In today's knowledge-driven global economy, one industry in which India is among global leaders and has a firm footprint is the fast-growing information technology and business process outsourcing industry, which includes software development and back-office operations. This industry has not only emerged among the fastest growing contributors to the country's national income, but also the biggest employment generator.
Some Indian companies in the business like Tata Consultancy Services, Infosys Technologies, Wipro and Hindustan Computers have earned global repute for the quality of service and reach, while several large overseas players like Microsoft, IBM, Hewlett Packard, Cisco, Oracle, Sun Microsystems, Yahoo, Google, Dell, Intel have set up shop in India, registering phenomenal growth.
Leading researcher and technology consultancy Gartner says India remains the undisputed global leader in offshore services. The country, according to it, has distinct advantages such as language, policy support, focused education system, talented labour pool, rich intellectual capital, cost advantage and good infrastructure backbone to support the information technology (IT) and business process outsourcing (BPO) industry.
According to National Association of Software and Service Companies (Nasscom), the apex body for software and relates services in India, the country's technology and business services industry has had a phenomenal run over the last 10 years. The industry has grown from $4 billion in revenues in 1998 to a $59-billion giant today employing over two million people. Of this, exports accounted for $47 billion.
Thus, the industry's contribution to the country's gross domestic product (GDP) has also quadrupled from 1 percent to 4 percent in the last decade. Including the hardware segment of this industry, the total revenues stood at an impressive $71.7 billion in 2008-09, registering a growth of 12 percent despite the current global downturn and a recession in most of top markets for the industry. Nasscom says there are other interesting facts and trends as well:
-Exports remained the mainstay of the Indian IT-BPO growth story. Software and services exports, accounted for over 99 percent of the total exports and reached $47 billion and directly employed over 1.7 million professionals in 2008-09.
-Direct employment in the Indian IT-BPO industry crossed 2.2 million people - an increase of about 226,000 professionals over 2007-08. This apart, indirect job creation is estimated at about eight million.
-As a proportion of the national GDP, the sector’s revenues have grown from 1.2 percent in 1997-98 to an estimated 5.8 percent in 2008-09. Net value-added by this sector to the economy, is estimated at 3.5-4.1 percent for 2008-09.
-Banking, financial services, insurance and telecom continued to account for more than 60 percent of the market. Healthcare industry is likely to witness increased IT investments due to increased focus on public health, making healthcare and insurance affordable to all. Other industries that will see growth include telecom, retail and utilities.
The IT-BPO industry has also set a precedent for talent practices in the country by creating career opportunities for the youth, providing global exposure and offering extensive training and development. It has also pioneered the concept of employee ownership and has been a frontrunner in diversity at the workplace. Employee stock option schemes handed out by companies like Infosys and Wipro have turned several of their employees into dollar millionaires.
India is also the largest developer location for global giants such as Sun Microsystems, which has recently been acquired by Oracle, as well as mobile handset and technology provider Nokia. Sun Microsystems has 760,000 developers in India, which is the largest for it among any country in the world. And Nokia works with more than 140,000 independent developers in India, which is again the largest for the Finnish company.
Indian IT companies have also been executing some mega deals in the global space, says the commerce and industry ministry-sponsored India Brand Equity Foundation that seeks to push brand India overseas. The biggest among them included Citi's sale of its captive BPO unit to Tata Consultancy Services for over $500 million in October 2008 and HCL Technologies buying out of British consulting firm Axon for $658 million. This apart, Wipro acquired Citi's technology services unit for $127 million and 3i Infotech bought Regulus Group of the US for $80 million.
According to consultancy Grant Thornton, cross-border mergers and acquisitions involving IT-BPO companies from India, increased nearly 12 percent last year to top $3.22 billion, spread over 98 deals. This rose from $2.88 billion the year before spread over 159 deals. The average deal size also increased in 2008 to $32.86 million, against $18.15 million in the year before.
Going forward a joint study by Nasscom and another global consultancy McKinsey India's technology and services industry can earn $225 billion in revenues by 2020 despite the current global economic crisis. Of this, $175 billion is expected from exports and the remaining from domestic sources. The study also says that if India and its technology industry focused on transforming its business environment, innovativeness and talent development, the revenues would be as high as $375 billion by 2020.
On the technology front, convergence of information and communication technologies (ICT), reduction in bandwidth cost and availability of human capital have created an eco-system to enable India emerge as the global hotspot for IT services and products much as China became a factory of the world for manufacturing goods.
Though inadequate physical infrastructure, rising capital cost and delays in clearances remain a cause for concern, growing competition and demanding customers are forcing the industry players to move up the value chain to offer enhanced services and products that are innovative, productive and cost-efficient.
With pervasive technology becoming imperative to sustain growth, enhance performance of goods and services and compete globally, knowledge firms are entering high-value verticals such as engineering, aerospace, defence, healthcare, retail, logistics and e-governance.
Having gone through a cycle of downturn when the dot.com bubble burst early this decade, the Indian IT industry has come of age to withstand the current global recession and tech meltdown to bounce back into high growth with lean, mean and fighting fit operational models.
Increasing investment in technology and capacity expansion to reach out new geographies within the country and abroad are making enterprises across verticals to outsource their entire IT operations to the Indian vendors and remain focused on their core competency.
The advent of web-based services using Internet as the virtual platform has made even brick and mortar firms to engage software and hardware vendors to maintain or run their IT operations either onsite or remotely, providing end-to-end services and solutions.
As the world’s second fastest growing economy, with increasing technology absorption and huge investments in ICT by enterprises across verticals, global players are setting up operations in the Indian sub-continent to cash in on the business opportunities and leverage the abundant human capital at much lower cost than any where world over.
Consistent high growth rate, increasing disposable incomes and heightened aspirations of the Gen-next have expanded the Indian market for technology-driven products and services across verticals.
The phenomenal growth of mobile telephony, direct-to-home (DTH) services, voice over internet protocol and increasing appetite for content in voice, data and video formats from enterprises and individuals have created opportunities for multiple vendors to capitalise.
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