Comparative Analysis Of Indian I.t Industry

Project Report on Comparative Analysis of Indian I.T Industry

- Salil Lavgankar MMS, Vidyalankar Institute of Technology

1

Table of Contents 1. Title Page

1

2. Table of Contents

2

3. Indian I.T Industry Overview

3

4. Indian I.T Companies- TCS,Infosys and Wipro

5

5. Financial Performance Comparison

9

6. Segment Wise Revenue Comparison 6.1 Geographic Segmentation

10

6.2 Sector Segmentation

11

7. Human Resource

12

8. Research & Development

13

9. Sundry Debtors

15

10. Indian I.T Industry Opportunities

16

11. Indian I.T Industry Threats

17

12. Conclusion

17

2

Indian I.T Industry Overview: The Indian software industry has been one of the success stories of India post 1991 when a slew of reforms lead to liberalization of the economy. It has grown from a mere US $ 150 million in 1991-92 to revenues of 31$ billion in 2008-09. The growth of the IT-BPO industry can be shown with the help of the following bar diagram:

With estimated revenues of USD 71.6 billion in fiscal 2009 (Growth of 12.0%), the IT-BPO industry continues to grow at a CAGR of 27.1% since FY 2004. The world-wide technology and related services spend is estimated to have crossed USD 1.6 trillion in 2008, a growth rate of 4.6% over 2007. The world- wide forecast for I.T Services can be illustrated with the below chart:

3

There are several reasons for the growth of IT Industry in India which can be explained as follows: 

High Quality Delivery

According to Process Maturity Profile published by Carnegie Mellon Software Engineering Institute, approximately 158 companies are certified at SEI-CMM Level 5 in India- higher than any country in the world. It suggests that Indian Companies are highly quality conscious and focus on achieving operational excellence while delivering their services. 

Significant Cost Benefits

The NASSCOM Strategic Review 2009 indicates that company’s experience cost savings of around 60-70% by outsourcing their I.T and BPO requirements to India as compared to their source locations and suggests that the cost advantage offered by ITES Industry is sustainable even in the long term. 

Abundant Skilled Resources

India has a large and highly skilled English speaking labour pool. According to NASSCOM Strategic Review 2009 the total graduate turn out in India in fiscal is expected to be 3.5 million, including a technical graduate turn out of approximately 5.14 lacs 

Complete bouquet of services

The Indian I.T companies offer a one stop solution to their clients and have developed length and breadth service offering capabilities. 

Effective Service Delivery Model

The Indian I.T companies have developed the global delivery model and have effectively integrated onsite and offshore execution capabilities to deliver seamless, scalable services to their clients.

The top I.T companies in India are TCS, Wipro, Infosys and Tech Mahindra after the successful acquisition of Satyam. MNC’s who have set up their base in India include Microsoft, Accenture, Google and Oracle.

4

Indian I.T Companies: Tata Consultancy Services (TCS) Tata Consultancy Services Limited (TCS) is one of India's oldest and largest providers of information technology and business process outsourcing services and was established in the year 1968. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through its unique Global Network Delivery Model™, recognized as the benchmark of excellence in software development. TCS has over 143,000 of the world's best trained IT consultants including 10,000 international associates from 67 nationalities. At the end of the year 2008-09, TCS' global footprint has extended to over 42 countries through its 140 offices globally. Vision: To be one of the top 10 global companies by the year 2010. Mission: To help customers achieve their business objectives by providing innovative, best-in-class consulting, IT solutions and services, and to actively engage all stakeholders in a productive, collaborative, and mutually beneficial relationship. Values: Integrity, leading change, excellence, respect for the individual, and fostering an environment of learning and sharing. Management Team: Sr.No 1 2 3 4

Person Name R.N Tata S. Ramadorai N.Chandrasekaran S.Mahalingam

5

Phiroz A. Vandrevala

Designation Chairman Vice Chairman CEO & MD CFO, Executive Director Head, Global Corporate Affairs, Executive Director

Awards & Achievements:      

Best Governed Company Award 2008 of the Asian Centre of Corporate Governance and Sustainability and Indian Merchants Chamber Topper of the Dataquest Top 20 list of Indian IT companies Most Admired Knowledge Enterprise (MAKE) Award, for the fourth time Highest Delta Award in the 600+ company category on the TATA Business Excellence Model Top ranking in HR in Data Quest-IDC's Best Employer Award Recruiting and Staffing Best in Class Awards (RASBIC) 2008-09 for 'Best Use of Technology in Recruiting' and 'Most Innovative Program/Initiative in Recruiting 5

Quality Initiatives:  



TCS is the world’s first organization to achieve an enterprise-wide Maturity Level 5 on CMMI® and P-CMM® based on SCAMPISM, the most rigorous assessment methodology. TCS Integrated Quality Management System (iQMS™) integrates processes, people, and technology maturity through various established frameworks and practices, including IEEE, ISO 9001: 2000, CMMi, SW-CMM, P-CMM, and Six-Sigma. Certified for domain specific quality certification: TL 9000 for the Telecom business. AS9100 for Aerospace industry and ISO 13485 for Medical Devices.

