It Industry In India
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- Words: 2,189
- Pages: 11
Contents 1.
Introduction .................................................................................................................................... 3
2.
Market Structure............................................................................................................................. 3
3.
Porter 5 forces ................................................................................................................................ 6 Rivalry ................................................................................................................................................ 6 Threat of Substitutes ........................................................................................................................... 6 Buyer Power........................................................................................................................................ 6 Supplier Power .................................................................................................................................... 6 BARRIERS TO ENTRY ......................................................................................................................... 6
4.
Drivers for change ........................................................................................................................... 7
5.
Leading Companies ......................................................................................................................... 7
6.
Key Success factors for competitive success .................................................................................. 8
7.
Long term profitability .................................................................................................................. 11
8.
References .................................................................................................................................... 11
1. Introduction India IT industry is one of the world’s successful information technology industries. Measured by the age of many industries, the IT industry in India is still in its infancy. Yet its growth and development has caught the attention of the world so much so that India is now being identified as the major powerhouse for incremental development of computer software. The reason for this attention is not the actual size of the industry but its rapid growth rate over the nineties and subsequent decade. It has grown from US $ 150million (source: NASSCOM) in 1991-92 to US $ 64 billion in year 2008. The industry’s contribution to India’s GDP has grown significantly from 1.2% in 1999-2000 to around 5% in FY06, and has been estimated to cross 5.5% in FY08. The sector has been growing at an annual rate of 28% per annum since FY01 The Indian IT industry can be mainly categorised into following sectors IT services, IT enabled services and BPO, Research & Development, Software Product and Hardware.
2. Market Structure The size of the Indian IT industry, according to NASSCOM, is US$ 64 billion as of year 2008. It has been growing with an annual rate of 28% since 2001. The Indian IT industry can be broadly divided into two markets: domestic market and exports market. The exports market constitutes the largest segment accounting for 62-66% of the total revenue generated by the Indian IT industry. Within the export segment, geographical diversification and maturity in services and operating efficiencies helped the IT services exports to jump 28 per cent to $23.1 billion, while the BPO exports were up 30 per cent to $10.9 billion. Engineering services and product exports clocked revenue of $6.4 billion, an increase of almost 29 per cent over FY07. The domestic IT market accounted for 3438% of revenue. The domestic market is gaining momentum, driven by overall economic growth, increased adoption of technology and outsourcing. The Indian hardware industry is at present estimated to be in the proportion of 30% domestic, 1.25% exports and the remaining being imports. The domestic market itself offers tremendous potential for hardware companies, thus having very few companies venturing into hardware exports. Imports of IT hardware which form a large component of the industry are mainly from Taiwan, China and Korea. Lately, however, MNCs in the hardware segment have been viewing India as a hub for setting up hardware manufacturing facilities, for instance Dell.
Market Highlights The Indian software & services industry group generated total revenue of $64 billion in 2008. It contributed over 5.5 % of the overall GDP of India It has been growing with an annual rate of 28% since 2001. IT Exports will account for 35% of the total exports from India. As far as job creation out of this growth is concerned the sector generated 2 million direct jobs and around 7-8 million indirect jobs.
The Market capitalization of IT shares is around U.S. $ 225 billion.
3. Porter 5 forces Rivalry As the industry is still in its growth stage, there is enough room for expansion for existing players and new entrants. With the entry of many multinational companies (MNC) are opening their operations in India to leverage the low cost advantage provided by India, has increased the completion ratio (CR) of the industry. Also as there is no huge capital investment required to start a new company, the industry see a very large numbers of small and medium-size companies operating in a niche market. Presence of such large number of players has made the industry as one of the most competitive industry in the market. Threat of Substitutes The Indian IT industry currently enjoys a very high growth rate due to following advantages High availability of skilled labour Availability of large English speaking population Low cost of labour Good government policies (like tax holidays till 2009 for IT companies & setting up of special economic promotion zones) But there are many countries such as China, Philippines, and many east European countries that has started to provide similar opportunities and Indian IT industries always need to innovate and move into new sectors to keep out the competition Buyer Power Buyers in IT industry can be briefly classified into following categories: institutional buyers and individual or small consumers. Institutional buyers comprises of big and small enterprises which outsource part of their work or implement an IT solution for improving their processes. As the IT industry has large number of suppliers and few entry barriers for new entrants, the buyer has a many option to choose from thus have a large bargaining leverage. Similarly the individual consumer enjoys options of plenty and has large bargaining power. Supplier Power As there exist many competitive suppliers in the market the supplier has very little or no power in this industry BARRIERS TO ENTRY An IT company can be started with very low initial cost, further the government policies also promotes the entrepreneurs by providing benefits in terms of tax holidays and building Software Technology Parks. Apart from this there is large amount of venture capitalist who are ready to fund new start-ups enabling them to scale up.
