IT SECTOR - AN OVERVIEW

The computer systems design and related services industry is among the economy's
largest and fastest sources of employment growth. Employment increased by
616,000 over the 1994-2004 period, posting a staggering 8.0-percent annual growth
rate. The projected 2004-14 employment increase of 453,000 translates into 1.6
million jobs, and represents a relatively slower annual growth rate of 3.4 percent as
productivity increases and offshore outsourcing take their toll. ("Industry output and
employment projections to 2014" by Jay M. Berman, Bureau of Labor Statistics)

However, the main growth catalyst for this industry is expected to be the persistent
evolution of technology and business' constant effort to absorb and integrate these
resources to enhance their productivity and expand their market opportunities.

Employment of computer and information systems managers is expected to grow

between 18 to 26 percent for all occupations through the year 2014. (Career Guide
to Industries 2006-07)

The Indian IT sector is growing rapidly and it has already made its presence felt in
all parts of the world. IT has a major role in strengthening the economic and
technical foundations of India. Indian professionals are setting up examples of their
proficiency in IT, in India as well as abroad.

The sector can be classified into 4 broad categories - IT Services, Engineering

Services, ITES-BPO Services, E Business

IT Services can further be categorized into Information Services (IS) outsourcing,

packaged software support and installation, systems integration, processing services,
hardware support and installation and IT training and education.
Engineering Services include Industrial Design, Mechanical Design, Electronic
System Design (including Chip/Board and Embedded Software Design), Design
Validation Testing, Industrialization and Prototyping.

IT Enabled Services are services that use telecom networks or the Internet. For
example, Remote Maintenance, Back Office Operations, Data Processing, Call
Centers, Business Process Outsourcing, etc.

E Business (electronic business) is carrying out business on the Internet; it includes

buying and selling, serving customers and collaborating with business partners.

Major Trends
Trends in Hiring

The bar chart shows that the recruitment of engineers and IT professionals in the
industry is growing at the Compound Annual Rate of 14.5% approximately.

In the FY06, the direct employment in the IT-ITES sector was 1.3 million people
and the indirect employment was 3 million approximately.
 Trends in Salary Hikes
Along with abundant growth opportunities, IT sector is one of the highest paying
sectors. The average increase in salary in IT sector across the levels was around 16%
and the average increase in the ITeS BPO sector across the levels was in between
16%-18% Requisites for balanced salaries -
End to poaching
Review of compensation according to the skills
Developing talent in-house
Entry of talented freshers in the industry

IT: Success Factors

Increasing number of skilled professionals in IT.

The demographic factor. Approximately 60% of the population of India lies in
the age group of 15-65. More than half of the population of India is below the age
of 25. So in the future, the number of working people is going to be more than the
number of dependants.
The vast academic infrastructure of India. In the year 2006, Total Enrollment in
colleges was 9.3 million and India produced 441,000 Technical graduates.
India has the second largest English-speaking workforce in the world.

The Indian IT Industry

The Information Technology (IT) sector in India holds the distinction of advancing
the country into the new-age economy. The growth momentum attained by the
overall economy since the late 1990s to a great extent can be owed to the IT sector,
well supported by a liberalized policy regime with reduction in telecommunication
cost and import duties on hardware and software. Perceptible is the transformation
since liberalization - India today is the world leader in information technology and
business outsourcing. Correspondingly, the industry’s contribution to India’s GDP
has grown significantly from 1.2% in 1999-2000 to around 4.8% in FY06, and has
been estimated to cross 5% in FY07. The sector has been growing at an annual rate
of 28% per annum since FY01.

Indian IT companies have globally established their superiority in terms of cost

advantage, availability of skilled manpower and the quality of services. They have
been enhancing their global service delivery capabilities through a combination of
organic and inorganic growth initiatives. Global giants like Microsoft, SAP, Oracle,
Lenovo have already established their captive centers in India. These companies
recognize the advantage India offers and the fact that it is among the fastest growing
IT markets in the Asia-Pacific region.

Sector structure/Market size

The Indian information technology industry has played a key role in putting India on
the global map. Thanks to the success of the IT industry, India is now a power to
reckon with. According to the National Association of Software and Service
Companies (NASSCOM), the apex body for software services in India, the revenue
of the information technology sector has risen from 1.2 per cent of the gross
domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09.

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.

The government expects the exports turnover to touch US$ 80 billion by 2011,
growing at an annual rate of 30 per cent per annum, from the earlier few million
dollars worth exports in early 1990s.
As per NASSCOM's latest findings:

• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7
billion in aggregate revenue (including hardware). Of this, the software and
services segment accounted for US$ 59.6 billion.
• IT-BPO exports (including hardware exports) grew by 16 per cent from US$
40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, 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.

Despite the uncertainty in the global economy, the top three IT majors— Infosys,
TCS and Wipro—have seen revenue growth from all important sources of income:
from the North American and European regions, in the financial services vertical
and from application maintenance and development (ADM) offerings between fiscal
years 2008 and 2009.

