This is one growth story that not only bucked the trend but also gave India a place under the sun as never before. Described variously as the sunrise sector where the sun would never set to the soft power house, the Indian information technology, which within its broad ambit over the years nurtured many a success business stories now manifest in diverse but well defined verticals, is here to stay and tell a story that would make the pessimists run for cover.
The IT sector in all its avatars which gave India a new definition of the soft power house is all set to bloom as the year rolls by leaving behind an uncertain past thanks to the vagaries of the business cycle last year. The good news is that the outlook for the sector ranges from good to very good. Not that there are not challenges to be surmounted. But the optimism is well spread and overwhelming.
Consider the following:
PwC-CII IT/ITES Outlook 2010 said, “ The growth rates of global GDP and India's net software earnings have been observed to move in sync with each other. The recent upward revisions to global growth for 2010, including the significant improvements in the growth forecast of the advanced economies (US, UK and the Euro Area) along with the favourable GDP outlook for the Indian economy are likely to strengthen the growth prospects of the Indian IT sector, benefiting both export and domestic revenue.
India would likely retain leadership position in global sourcing supply of IT-BPO by 2020 and could touch the market at $ 285 billion by then, growing at a CAGR of 15 per cent, said a report released by KPMG and Asian-Oceanian Computing Industry Organisation (ASOCIO). The report Asia-Oceania Vision 2020: Enabling IT leadership through collaboration revealed that India, which is the current market leader in global sourcing supply serves around 51 per cent of the overall global sourcing and has achieved impressive growth rates over the past decade. The report was released last week at Nasscom leadership summit. A Nasscom study on its own said the FY 10-11 outlook for the IT BPO would witness export revenues to grow by 13-15 per cent and domestic revenue to grow by 15-17 per cent. Industry would continue to remain a net hirer: Direct employment in Indian IT-BPO estimated to cross 2.3 million; indirect job creation estimated to reach 8.2 million.
India IT Market is set to grow at around 15.5 per cent for the year 2010, predicts Springboard Research, a leading innovator in the IT Market Research industry. According to Springboard's latest executive brief released recently, “India IT Market Predictions 2010”, the market is expected to return to a “new normal” after last year's turbulent economic environment, supported by financial stability, investor confidence, government initiatives and a shift towards a competitive and customer-oriented market structure.
But before rolling the outlook scenario for the sector bullet by bullet, it is pertinent to look at the ground situation now: According to PwC-CII 2010 IT/ITES Report, over the past decade, the IT / ITES industry in India has been a story of unparalleled growth. The compounded annual growth rate (CAGR) of the industry has been over 25 per cent in the last 5 years. Over these years four main components have formed the industry IT Services, BPO, Engineering Services and Hardware.
The sector is a key contributor to the Services Sector accounting for 5.8 per cent of India's overall GDP, is among the largest employment generators in the organised sector employing 7.5 million people, estimated to cross the 10 million mark by 2010 with revenues estimated at USD 71 billion in 2008-09, consistent rise in growth with a 5 year compound annual growth (CAGR) at 27 per cent. The global propensity of the sector is evident; as exports constitute two-third of overall revenues with a marginally higher 5 years CAGR of 28.7 per cent- UK and US remain the largest export geographies 79 per cent, steady expansion of other export destinations notably Continental Europe CAGR more than 50 per cent over FY 2004-08.
This happened as the Indian IT sector took proactive measures to rise to the challenge posed by the economic downturn. According to NASSCOM, the industry last year continued to diversify geographically with Asia Pacific registering a high growth rate of 10 per cent though US remains the dominant market. Over a four-year period (FY07-FY10) Asia Pacific is estimated to grow at 22 per cent as against an industry growth rate of 17 per cent. Over the past few years, though the revenue growth from US has lagged other geographies, in FY2010, the trend has reversed, with this region accounting for 61 per cent of the export revenues.
E-Governance emerged as one of the biggest growth verticals for the domestic IT-BPO sector; Government IT spend expected to reach nearly INR 250 billion (USD 5.1 billion) by 2011 from estimated INR 150 billion (USD 3.1 billion) in FY08-09. Diversification into new areas: Engineering Services and Offshore Software Product Development touched 10 billion in FY 2010 while eengineering services market revenues have grown by 50 per cent in the last three years and are expected to touch USD 7.9 billion in FY2010; growth driven by rise in companies off-shoring to India, increase in higher value work being off-shored, deeper penetration into key verticals.
But there is a strong word of caution otherwise the story might turn the other way round putting the country to great disadvantage. The sector navigation has to be done intelligently with care being paid to harnessing inherent strengths the country has in the domain and bringing up front the growth pointers. PwC-CII Outlook survey identified what it called key insights into the sector to help India remain competitive:
The Small and Medium players will continue to be an integral part of the IT/ITES growth story. They will emerge as winners if they focus on the right markets, develop niche offerings, increase operational efficiencies, tap appropriate capital and improve talent management. Though adoption of cloud computing involves dealing with fundamental changes in the traditional business operation and outlook, this model has the potential to improve agility while streamlining costs through centralisation of resources and multi-tenancy. This would be a boon for companies looking to expand their delivery reach and scalability while maximising their operational economy.
While momentum has to be maintained with innovation and climbing up the value chain to grow the large markets of US and UK and protect them from growing competition, Indian providers have to make investments to tap emerging overseas consuming territories like China and Latin America. The Indian domestic market is poised to be a significant growth driver, in addition to delivery capacities providers should also invest in sales and account management structures for the India geography.
It is becoming imperative for Indian providers to expand their delivery presence beyond India. While some of them have started making investments, we believe this process has to accelerate accompanied by intake of local human capital. This would enable them to ramp up to speed and establish a presence across both the demand as well as the supply end of the business thus increasing client proximity while mitigating risks.
The CII outlook said the need for creation of high value IP to sustain growth is no longer a luxury. Having established the global benchmarks, the delivery engine should now be the channel to bring Indian IP to the clients. Further, it said, service Providers need to align themselves with client and market requirements and become one-stop Solution Providers for their clientele. For this purpose, they would increasingly need to use non-linear models and services to maximise returns on investment
Indian IT/ITES service providers need to differentiate themselves from the pack. The focus should be to avoid being perceived as a commodity services provider through a combination of niche markets and services and differentiated branding and marketing. The explosion in social networking also gives a great platform to reach out to prospective clients and employees, the report pointed out.
By K Anjna
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