4. Drivers for change We would try to analyse the changes in the IT industry in India mainly under following categories Socio-cultural changes: At the start of the IT boom in India, the BPO services sectors attracted a lot of interests among youths in India. Everyone wanted to be part of this boom, but slowly the odd timing hours and the mundane quality of work has affected the interests. People are now less inclined toward working in these organizations. This is slowly leading to a type of work done by Indian software services, the companies has started to move their work from business process outsourcing to Knowledge process outsourcing. Technological Changes The Indian IT industry is changing a lot in its character in terms of work handled by the companies. Today a lot more emphasis is being given to research and development (R&D). Companies which earlier focussed only on IT services are now also venturing in the software products segment for example ‘flexcube’ a software solution for banking industry build by i-flex. Economic Changes As the size of companies are growing the companies has started to bag big IT consulting projects with increased complexities which was earlier not the case.
5. Leading Companies Tata Consultancy Services Tata Consultancy Services (TCS) is one of the world's leading information technology companies. It has revenue of US $ 4.3 billion dollar. Through its Global Network Delivery Model, Innovation Network, and Solution Accelerators, TCS focuses on helping global organizations address their business challenges effectively. TCS has divided its business in following broad categories Services: TCS services helps enterprises stay agile and respond better to changing
market conditions by optimizing business processes, making their IT infrastructure resilient, and ensuring faster business results. Infrastructure Outsourcing: TCS works with enterprises to increase their IT infrastructures flexibility, scalability, and security, to help maximize performance, cost effectiveness and availability. IT Services: By aligning IT with their business needs, TCS helps enterprises experience real business results. Engineering & Industrial Services: TCS provides solutions globally to help enterprises realize their product development, production management and asset
management strategies, using best-in-class technologies, processes and competencies. Business Process Outsourcing: TCS leverages its years of domain and IT experience to
bring in process improvements, process automation, and platform based solutions to enterprises across industries. Consulting: TCS partners with enterprises worldwide to help them achieve business
transformation. Leveraging its industry insight and technology expertise, TCS enables success in essential strategic initiatives by aligning IT strategies with business objectives.
6. Key Success factors for competitive success Availability of Large Human Resources Every year, approximately 19 million students are enrolled in high schools and 10 million students in pre-graduate degree courses across India. Moreover, 2.1 million graduates and 0.3 million postgraduates pass out of India's non-engineering colleges. While 2.5-3 percent of them find jobs in other fields or pursue further studies abroad, the rest opt for employment in the IT industry. Indian Education System The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill set that has enabled the country to take advantage of the current international demand for IT Quality Manpower Indian programmers are known for their strong technical skills and their eagerness to accommodate clients. In some cases, clients outsource work to get access to more specialized engineering talent, particularly in the area of telecommunications Government Policies IT is a part of government's national agenda and all policies are driven to achieve maximum benefit to their industry. The reforms have reduced licensing requirements and made foreign technology accessible. The reforms have also removed restrictions on investment and made the process of investment easier The government is actively promoting FDI, investments from NRIs (Non-Resident Indians) including Overseas Corporate Bodies (OCB's) owned by the NRIs. FDI can be brought in through the automatic route, based on powers accorded to the Reserve Bank of India. Till 1994, DOT was the sole provider of basic telecom services in India. The new National Telecom Policy has opened the field for private participants. The IT Bill passed in 2000 provides a legal framework for the recognition of electronic contracts, prevention of computer crimes, electronic filing of documents, etc Amendments have also been proposed in the Indian Evidence Act, Indian Penal Code and the RBI Act. The mechanism of digital signature has been proposed to address the issues of jurisdiction, authentication and origination The IPR law in India Cost of Labour and resources
The comparative cost advantage that India provides in terms of availability of cheap labour and resources as compared to the European or US market makes companies to outsource portion of their business to these destination. Technological advances & Dot-Com bust Before the dot com boom, many multinational companies invested a large sum of money in laying the underline cables for inter-continental communication. But after the dot-com bust many of these companies went bankrupt leaving handing down the large network of communication lines at dirt cheap prices. This brought down the prices of inter-continental communication by a large factor. With availability of new communication technologies companies find it easier to manage their business spread across the globe. This also provided the companies to move a part of their non-core business to low cost locations like India and gain the cost advantage.
