Information Technology

Group 4 3CBBA

Advantage India Market overview Industry infrastructure Investments Opportunities

ADVANTAGE INDIA
It is forecasted that India BPO exports segment would employ 768,000 knowledge professionals in 2009-2010 and added 30,000 jobs alone in 2009-2010.

Growing BPO/KPO industry

Quality/ Indian knowledge services maturity of export revenue grew at a processes CAGR of 19.4 per cent
between 2006-07 and 20092010 to US$1 billion.

The cost of an engineer in India is around 20 to 40 per cent of the cost in the EU. General, administrative and selling costs in India amount to around 80 per Cost advantage cent of the costs in the EU. India s average offshore billing rates, at US$ 20 to US$ 35 per hour, are around 50 to 70 per cent lower than those in the EU. In 2009-2010, 0.37 million technology graduates and post- graduates (in fields such as Computer Science, Electronics and Telecom) qualified in India. It is estimated that India s IT industry has added 90,000 employees in 2009-2010.

ADVANTAGE INDIA
An enabling business policy and regulatory environment

More than 85 global SEICMM level 5 firms have a presence in India. India has the largest number of quality certifications among in the world.

Ease of scalability

MARKET OVERVIEW
Total revenues in Indias IT industry touched US$ 73.1 billion in 2009-2010 compared with US$ 70.5 billion in 2008-09, growing at 3.7 per cent. The contribution of the IT industry to Indias GDP has grown from 1.2 per cent in 1997-98 to 6.1 per cent in 2009-2010. The software and service sector posted revenues (excluding hardware) of US$ 63.7 billion in 20092010. Of this, IT services accounted for 57 per cent, business process outsourcing (BPO) accounted for 23 per cent and engineering services/product development accounted for the remaining 20 per cent. The countrys IT/ITeS exports have grown at a compound annual growth rate (CAGR) of 23.1 per cent between 2005-06 and 2009-2010. The industry added 90,000 new jobs in the 20092010, taking the total number of employees to 2.3 million. It also generated around 8.2 million indirect jobs.

IT SERVICE SECTOR
The Indian IT services exports is estimated to grow by 5.8 per cent to reach US$ 27.3 billion in 2009-2010. The IT services segment comprises of project oriented, outsourcing, and support and training. In 2008-09, the project oriented segment comprised 51% of the exports followed by outsourcing (41%) and support and training (8%). Application development, infrastructure (IS) outsourcing, and application management are estimated to account for more than 65 per cent of the IT services exports. Indias ITeS exports have grown to US$ 12.4 billion in 2009-2010 from US$ 11.7 billion in 2008-09, a growth of more than 5.9 per cent. ITeS is the fastest-growing segment across the IT services and software segments and accounts for 20 per cent of the countrys IT industry (including hardware).

GLOBAL DRIVERS
Increased global technology-related expenditure Worldwide technology products and related services declined at 2.9 per cent to around US$ 1.5 trillion in 2009. Global expenditure on software products grew by 1 per cent and reached US$ 307 billion in 2009. Worldwide BPO spending grew by 2 per cent in 2009. IT services constitute the largest segment of Indias worldwide spend on technology products and related services. The global IT sourcing market has grown threefold between 2004 and 2008. Global technology-related spending Government and healthcare verticals witnessed growth in technology spending. Large-scale recruitment and variable pricing in service sector businesses.

GLOBAL DRIVERS

Global IT vendors increasing their India presence Global vendors such as Accenture, HP, HP Enterprise Services, IBM and Cap Gemini are eyeing India to expand their offshore delivery capability either organically or inorganically. They aim to grow onshore service providers who can deliver seamless hybrid onshore-offshore services at low costs. These vendors have a large number of India-based employees Accenture (40,000+), IBM (1,30,000+), HP Enterprise Services (15,000+) and Cap Gemini(26,000+).

Emergence of Indian IT multinationals

Indian IT companies seek to expand their global footprint through the Global Delivery Model (GDM) to seamlessly service their clients needs worldwide. Indian firms are gradually gaining a global foothold, with giants such as TCS, Wipro and Infosys expanding their overseas presence, particularly in Asia and Europe. Increased M&A activity needs to be driven by the requirement for global service delivery capabilities, while mitigating the risks and timeline issues involved in expanding to new geographies.

