Industrial Analysis Report on “Indian IT Industry”

INDUSTRY ANALYSIS REPORT

ON

“INDIAN IT INDUSTRY”

Submitted in partial fulfillment for Business Practice I

MBA – I Sec-A

(2014 - 2015)

FACULTY OF MANAGEMENT STUDIES

Pacific Academy of Higher Education and Research

Pacific Hills, Airport Road, Pratap Nagar Extension

Udaipur 313003

Submitted To:

Sumi Nair Mam

Submitted By:

Parakramesh JaroliMBA- I Section- A

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Industrial Analysis Report on “Indian IT Industry”

EXECUTIVE SUMMARY

Note:

BPM : Business Process Management

USP : Unique Selling Proposition

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The IT-BPM sector in India is estimated to expand at a

CAGR of 9.5 per cent to USD300 billion by 2020. The

sector increased at a CAGR of 25 per cent over 2000–

13, 3-4 times higher than global IT-BPM spend

Strong Growth

India is the world’s largest sourcing destination,

accounting for approximately 52 per cent of the

USD124–130 billion market. The country’s cost

competitiveness in providing IT services, which is

approximately 3-4 times cheaper than the US continues

to be its USP in the global sourcing market.

Leading Sourcing

Destination

India’s highly qualified talent pool of technical

graduates is one of the largest in the world, facilitating

its emergence as a preferred destination for outsourcing

Largest Pool of Ready to

Hire Talent

The sector ranks fourth in India’s total FDI share and

accounts for approximately 37 per cent of total Private

Equity and Venture investments in the country

Most Lucrative Sector for

Investments

Industrial Analysis Report on “Indian IT Industry”

INTRODUCTION OF THE INDIAN IT INDUSTRY

The information technology (IT) and information technology enabled services (ITeS)

industry has been one of the key driving forces fuelling India's economic growth.

The industry has not only transformed India's image on the global platform, but also fuelled

economic growth by energising the higher education sector (especially in engineering and

computer science). It has employed almost 10 million Indians and hence, has contributed a lot

to social transformation in the country.

Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service

providers to make their business processes efficient and streamlined. The Indian

manufacturing sector has the highest IT spending followed by automotive, chemicals and

consumer products industries.

Indian organisations are turning to IT to help them grow business in the current economic

environment. IT is seen as a change enabler and a source of business value for organisations

by 85 per cent of the respondents, according to a study by VMware.

The Indian IT-business process outsourcing (BPO) sector, including the domestic and exports

segments, continue to grow from strength to strength, witnessing high levels of activity both

onshore as well as offshore. The companies continue to move up the value-chain to offer

higher end research and analytics services to their clients.

IT sector in the country has increased at an incredible rate of 35% per year for the last

10 years reinforces the view that India is world class in IT.

In IT services, India is emerging as one of the most preferred destinations for BPO’S.

It is playing an important role in economic development in a broader sense, beyond just

economic growth.

The IT sector is one of the largest employers of women, and therefore, can play a

crucial role in women empowerment and the reduction of gender inequalities.

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Industrial Analysis Report on “Indian IT Industry”

ADVANTAGE INDIA

GROWING DEMAND

Strong growth in demand for exports from new verticals.

Expanding economy to propel growth in local demand.

GLOBAL FOOTPRINTS

IT firms in India have delivery centres across the world; as of 2012, IT firms had a

total of 580 centres in 75 countries.

India’s IT & ITes industry is well diversified across verticals such as BFSI, telecom,

retail.

COMPETITIVE ADVANTAGE

India has cost savings of 60– 70 per cent over source countries.

India remains a preferred destination for IT & ITeS in the world. With 52 per cent

market share, India continues to be a leader in the global sourcing industry.

The country has a huge talent pool.

POLICY SUPPORT

Tax holidays extended to the IT sector.

SEZ scheme since 2005 to benefit IT companies with single window approval

mechanism, tax benefits, etc.

Note:

SEZ stands for Special Economic Zone

BFSI stands for Banking

Financial Services and Insurance; E stands for Estimate, F stands for Forecast.

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Industrial Analysis Report on “Indian IT Industry”

TOP 10 INDIAN IT COMPANIES

1. TATA CONSULTANCY SERVICES

TATA Consultancy Services Limited (TCSL)

is a multinational information technology (IT)

service, consulting and business solutions

company headquartered in India. TCS operates

in 46 countries. It is a subsidiary of the Tata Group and is listed on the Bombay Stock

Exchange and the National Stock Exchange of India. TCS is the largest Indian company

by market capitalization and is the largest India-based IT services company by 2013

revenues. TCS is now placed among the ‘Big 4’ most valuable IT services brands

worldwide. In 2013, TCS is ranked 40th overall in the Forbes World's Most Innovative

Companies ranking, making it both the highest-ranked IT services company and the top

Indian company. It is the world's 10th largest IT services provider, measured by revenues.