7. Long term profitability The Indian IT sector has been growing at an annual rate of more than 28% since 2001 and it is projected that the growth story will continue overcoming the hurdles of economic slowdown and rising cost of resources in India. Given below are few points which will keep driving this growth: · India has the raw talent capacity to comfortably service the IT-BPO industry in the future. While talent suitability is a concern, industry initiatives such as NAC will help improve overall employability · Despite cost increases, the Indian IT-BPO industry continues to leverage its lower cost structure to deliver a compelling cost advantage · Overall risk exposure is low with mature quality and data security mechanisms and negligible geopolitical risk · Proactive government policy is helping address existing infrastructure gaps. Further, SEZs will take over from STPI in propelling industry growth. · Providers are maturing their service delivery capabilities to actively deliver value-adds through global delivery models, process expertise, and innovation Apart from the traditional markets where Indian IT software and services players have a strong presence, it is also important to focus on emerging areas, where the future opportunities lie. The Indian software industry needs to develop a strong strategy for some of these segments and based on current trends, build skill sets that will be relevant for these “on-the-anvil” markets. According to NASSCOM, one of the emerging sectors where Indian IT software and services companies can make a tremendous impact is the software products segment, which encompasses the embedded software, Research and Development and shrink wrapped and enterprise products domains. Apart from these there is great growth potential in hardware industry. Currently India imports more than 50% of its hardware requirements, so companies will try to expand and tap this segment of market.
8. References Paper by C Jaychandran and Chandana Chakraborty on INDIAN SOFTWARE INDUSTRY : STRUCTURE, TRENDS AND CONSTRAINTS published in Journal of Services Research, Volume1, November 2(October 2001) Global software and services report published by Data Monitor (Reference Code 0199-2139) published on April 1 2008. Paper by Anand Deshpande (Persistent system limited) on Outsourcing 3.0: India the Market and the Factory http://www.indianembassy.org/indiainfo/india_it.htm http://www.thehindubusinessline.com http://www.dnb.co.in/TopIT/overview.asp http://in.news.yahoo.com/43/20080727/864/ttc-software-industry-revenue-growth-dip.html http://www.rbsc.com/pages/india.html
Introduction .................................................................................................................................... 3
2.
Market Structure............................................................................................................................. 3
3.
Porter 5 forces ................................................................................................................................ 6 Rivalry ................................................................................................................................................ 6 Threat of Substitutes ........................................................................................................................... 6 Buyer Power........................................................................................................................................ 6 Supplier Power .................................................................................................................................... 6 BARRIERS TO ENTRY ......................................................................................................................... 6
4.
Drivers for change ........................................................................................................................... 7
5.
Leading Companies ......................................................................................................................... 7
6.
Key Success factors for competitive success .................................................................................. 8
7.
Long term profitability .................................................................................................................. 11
8.
References .................................................................................................................................... 11
1. Introduction India IT industry is one of the world’s successful information technology industries. Measured by the age of many industries, the IT industry in India is still in its infancy. Yet its growth and development has caught the attention of the world so much so that India is now being identified as the major powerhouse for incremental development of computer software. The reason for this attention is not the actual size of the industry but its rapid growth rate over the nineties and subsequent decade. It has grown from US $ 150million (source: NASSCOM) in 1991-92 to US $ 64 billion in year 2008. The industry’s contribution to India’s GDP has grown significantly from 1.2% in 1999-2000 to around 5% in FY06, and has been estimated to cross 5.5% in FY08. The sector has been growing at an annual rate of 28% per annum since FY01 The Indian IT industry can be mainly categorised into following sectors IT services, IT enabled services and BPO, Research & Development, Software Product and Hardware.
2. Market Structure The size of the Indian IT industry, according to NASSCOM, is US$ 64 billion as of year 2008. It has been growing with an annual rate of 28% since 2001. The Indian IT industry can be broadly divided into two markets: domestic market and exports market. The exports market constitutes the largest segment accounting for 62-66% of the total revenue generated by the Indian IT industry. Within the export segment, geographical diversification and maturity in services and operating efficiencies helped the IT services exports to jump 28 per cent to $23.1 billion, while the BPO exports were up 30 per cent to $10.9 billion. Engineering services and product exports clocked revenue of $6.4 billion, an increase of almost 29 per cent over FY07. The domestic IT market accounted for 3438% of revenue. The domestic market is gaining momentum, driven by overall economic growth, increased adoption of technology and outsourcing. The Indian hardware industry is at present estimated to be in the proportion of 30% domestic, 1.25% exports and the remaining being imports. The domestic market itself offers tremendous potential for hardware companies, thus having very few companies venturing into hardware exports. Imports of IT hardware which form a large component of the industry are mainly from Taiwan, China and Korea. Lately, however, MNCs in the hardware segment have been viewing India as a hub for setting up hardware manufacturing facilities, for instance Dell.