Infosys Infosys Technologies Limited) is a multinational information technology services company headquartered in Bangalore. Infosys' offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing. Infosys has defined, designed and delivered technology-enabled business solutions that help Global 2000 companies win in a Flat World and provides the above mentioned services by domain and business expertise and strategic alliances with leading technology providers. Infosys has a global footprint with over 50 offices and development centers in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan with over 103,000 employees. Vision: To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people. Mission: To achieve our objectives in an environment of fairness, honesty, and courtesy towards our clients, employees, vendors and society at large. Values:     

Customer Delight: To surpass customer expectations consistently. Leadership by Example: To set standards in our business and transactions and be an exemplar for the industry and ourselves. Integrity and Transparency: To be ethical, sincere and open in all our transactions. Fairness: To be objective and transaction-oriented, and thereby earn trust and respect. Pursuit of Excellence: To strive relentlessly, constantly improve ourselves, our teams, our services and products to become the best. 6

Management Team: Sr.No 1

Person Name N. R. Narayana Murthy

2 3 4 5

Kris Gopalakrishnan S. D. Shibulal Mohandas Pai T.V. Balakrishnan V.

Designation Co-founder, Non Executive Chairman and Chief Mentor Co-founder, CEO and MD Co-founder and COO Director & Head- Finacle, Admin, HRD CFO

Awards & Achievements:     

Ranked among the top 50 most respected companies in the world by Reputation Institute’s Global Reputation Pulse 2009. Most Admired Knowledge Enterprises (MAKE) award 2008 Best company in India in Corporate Governance in The Asset Magazine's annual Corporate Governance Index 2008 Infosys Annual Report 2008 won the LACP Platinum Award Infosys selected as a member of The Global Dow

Quality Initiatives:

    

Infosys Australia achieves SEI-CMMI Level 5 Ver 1.2 in 2008.



Development of Estimated Enterprise Models(ESTEEM) to facilitate adoption of formal estimation techniques and models

Certified at SEI- CMM Level 5. Certified at SEI-CMMI Level 5. INSIGHT is an Integrated Audit System to facilitate quality audits across the enterprise. Establishment of Quality Academy with a focus on building Project Management, software engineering and process competencies with training and certification programs.

Wipro: Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives of our clients. Wipro has 55+ ‘Centers of Excellence’ that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation

7

Values: The value system at Wipro can be defines by Spirit of Wipro as follows: Intensity to Win Make customers successful Team, Innovate, Excel Act with Sensitivity Respect for the individual Thoughtful and responsible Unyielding Integrity Delivering on commitments Honesty and fairness in action Management Team: Sr.No 1 2 3 4

Person Name Aziz H. Premji Girish Paranjpe Suresh Vasvani Suresh C Senpathy

Designation Chairman Joint CEO Joint CEO CFO, Executive Director

Awards & Achievements:    

Winner of International Institute for Software Testing’s Software Testing Best Practice Award,2008 Winner of Indian MAKE Award, 2008 Wins Verizon’s 2006 Supplier Excellence Award Only Indian company in the Business Week’s IN25 “Champions of Innovation” list.

Quality Initiatives:     

SEI-CMM Level 5, World’s first IT services company , 1998 Six Sigma, World’s first IT services company , 1999 PCMM Level 5, World’s first software company ,2001 ISO 9001 compliant by 1995. Over 3350 employees trained in Six Sigma with 120 certified black belts

8

Financial Performance Comparison:

As per the table data, TCS revenues’ have increased from Rs.18289.95 to Rs.22, 404 cr, a Y-O-Y increase of 22.49 %. At the same time, Infosys revenues’ have increased significantly greater than TCS from Rs.15648 to Rs.20,264 cr, a Y-O-Y increase of 29.50 %. Wipro revenues’ have also increased appreciably from Rs.17658.1 to Rs.21612.8 cr, a Y-O-Y increase of 22.39% TCS’ operating profit has increased only marginally from Rs. 5466.06 to Rs.5564.59 cr, a Y-O-Y increase of 1.80 %. Infosys’ operating profit has increased highly from Rs. 4963 to Rs.6906 cr, a Y-O-Y increase of 39.1 % while Wipro’s operating profit has only increased thinly from Rs.4042.5 to 4278.4 cr, a Y-O-Y increase of 5.83% In the same vein TCS’ Net profit has increased only slightly from Rs. 4508.76 to Rs.4696.21 cr, a Y-O-Y increase of 4.80%. Infosys’ Net profit has increased outstandingly from Rs.4470 to Rs.5819 cr, a Y-O-Y increase of 30.2 % while Wipro’s net profit has actually decreased from 3063.3 to 2973.8 cr. An analysis of the above information indicated that Infosys has significantly outperformed TCS & Wipro in the fiscal year 2008-09 and are in a good position to further reduce the gap in total revenue in the coming year despite the negative guidance given out with respect to fall in sales. Also the employee costs have slightly risen for TCS to Rs.11, 676.34 from Rs.9, 413.05, a rise of 0.65%, one of the factors affecting the operating profit of the company. Another aspect affecting the margins was the net ‘Other Income’ which resulted in a loss of Rs.456.24 crore deviating in the opposite direction from a gain of Rs.689.82 crore in fiscal 2008. Infosys was also hit by this factor with exchange losses of 372 crores but managed to recover to post net ‘Other Income’ of gain of 502 crores.

9

Segment Wise Revenue Comparison: Geographic Segmentation:

As per the table data, the majority of revenues for TCS (from 56% in 2008 to 56.77% in 2009) and Infosys (from 63% in 2008 to 64.70 % in 2009) continue to come from America indicating the dependency on this market. The financial crisis in U.S.A continues to be a big source of worry. Also as indicated by a research agency survey that majority of U.S clients are contemplating a cut in their I.T budgets along with decrease in discretionary spending further deepening the problems for the I.T companies. The revenue growth from Europe has decreased slightly for both the companies denoting the spread of global meltdown to Europe and inability of Indian I.T companies to make huge inroads into the European Landscape. The revenue from Indian market is on the lower side for Infosys and they should try to tap this channel in these difficult times. With reference to revenue generated from other global markets, both companies show positive signs which indicate the diversification which is required in un hitherto non traditional markets such as Africa, Australia and Japan which is needed for survival in these challenging situations.

10

Sector Segmentation:

As per the data, almost 35-40% revenues for both the companies continue to come from BFSI (Banking Financial Services & Insurance) sector. The financial crisis started from this sector as evident by the fall of Lehmann Brothers, Bear Stearns, Freddie Mac and Fannie Mae and companies like Citigroup that had to be rescued by the U.S Government by pumping in huge amount of funds for an equity stake and will continue to be a trouble zone for the I.T Companies. The manufacturing sector has also been affected by the crisis but Infosys has shown great resilience by increasing its revenue from manufacturing from 14.64% in fiscal 2008 to 19.12% in fiscal 2009. TCS took significant strides in increasing its revenue percentage from 7.25 % to 9.46% in the Telecom sector which is a huge opportunity for I.T companies due to explosive growth in this sector. Also we can perceive that both the companies are looking to other non- traditional sectors for diversification and reducing the risk associated with the dependency on BFSI for a majority of the revenues.

11

Human Resource:

From the table data we can deduce there have been significant additions to the employee strength for TCS up from 1, 11,407 in fiscal 2008 to 1, 43,761 in fiscal 2009. This is partly due to the fact that TCS acquired CGSL in fiscal 2009 adding about 10,000 employees. For Infosys the gross as well as net additions for fiscal 2009 almost mirror the pattern in fiscal 2008 indicating a moderate and stable hiring pattern for this fiscal. Wipro has witnessed only a slight in addition in total no. of employees up from 82,515 to 84,020 and actually the no. of employees in I.T Sector segment has decreased from 62070 to 61196 The attrition for each company has witnessed a fall of around 2% (from 12.6 to 11.4%, 13.4 to 11.1% for Infosys, 16.8 to 13.2%) mainly attributable to the financial crisis which had engulfed the global markets.

12

Research & Development:

The focus on Research & Development has increased exponentially for all the 3 companies with a view of improving the productivity and quality of its services and products. TCS had established 20 R&D Innovation Labs with specific focus on technologies and verticals. The Company has also established 46 Centers of Excellence (CoEs) in all areas of information technology and business services as well as on Partner products. The network of TCS Innovation Labs work on research themes ranging from Operational Efficiency, Business Agility and Simplification, to Customer Experience, Ubiquity and Enterprise Security. They also explore new areas like Green IT and emerging technologies like Cloud Computing and the evolution of the Internet beyond Web 2.0. The total number of granted patents is 42. In addition, TCS has over 150 patents pending in multiple jurisdictions, including 58 filed in 2008- 09. Infosys has set up a Software Engineering & Technology Labs (SETLabs) for applied technology research in software engineering and enterprise technology. SETLabs leverages emerging technologies for improving engineering effectiveness and developing client based solutions. SETLabs is organized into various labs based on the area of technology focus like Software Engineering Lab, Center for Knowledge Driven Information Systems(C-KDIS), Innovation Lab focusing on leveraging Information Communication & Technology (ICT) etc