2. INFOSYS

Infosys (formerly Infosys Technologies) is an

Indian multinational corporation that provides

business consulting, information technology,

software engineering and outsourcing services.

It is headquartered in Bangalore, Karnataka. Infosys is the third-largest India-based IT

services company by 2014 revenues, and the fifth largest employer of H-1B

visa professionals in the United States in FY 2013. On 31 March 2014, its market

capitalisation was   188,510 crores ($31.11 billion), making it India's fifth largest publicly

traded company.

3. WIPRO

Wipro Limited (Western India Products Limited) is a multinational IT

Consulting and System Integration services company headquartered

in Bangalore, Karnataka, India. As of March 2014, the company has

146,000 employees servicing over 900 large enterprise & Fortune 1000

corporations with a presence in 61 countries. On 31 March 2014,

its market capitalisation was approximately  1.27 trillion ($20.8 billion), making it one of

India's largest publicly traded company and seventh largest IT services firm globally.

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Industrial Analysis Report on “Indian IT Industry”

To focus on core IT Business, it demerged its non-IT businesses into a separate company

named Wipro Enterprises Limited with effect from 31 March 2013. The demerged company

offers consumer care, lighting, healthcare and infrastructure engineering and contributed to

approx. 10% of the revenues of Wipro Limited in previous financial year. Recently Wipro

has also identified Brazil, Canada & Australia as rapidly growing markets globally and has

committed to strengthen the presence in the respective countries over the next 3 years.

4. TECH MAHINDRA

Tech Mahindra Limited is an Indian multinational provider

of information technology (IT), networking technology solutions and business support

services (BPO) to the telecommunications industry. Tech Mahindra is a part of the Mahindra

Group conglomerate. Anand Mahindra is the founder of Tech Mahindra. It is headquartered

at Mumbai, India. Tech Mahindra was ranked #5 in India's software services firms and

overall #111 in Fortune India 500 list for 2012. Tech Mahindra, on June 25, 2013 announced

the completion of a merger with Mahindra Satyam.

The combined entity has 92,729 employees, servicing 632 customers across 51 countries. It

has 15 overseas offices for BPO(business process outsourcing) operations and software

development. Its revenue for 2012-13 was put at $2.7 billion (Rs. 162 billion). Tech

Mahindra has operations in more than 30 countries with 17 sales offices and 13 delivery

centers. Assessed at SEI CMMi Level 5, Tech Mahindra employs over 92,500 workers. The

total headcount of the company at the end of August 1, 2014 stood at 92,729 out of which

software professional headcount stood at 64,095 and BPO at 21,936.

May 2012, Tech Mahindra reported a 3% increase in its revenue for the year ended March 31,

to $1.15 Billion. Its activities spread across a broad spectrum, including Business Support

Systems (BSS), Operations Support Systems (OSS), Network Design & Engineering, Next

Generation Networks, Mobility Solutions, Security consulting and Testing. The "solutions

portfolio" includes Consulting, Application Development & Management, Network Services,

Solution Integration, Product Engineering, Infrastructure Managed Services, Remote

Infrastructure Management and BSG (comprises BPO, Services and Consulting).Tech

Mahindra has implemented more than 15 Greenfield Operations globally and has over 128

active customer engagements mostly in the Telecom sector.

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Industrial Analysis Report on “Indian IT Industry”

5. HCL TECHNOLOGIES

HCL Technologies Limited is a global IT services

company headquartered in Noida, India. It offers  services including software consulting,

enterprise transformation, remote infrastructure management, engineering and R&D services,

and business process outsourcing (BPO).

HCL has offices in 131 countries to provide services across industry verticals, including

aerospace & defense, energy & utilities, independent software vendors, manufacturing,

professional services, servers & storage, automotive, financial services, industrial

manufacturing, media & entertainment, retail & consumer, telecom, consumer electronics,

government, life sciences & healthcare, medical devices, semiconductors, and travel,

transportation & logistics.

HCL Technologies is on the Forbes Global 2000 list and is one of Asia’s Fab 50 Companies.

HCL Technologies, along with its subsidiaries, had consolidated revenues of $5 billion in

2013 (Calendar Year).