Market Highlights The Indian software & services industry group generated total revenue of $64 billion in 2008. It contributed over 5.5 % of the overall GDP of India It has been growing with an annual rate of 28% since 2001. IT Exports will account for 35% of the total exports from India. As far as job creation out of this growth is concerned the sector generated 2 million direct jobs and around 7-8 million indirect jobs.
The Market capitalization of IT shares is around U.S. $ 225 billion.
3. Porter 5 forces Rivalry As the industry is still in its growth stage, there is enough room for expansion for existing players and new entrants. With the entry of many multinational companies (MNC) are opening their operations in India to leverage the low cost advantage provided by India, has increased the completion ratio (CR) of the industry. Also as there is no huge capital investment required to start a new company, the industry see a very large numbers of small and medium-size companies operating in a niche market. Presence of such large number of players has made the industry as one of the most competitive industry in the market. Threat of Substitutes The Indian IT industry currently enjoys a very high growth rate due to following advantages High availability of skilled labour Availability of large English speaking population Low cost of labour Good government policies (like tax holidays till 2009 for IT companies & setting up of special economic promotion zones) But there are many countries such as China, Philippines, and many east European countries that has started to provide similar opportunities and Indian IT industries always need to innovate and move into new sectors to keep out the competition Buyer Power Buyers in IT industry can be briefly classified into following categories: institutional buyers and individual or small consumers. Institutional buyers comprises of big and small enterprises which outsource part of their work or implement an IT solution for improving their processes. As the IT industry has large number of suppliers and few entry barriers for new entrants, the buyer has a many option to choose from thus have a large bargaining leverage. Similarly the individual consumer enjoys options of plenty and has large bargaining power. Supplier Power As there exist many competitive suppliers in the market the supplier has very little or no power in this industry BARRIERS TO ENTRY An IT company can be started with very low initial cost, further the government policies also promotes the entrepreneurs by providing benefits in terms of tax holidays and building Software Technology Parks. Apart from this there is large amount of venture capitalist who are ready to fund new start-ups enabling them to scale up.
4. Drivers for change We would try to analyse the changes in the IT industry in India mainly under following categories Socio-cultural changes: At the start of the IT boom in India, the BPO services sectors attracted a lot of interests among youths in India. Everyone wanted to be part of this boom, but slowly the odd timing hours and the mundane quality of work has affected the interests. People are now less inclined toward working in these organizations. This is slowly leading to a type of work done by Indian software services, the companies has started to move their work from business process outsourcing to Knowledge process outsourcing. Technological Changes The Indian IT industry is changing a lot in its character in terms of work handled by the companies. Today a lot more emphasis is being given to research and development (R&D). Companies which earlier focussed only on IT services are now also venturing in the software products segment for example ‘flexcube’ a software solution for banking industry build by i-flex. Economic Changes As the size of companies are growing the companies has started to bag big IT consulting projects with increased complexities which was earlier not the case.
5. Leading Companies Tata Consultancy Services Tata Consultancy Services (TCS) is one of the world's leading information technology companies. It has revenue of US $ 4.3 billion dollar. Through its Global Network Delivery Model, Innovation Network, and Solution Accelerators, TCS focuses on helping global organizations address their business challenges effectively. TCS has divided its business in following broad categories Services: TCS services helps enterprises stay agile and respond better to changing
market conditions by optimizing business processes, making their IT infrastructure resilient, and ensuring faster business results. Infrastructure Outsourcing: TCS works with enterprises to increase their IT infrastructures flexibility, scalability, and security, to help maximize performance, cost effectiveness and availability. IT Services: By aligning IT with their business needs, TCS helps enterprises experience real business results. Engineering & Industrial Services: TCS provides solutions globally to help enterprises realize their product development, production management and asset
management strategies, using best-in-class technologies, processes and competencies. Business Process Outsourcing: TCS leverages its years of domain and IT experience to
bring in process improvements, process automation, and platform based solutions to enterprises across industries. Consulting: TCS partners with enterprises worldwide to help them achieve business
transformation. Leveraging its industry insight and technology expertise, TCS enables success in essential strategic initiatives by aligning IT strategies with business objectives.