13

Wipro has set up Centers of Excellence (CoE), Solution Accelerators to strengthen their Research & Development Portfolio. The goal of CoE is to create competencies in emerging areas of technologies & industry and incubate new practices for business growth. In order to enhance focus, few technologies are driven centrally as Theme initiatives. The technology themes identified include SOA (Service Oriented Architecture), SaaS (Software as a Service), Virtualization, Unified Communication, Next Gen Web, Mobility, Business Analytics and Green IT. Industry solution accelerators are specific to a particular industry segment whereas functional and technology solution accelerators can be used across industry segments. For e.g. Order to Bill solution for mobile operators in emerging markets, Business Analytics solution for Retail and Healthcare Industry The company has also incubated Applied Research group to investigate & analyze potential impact and business prospect of technologies which are in the early stage of adoption. During the financial year 2008-09, Wipro has filed for 13 patents and it will continue its focus on R & D as a tool for innovation and for providing better technology solution to its clients.

14

Sundry Debtors:

As indicated by the table data, all the companies are trying to reduce the sundry debtors and trying to decrease the collection period. The percentage of sundry debtors as a percentage of revenue has decreased significantly for both the companies (TCS from 20.49 to 16.59 %, Infosys from 19.8 to 16.7%) while it has remained stable for Wipro. This is especially important as chances of default by clients have increased considerably due to worldwide financial crisis. This is also borne out of the fact by the increase in Provision towards doubtful debts made by both companies magnifying the possibility of defaults. I.T Companies have successfully taken measures to counter this situation by decreasing their Days Sales Outstanding period to a reasonable extent. Today I.T Companies are in a ‘Catch 22’ situation where at one end they have to tighten their sales recovery policy and accounts receivable and on the other they have to adopt flexible payment terms to get increased business from the clients.

15

Indian I.T Industry Opportunities: 

Increase business from existing and new clients

The opportunities with the existing clients lie in expanding nature and scope of current engagements by extending the size and number of projects and increasing the breadth of the service offerings. For new clients the way ahead would be to provide value added solutions by leveraging in depth capabilities. 

Expansion of global presence

Indian I.T Companies are looking to expand their presence in new and unexplored markets like Latin America, China and Eastern Europe. This can be done by establishing new sales & development offices to expand the global reach. Also I.T Companies should look inward at the Indian Domestic markets where there is increased expenditure by Government organizations on I.T which is expected to rise exponentially. 

Cost Reduction Measures

In these challenging times every company is looking for cost optimization to sustain their business which creates opportunities for the outsourcing companies who can provide excellent service through their global service delivery models. 

Alliances & Strategic Acquisitions

I.T Companies are looking for partnering with leading technology providers to take advantage of emerging technologies in a mutually beneficial and cost competitive manner. They are also pursuing acquisitions on a global scale that augment their core skill sets namely industry expertise, client base or geographical presence.

16

Indian I.T Industry Threats: 

High Dependency on U.S Markets and selected industries for business

A majority of revenues for I.T Companies comes from U.S Markets and are also dependent on BFSI sector for the same. If the financial crisis prolongs over a long period, then it may hit business coming from these sections affecting the revenue margins significantly. 

Advent of Protectionist Policies

Another source of threat can be rise in protectionist policies propounded by political leaders in Western Countries. For e.g. Obama has vowed to stop jobs going out of America and may end tax breaks for Companies going for outsourcing. 

Pricing Margin Pressure

I.T Companies have been forced to reduce their pricing rates due to pressure from clients and due to intense competition. The wage bill has also increased for the organizations hitting the bottom lines significantly. There is also a possibility of rise in account receivables time period lending to likelihood of bad debts 

Currency Related Fluctuations

I.T Companies are also considerably affected by the currency rate fluctuations and a rise in rupee against the dollar will hit the margins appreciably. Also the forex losses incurred due to hedging affect the profitability of the company in a significant way.

Conclusion: The Indian I.T Industry is facing an uphill battle in today’s troubling times. The challenge is to sustain their growth rate and keep on providing value to their shareholders. The key for survival would be I.T Companies’ ability to diversify into global markets while getting more from their existing clients and initiating stringent cost optimization measures. Organizations who withstand this onslaught will come out of this crisis stronger, leaner and ready to take on global giants and stamp their authority in this flat world.

17

18