India’s IT Industry (US$ bn)

Outsourcing

A research by Gartner forecasts India as the undisputed leader in the outsourcing

space in the year 2008. India's most prized resource is its readily available technical
work force. India has the second largest English-speaking scientific professionals in
the world, second only to the US. It is estimated that India has over 4 million
technical workers, over 1,832 educational institutions and polytechnics, which train
more than 67,785 computer software professionals every year. The enormous base
of skilled manpower is a major draw for global customers.

According to NASSCOM software and services exports (including exports of IT

services, BPO, engineering services and R&D and software products) reached US$
47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and
services revenue of US$ 59.6 billion.
Domestic Markets

India's domestic market has also become a force to reckon with, as the existing IT
infrastructure evolves both in terms of technology and depth of penetration.

According to NASSCOM, domestic IT market (including hardware) reached US$

24.3 billion in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of
5.3 per cent.

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 million-US$
100 million up for grabs.

Such growth in the software and services sector has been achieved because of
spectacular growths in some segments. According to research firm Gartner, India's
personal computer (PC) market is likely to grow by 13.7 per cent to 11.1 million
units in 2009, aided by a surge in demand for laptops. The laptop market is expected
to grow by 37 per cent in 2009 to 3.69 million units and constitute a third of the total
PC market.

Rural Penetration

According to a report of the Internet and Mobile Association of India (IAMAI) rural
India has 3.3 million active internet users. Since rural India was mapped for the first
time, the year-on-year growth of internet users in rural India could not be estimated.

The research also notes there are 5.5 million people who claim to have used Internet
at some point in time.

Government Initiatives
 • The government set up the National Taskforce on Information Technology
and Software Development with the objective of framing a long term
National IT Policy for the country.
• Enactment of the Information Technology Act, which provides a legal
framework to facilitate electronic commerce and electronic transactions.
• The government-led National e-Governance Program, has played an
important role in increasing internet penetration in rural India.

Road Ahead

The Indian information technology sector continues to be one of the sunshine

sectors of the Indian economy showing rapid growth and promise.

According to a report prepared by McKinsey for NASSCOM, the exports

component of the Indian industry is expected to reach US$ 175 billion in revenue by
2020. 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 BRIC and Japan opt for greater outsourcing.

Scope of IT Industry in India

The IT industry has great scope for people as it provides employment to technical
and non-technical graduates and has the capability to generate huge foreign
exchange inflow for India. India exports software and services to approximately 95
countries in the world. By outsourcing to India, many countries get benefits in terms
of labor costs and business processes. Also, the Indian companies are broadening the
range of services being provided to the customers, which is resulting in more off
shoring. Talent acquisition, development and retention initiatives taken by the
companies have brought down the employee attrition rates, thereby providing more
stability to the employees and increasing their job commitment.

Many financial institutions are providing funds for the expansion of IT and ITeS
businesses. In order to support IT and ITES, the Indian Government is also taking
many steps. For example:
1. The Govt. has provided incentives including tax holiday up to 2010 and
competitive duty structures.
2. The Govt. is trying to reduce the international communication cost.
3. It is providing infrastructure support through organizations such as software
technology parks.

All these factors collectively create a number of opportunities in the IT sector.

Future of Information Technology

IT will continue to gain momentum; telecom and wireless will follow the trend. The
immense expansion in networking technologies is expected to continue into the next
decade also. IT will bring about a drastic improvement in the quality of life as it
impacts application domains and global competitiveness. Technologies that are
emerging are Data Warehousing and Data Mining. They involve collecting data to
find patterns and testing hypothesis in normal research. Software services that are
being used in outsourcing will go a long way.

Key Positives & Negatives for the Indian IT Industry

 IT SECTOR - TOP PLAYERS

S. No. Companies
1. TCS

2. Infosys

3. Wipro

4. HP
5. IBM

6. Satyam

7. HCL

8. Patni

9. Polaris

10. Cisco

11 KPIT Cummins

12 Kanbay

13 Microsoft

14 Dell

15 Larsen and Toubro

16 Compare InfoBase

17 Accenture

18 I-Flex Solutions

19 Cognizant

20 Sapient

21 Mphasis

SWOT ANALYSIS
Strengths Weaknesses

• Highly skilled human resource • Absence of practical knowledge

• Low wage structure
• Dearth of suitable candidates
• Quality of work
• Initiatives taken by the • Less Research and Development
Government (setting up Hi-Tech
Parks and implementation of e- • Contribution of IT sector to India’s GDP
governance projects) is still rather small.
• Many global players have set-up
• Employee salaries in IT sector are
operations in India like Microsoft,
increasing tremendously. Low wages
Oracle, Adobe, etc.
benefit will soon come to an end.
• 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.

Opportunities Threats

• High quality IT education market • Lack of data security systems

• Increasing number of working age • Countries like China and