6. Key Success factors for competitive success Availability of Large Human Resources Every year, approximately 19 million students are enrolled in high schools and 10 million students in pre-graduate degree courses across India. Moreover, 2.1 million graduates and 0.3 million postgraduates pass out of India's non-engineering colleges. While 2.5-3 percent of them find jobs in other fields or pursue further studies abroad, the rest opt for employment in the IT industry. Indian Education System The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill set that has enabled the country to take advantage of the current international demand for IT Quality Manpower Indian programmers are known for their strong technical skills and their eagerness to accommodate clients. In some cases, clients outsource work to get access to more specialized engineering talent, particularly in the area of telecommunications Government Policies IT is a part of government's national agenda and all policies are driven to achieve maximum benefit to their industry. The reforms have reduced licensing requirements and made foreign technology accessible. The reforms have also removed restrictions on investment and made the process of investment easier The government is actively promoting FDI, investments from NRIs (Non-Resident Indians) including Overseas Corporate Bodies (OCB's) owned by the NRIs. FDI can be brought in through the automatic route, based on powers accorded to the Reserve Bank of India. Till 1994, DOT was the sole provider of basic telecom services in India. The new National Telecom Policy has opened the field for private participants. The IT Bill passed in 2000 provides a legal framework for the recognition of electronic contracts, prevention of computer crimes, electronic filing of documents, etc Amendments have also been proposed in the Indian Evidence Act, Indian Penal Code and the RBI Act. The mechanism of digital signature has been proposed to address the issues of jurisdiction, authentication and origination The IPR law in India Cost of Labour and resources
The comparative cost advantage that India provides in terms of availability of cheap labour and resources as compared to the European or US market makes companies to outsource portion of their business to these destination. Technological advances & Dot-Com bust Before the dot com boom, many multinational companies invested a large sum of money in laying the underline cables for inter-continental communication. But after the dot-com bust many of these companies went bankrupt leaving handing down the large network of communication lines at dirt cheap prices. This brought down the prices of inter-continental communication by a large factor. With availability of new communication technologies companies find it easier to manage their business spread across the globe. This also provided the companies to move a part of their non-core business to low cost locations like India and gain the cost advantage.
7. Long term profitability The Indian IT sector has been growing at an annual rate of more than 28% since 2001 and it is projected that the growth story will continue overcoming the hurdles of economic slowdown and rising cost of resources in India. Given below are few points which will keep driving this growth: · India has the raw talent capacity to comfortably service the IT-BPO industry in the future. While talent suitability is a concern, industry initiatives such as NAC will help improve overall employability · Despite cost increases, the Indian IT-BPO industry continues to leverage its lower cost structure to deliver a compelling cost advantage · Overall risk exposure is low with mature quality and data security mechanisms and negligible geopolitical risk · Proactive government policy is helping address existing infrastructure gaps. Further, SEZs will take over from STPI in propelling industry growth. · Providers are maturing their service delivery capabilities to actively deliver value-adds through global delivery models, process expertise, and innovation Apart from the traditional markets where Indian IT software and services players have a strong presence, it is also important to focus on emerging areas, where the future opportunities lie. The Indian software industry needs to develop a strong strategy for some of these segments and based on current trends, build skill sets that will be relevant for these “on-the-anvil” markets. According to NASSCOM, one of the emerging sectors where Indian IT software and services companies can make a tremendous impact is the software products segment, which encompasses the embedded software, Research and Development and shrink wrapped and enterprise products domains. Apart from these there is great growth potential in hardware industry. Currently India imports more than 50% of its hardware requirements, so companies will try to expand and tap this segment of market.
8. References Paper by C Jaychandran and Chandana Chakraborty on INDIAN SOFTWARE INDUSTRY : STRUCTURE, TRENDS AND CONSTRAINTS published in Journal of Services Research, Volume1, November 2(October 2001) Global software and services report published by Data Monitor (Reference Code 0199-2139) published on April 1 2008. Paper by Anand Deshpande (Persistent system limited) on Outsourcing 3.0: India the Market and the Factory http://www.indianembassy.org/indiainfo/india_it.htm http://www.thehindubusinessline.com http://www.dnb.co.in/TopIT/overview.asp http://in.news.yahoo.com/43/20080727/864/ttc-software-industry-revenue-growth-dip.html http://www.rbsc.com/pages/india.html
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