6. MPHASIS

Mphasis is a Bangalore based IT services company

majority owned by Hewlett-Packard. The company provides infrastructure technology and

applications outsourcing services, as well as architecture, application development and

integration, and application management services. It serves financial services, telecom,

logistics, and technology industries. MphasiS is ranked #7 in India IT companies and overall

#165 by Fortune India 500 in 2011 with more than 40,000 employees  as of 2012. In

February 2014 the Mphasis company changed its logo and the Brand Name as Mphasis

Unleash the Next as it seeks to boost business other than from parent Hewlett-Packard,

currently its largest client. The 5th Feb 2014's announcement "in no way changes the

shareholding of HP which is 60.5%, it is about Mphasis being more relevant to customers,

including HP," Ayyar told reporters in Bangalore.

7. ORACLE FINANCIAL SERVICES

Oracle Financial Services Software Limited is a

subsidiary of Oracle Corporation. It is an IT solution provider to the banking industry. It

claims to have more than 900 customers in over 145 countries. Oracle Financial Services

Software Limited is ranked No. 9 in IT companies of India and overall ranked No. 253

in Fortune India 500 list in 2011.

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Industrial Analysis Report on “Indian IT Industry”

8. MINDTREE

Mindtree is a Global information technology and

Outsourcing company headquartered in Bangalore, India and New Jersey. Founded in 1999,

the company employs approximately 13,000 employees with annual revenue of $500+

million. Mindtree delivers technology services and accelerates growth for Global 1000

companies by solving complex business challenges with breakthrough technical innovations.

Mindtree specializes in e-commerce, mobility, cloud enablement, digital transformation,

business intelligence, data analytics, testing, infrastructure, EAI and ERP solutions with more

than 200 clients and offices in 14 countries.

9. POLARIS FINANCIAL TECHNOLOGY LIMITED

Polaris Financial Technology Limited (BSE: 532254 ; NSE: POLARIS) is a provider of

financial technology products, legacy modernization services and consulting for core

banking, corporate banking, wealth & asset management and insurance. Adrenalin

eSystems Limited (AeSys) is a subsidiary of Polaris Financial Technology Limited.

10. ROLTA INDIA LIMITED

Rolta is a provider of IT solutions for many vertical segments including Federal

and State Governments, Defense, Homeland Security, Utilities, Oil & Gas,

Financial Services, Manufacturing, Retail, and Healthcare. Rolta employs around 3500

workers and has a countrywide infrastructure and international subsidiaries across the

globe. Rolta India Limited is ranked No. 12 in IT companies and overall ranked No. 365 in

India in Fortune India 500 list in 2011. Forbes Global has ranked Rolta amongst the "Best

200 under a Billion" four times in six years while the company was included by Standard &

Poor on their 2008 Global Challengers List, which identifies 300 mid-size companies

worldwide with a total market capitalisation between US$1–5 Billion.

The company's subsidiaries include Rolta International Inc. (RUS), Rolta Middle East FZ Llc

UAE (RME), Rolta Saudi Arabia Limited (RSA), Rolta UK Limited (RUK) and Rolta Thales

Limited (RTL) while the company owns a 50% stake in Shaw Rolta Limited as of 30 June

2009, and acquired One GIS, Inc. in April 2010. Rolta is also in partnership

with Intergraph to market and support its software in India.

The company has various branches in various parts of India (Mumbai and Gurgaon) and

Canada.

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Industrial Analysis Report on “Indian IT Industry”

HISTORY OF THE INDIAN IT INDUSTRY

The history of IT industry can be studied in 4 phases:

Phase I: Prior to 1980

The software industry was literally nonexistent in India until 1960. Software used in the

computers till that time, were in built with the systems. Government protected the hardware

industry through high tariff barriers and licensing. However, in the West, the need for

software development was gradually being felt as the software in built in the system was not

sufficient to perform all the operations. The Government of India therefore, realized the

potential for earning foreign exchange.

In 1972, the government formulated the Software Export Scheme. This scheme made the

provision of hardware imports in exchange of software exports. TCS became the first firm to

agree to this condition. The year 1974 marked the beginning of Software exports from India.

Phase II: 1980- 1990

Despite the government initiatives, the software exports were not picking up because of two

reasons mainly:

The exports of software, was heavily dependent on the imports of hardware, which

was costly as well as the procedure for obtaining the same was very cumbersome.

Secondly, there was a lack of infrastructural facilities for software development.