INDUSTRY INFRASTRUCTURE
The industry has infrastructure support in the form of dedicated, costeffective, quality real estate in the form of Software Technology Parks of India (STPIs) and special economic zones (SEZs).
EXPANDING TO TIER-II AND TIERIII CITIES
The Indian IT/ITeS industry is primarily concentrated in seven clusters Bengaluru, Delhi-NCR, Hyderabad, Chennai, Pune, Mumbai and Kolkata. Most IT companies initiated their operations in India in tier-I cities and have subsequently expanded their operations to tier-II cities. The emergence of tier-III cities such as Chandigarh and Mysore has played a key role in the expansion of the ITeS-BPO segment. Tier-II and tier-III cities are gaining in importance in the IT/ITeS industry, since they offer substantial savings in administration, maintenance, real estate and infrastructure costs and human resource availability.

INVESTMENTS

Indias technology sector witnessed M&A deals worth US$ 1.7 billion* in 2009-2010. (refer next slides for examples) The countrys IT-BPO sector has consistently attracted the highest share of private equity (PE) and venture capital (VC) investments in the country. Cumulative FDI inflow into the computer software and hardware sector have been estimated at US$ 10,406 million between April 2000 and September 2010. The technology sector saw FDI inflow of US$ 1,410 million in 2007-08, US$ 1,677 million in 2008-09 and US$ 919 million in 2009-2010. Russian IT security software provider, Kaspersky Lab, will be investing US$ 2 million in its India operations at Hyderabad during 2011. The total investments of EMC Corporation, a leading global player of information infrastructure solutions in India, will touch US$ 2 billion (over US$ 2.01 billion) by 2014.

Private Companies (Acquirer) which have shown their interest in Booming technological sector in India (Targets), by M&A, with their estimated worth.

OPPORTUNITIES
India is poised to become the hub for engineering process outsourcing (EPO), with its market size estimated to touch US$ 30 billion annually by 2015, attracting 25 per cent of the US$ 70- billion global EPO industry. The country s range of services includes engineering and designing solutions across diverse industry verticals such as telecommunications, automotive, construction, aerospace, utilities and industrial design. The labour cost arbitrage in this sector is around 60 per cent of that in the US. Bechtel, General Motors, Ford, John Deere, Caterpillar, Silicon Automation Systems and John Brown Engineering are among the global leaders that have established their engineering services divisions in India. (Legal Process Outsourcing)

LPO

Engineering Services Outsourcing (ESO)

ITES
(INFORMATION TECHNOLOGY Enabled Services)

KPO

ESO

(Knowledge Process Outsourcing)

OPPORTUNITIES
KPO - A GROWTH DRIVER FOR THE ITES SECTOR
The KPO industry is now growing rapidly, with several companies establishing thirdparty operations for functions such as data analytics and data modelling. According to CRISIL, India s KPO export market constitutes around 8 per cent of the country s ITeS revenues and employs nearly 3 per cent of its workforce. Growth drivers include the high productivity of India s human resources and outsourcing of knowledge processes by SMEs.

Increased government spending across the globe

The GoaI is implementing egovernance initiatives and increasing its IT spend/outlay with an allocation of more than US$ 400 million for the Unique Identification Authority of India (UIDAI) in 2010-11. Governments across the world are increasing their IT spending on infrastructure and security. Business process management (BPM), data management, ondemand ERP, virtualisation and enterprise managed services are other fields of IT witnessing expenditure.

Growth in domestic market

It has been estimated that the overall size of the domestic market grew has grown by 20 per cent in 2008-09 to reach US$ 24.3 billion by 2010. Domestic IT BPO spending grew by 40 per cent in 200809. The demand for domestic BPO services is increasing rapidly, with niche verticals such as healthcare and retail fast gaining traction, apart from the traditional verticals of banking, financial services and manufacturing.

LPO Legal Process Outsourcing

Outsourcing of legal and intellectual property research is presently at an early stage of development in the country. However, this space holds tremendous growth potential. India offers impressive opportunities to scale up, with a large pool of legal professionals (with more than 1million lawyers and 70,000 law graduates qualifying every year) and significant cost arbitrage. In addition, Indian lawyers bill at one-tenth of their counterparts in the US (US$ 40 to US$ 60 per hour in India, compared with US$ 350 per hour in the US). The country is set to achieve significant growth with a rise from its current share of 3 to 4 per cent to 6-7 per cent in the global LPO market by 2010. Firms such as SDD Global Solutions, JuriMatrix, Integreon, Pangea3 and RR Donnelly are establishing operations in the country, with increasing VC investment to tap into its market potential.

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 called 'Perspective 2020: Transform Business, Transform India', 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 Brazil, Russia, China and Japan opt for greater outsourcing.

Submitted By : Abhishek Sikka Akriti Jha Bhanu Pratap Nitin Lohia Saurabh Singh Sumit Nagar