments due to increased focus on public health, making healthcare and insurance affordable to all other industries that will see growth include telecom, retail and utilities etc. BFSI which has more than 40% share of investments in IT will grow further as foreign investments in the banking and financial sector flow in due to changes in government regulations. Also as Indian government which is actively involved to include IT in its processes will be a significant partner for the IT sector growth.

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Vertical wise breakup

BFSI
Retail Construction and utlities

Hi-tech telecom
Healthcare Other

Manufacturing
Airlines and Transportation

3% 3%

3%
5%

8%

41%

17%

20%

Figure: Vertical wise breakup of revenue

Performance trends India will see its number of internet users triple to 237 million by 2015, from 81 million registered in September 2010, according to a report titled 'Internet's New bn', by the Boston Consulting Group (BCG). BCG said Internet penetration rate in India is expected to reach 19 per cent by 2015, up from the current seven per cent. The penetration of the internet in rural areas has seen an all time high in 2011. In a survey conducted by IMRB for the Internet and Mobile Association of India (IAMAI), the total number of active internet users in rural area will rise by 98 per cent to touch 24 million by the end of 2011 from 12.1 million in December 2010. The survey said that the claimed internet user category is also set to grow by 96 per cent to reach 29.9 million by December 2011 from 15.2 million in December 2010. Growing technology needs are having direct impact on the overall performance of the industry. Not only software/service related IT but components such as hardware will see upward increase after 2011.Introduction of better performing devices such as tablets and smart phones have seen displacement of the PC since 2010.

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Software and service exports(including BPO) are expected to account for over 99% of total IT exports and for this purpose employment will be shooting up to around 2.4 million employees

IT Industry Peformance trend

70 60 50 40 30 20 10 0 12.4 7.6 2.6 17.35 53.2 46.3 59

11.55

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
IT/ITES Exports IT/ITES Domestic

Figure: Performance Trends

Recent global Merger & Acquisition activity in the sector indicates select acquisitions by established service providers to enhance skill and scale. While cost and talent still remain essential considerations for global sourcing, savvy customers are constantly demanding more growth markets, flexibility and innovation. With customers demanding more immediate value from IT and forward-looking strategies that support growth and innovation, service providers are adopting agile methods focusing on operational excellence through ongoing innovation, Diversification, renewed partnerships/alliances and new business models.

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Road Ahead
The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. The exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. As against a mere US$20 the domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare and as geographies including Brazil, Russia, China and Japan opt for greater outsourcing. 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. 2011 will also see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. Hardware is likely to grow the fastest at about 7 per cent, led by the refresh cycle in the Government sector. Shipments of app-capable, non-PC mobile devices (Smartphone, media tablets) are expected to outnumber PC shipments. IT services is expected to grow by about 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. 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 by end of 2011. 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 parametersMarkets 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 transformative 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 and 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.

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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, Cloud Computing). While developed markets constitute the largest share of IT spend, increasingly emerging markets are spearheading growth as a large consumer base becomes increasingly techsavvy 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) 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. India is surely on the way of becoming major global player in IT.

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References
www.mit.gov.in (Department of Information Technology ,Government of India) www.ibef.org (Indian brand equity foundation) www.nasscom.in (National Association of Software And Services Companies)

MBA-IT 2010-12 | SICSR