To counter these, the government formulated a New Computer Policy in 1984, which

simplified import procedures and also reduced the import duty on hardware for software

developers. In an attempt to make, software industry independent of the hardware industry,

the government in 1986, formulated Software Policy which further, liberalized the IT

industry. According to this policy, the hardware imports were de-licensed and were also

made duty free for the exporters. This along with the world wide crash in the hardware prices

reduced the entry barriers substantially.

In 1990, government established Software Technology Parks of India. This scheme was

formulated to increase the exports of software and services.

Phase III: 1990- 2000

This decade made several significant changes in the economy, including trade liberalization,

opening up of Indian economy to foreign investment, devaluation of the rupee and relaxation

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Industrial Analysis Report on “Indian IT Industry”

of entry barriers. These changes attracted many foreign entities (MNCs) to our nation. These

MNCs in India, introduced ‘Offshore Model’ for software services, according to which, the

companies used to service their clients from India itself. This model further graduated to

Global Delivery Model (GDM). Global Delivery Model is a combination of Onsite and

Offshore Model. In this model, the Offshore Development Centre is located at various

locations across the globe.

During this period due to the entry of many players in the Indian market, the competition got

intensified. Therefore, the players started investing in research and development to

distinguish their services from others.

Phase IV: Post 2000

The global problems like the Y2K, the dotcom crash and recession in the US economy,

proved to be a boon to Indian IT industry. The Y2K problem demanded the existing

softwares to be compatible to the year 2000. Due to the shortage of US based programmers

during this period, many mid sized firms were forced to utilize the services of Indian firms.

This had placed the Indian IT industry on the global map.

Post 2002- 03, the industry had registered a robust growth rate because of increase in the

number of clients, large sized contracts and a strong global delivery model.

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Industrial Analysis Report on “Indian IT Industry”

IMPACT OF IT SECTOR ON INDIAN ECONOMY

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Industrial Analysis Report on “Indian IT Industry”

INDUSTRY SIZE & GROWTH TRENDS

The growth in the Indian IT industry is expected to be around 30 per cent and the overall

sales are projected to touch US$ 17 billion in FY 15, according to Manufacturers' Association

of Information Technology (MAIT).

The Indian IT infrastructure market - comprising server, storage and networking equipment -

is expected to grow by four per cent in 2014 to touch US$ 1.9 billion, according to Gartner.

The IT services market in India is expected to grow at the rate of 8.4 per cent in 2014 to Rs

476,356 million (US$ 7.88 billion), according to International Data Corporation (IDC).

Indian insurance companies plan to spend Rs 117 billion (US$ 1.93 billion) on IT products

and services in 2014, a 5 per cent increase from 2013, as per Gartner.

Indian enterprises are enhancing their IT security operations capabilities across departments.

The Indian market for security infrastructure and services is expected to grow from US$ 989

million this year to US$ 1.4 billion by 2017, as per Gartner.

The most prominent IT hub is IT capital Bangalore and the other emerging destinations are

Chennai, Hyderabad, Mumbai, Pune, NCR, Jaipur and Kolkata. India's growing stature in the

information Technology enabled the country to form close ties with both the United States of

America and the European Union.

India's IT industry has recorded phenomenal growth over the last decade. During the period

from 1992-2001, the compounded annual growth rate of the Indian IT services industry has

been over 50%. The software sector in India has grown at almost double the rate of the US

software Sector. The statistics of the India's IT industry substantiates the huge momentum

acquired by the IT sector in the recent past. During the financial year 2000-2001, the software

industry in India accounted for $8.26 billion. The corresponding figure was $100 million 10

years back. As per the report of a study undertaken by NASSCOM-McKinsey, the software

export from Indian IT industry is likely to reach 50 billion US dollars in the year 2008. This

growth rate of the software sector for the year 2008 has been projected on the basis of the

35% per year growth rate achieved in the last couple of years.

Export of software and services from India is expected to add almost 41 billion US dollars to

the annual revenue of the Indian government in the current year. The share of technology

industry in India's GDP is expected to reach 5.5% in 2008; while the corresponding figure in

1998 was as small as 1.2%.The study of NASSCOM has revealed that the growth of India's

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Industrial Analysis Report on “Indian IT Industry”

IT industry has prompted the growth of Indian exports by almost 36%. Another favourable

effect of India's IT boom is the expansion of opportunities of employment. By the end of

fiscal year 2008, the IT sector of India is expected to employ around 2 million skilled Indian

youths. The growth of India's IT sector has brought about many other positive changes in the

Indian economy. The purchasing power of a large section of Indian population has increased

dramatically. This has resulted in an increase in the average standard of living of the majority

of population of the country. The increase in purchasing power of the common people has

propelled the growth rate of the other sectors of the economy as well. There has been

considerable increase in the amount of fund available for venture capitalism and equity

financing.

