It Sector

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

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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.

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Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions.

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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 •

Highly skilled human resource

•

Low wage structure

•

Quality of work

•

Initiatives taken by the

Weaknesses • Absence of practical knowledge • Dearth of suitable candidates • 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 operations in India like Microsoft, Oracle, Adobe, etc.

•

Following Quality Standards such

• Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon come to an end.

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