The ITES sector has also come up to complement the growth of Indian IT sector. Domestic

IT market has shown a 24 per cent growth in the last fiscal as against 17 per cent in software

exports, according to Dataquest Top 20 survey. However in terms of size of the market,

domestic sector at Rs 33,374 crore in 2003-04 is way behind the export revenue of Rs 40,870

crore. The overall Indian IT industry is estimated at Rs 92,924 crore. If BPO and hardware

exports are added to overall IT exports from India then the figure for growth in exports comes

to 24 per cent. The growth of domestic IT market in 2003-04 compares favourably with the

previous year growth of nine per cent while the pace of increase in software exports slowed

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Industrial Analysis Report on “Indian IT Industry”

down to 17 per cent in last fiscal from 26 per cent in 2002-03. In the domestic market,

services grew by 26 per cent and hardware by 23 per cent.

For the 2012 financial year (which ended March 2012), annual business crossed US$ 100

billion in sales revenue, with IT contributing to 7.5 per cent of India’s GDP. Furthermore,

India had 58 percent of the “global IT services” outsourcing revenue, Indian IT services

account for 25 percent of its exports. Most Fortune 500 companies outsource some of their

work to Indian IT companies, and many operate either directly or indirectly in India. The IT

company Tata Consultancy Services reached $ 10 billion in annual revenue by March 2012,

with a healthy bottom line (22 per cent). Another company, Infosys (with $ 7 billion in

annual revenue), created the “ACM Infosys Foundation Award for Computing Science” in

2007 to celebrate 25 years of service. Fortune magazine recently named Infosys founder NR

Narayana Murthy, who is known for his unique way of combining capitalism and socialism,

as one of the 12 greatest entrepreneurs of our time.

India’s IT industry is growing steadily. Indian IT companies have reached the global stage

and are undertaking interesting IT projects. The IT sector has created jobs for 2.8 million IT

professionals and has indirectly employed an additional 8.9 million. The rapid growth or

engineering education, with more than 500,000 ungraduate IT engineers graduating per year,

feeds into this steadily growing IT industry.

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Industrial Analysis Report on “Indian IT Industry”

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IT Services

Project Oriented Services

IT Consulting

System Integration

CADM

Network Consulting & Integration

Software Testing

IT Outsourcing

Application Management

IS Outsourcing

Others(SOA, Web Services, E-

commerce)

Training & Support

Hardware Deployment & Support

Software Deployment & Support

IT Education &Training

Industrial Analysis Report on “Indian IT Industry”

IT SERVICES

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Industrial Analysis Report on “Indian IT Industry”

IT Services:

India is one of the leading provider of IT services. The basic model followed is known as

Offshoring wherein Indian firms cater to the specific requirements of its clients by employing

efficient project and quality management skills for its execution. This segment comprises of:

(A) PROJECT- ORIENTED SERVICES:

These services are delivered as individual projects. The services are catered according to the

needs and wants of the clients, and the expertise of the vendor. These services can be

delivered onsite or offshore, or can be a combination of both also.

These services include the following services:

1) IT Consulting:

The players in this service line advise clients to streamline their business using IT. They help

them in devising IT strategy, IT architecture, IT assessment and planning etc. IT consulting in

India is still at a very nascent stage. Major companies which are involved in this service are

Wipro, TCS, Satyam, and Infosys.

2) Systems Integration:

This comprises a whole bouquet of services which are very specific to the requirements of the

end user. The range of services included are:

Integration of various systems deployed by the organization- CRM, ERP, SCM etc.

Integration of business processes and logistics

Configuration of customized software

Database Maintenance

Integration of legacy systems with the new software or hardware

3) CADM:

These services include designing, upgrading and maintainance of software to suit the user

requirements. These services dominate the project oriented services market. These services

are best suited for offshoring that is why, these services dominate the Indian export basket.

4) Network Consulting and Integration:

These services offer planning, construction and designing of data networks. The range of

services in this service line includes:

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Industrial Analysis Report on “Indian IT Industry”

Network architecture design

Network connectivity

Systems Management

Project Management

Network Maintenance etc.

5) Software Testing:

It checks the quality of a software product or service. It is basically a technical investigation

to identify and rectify errors to meet specific quality parameters. Software Testing operates in

three spheres:

Response Testing: Ensures that parameters from which the responses are elicited

from the target audience are operational as well as efficient enough.

Security Testing: Ensures that all the security parameters are risk free

Load Testing: Ensures that the software can handle the load density so as to reduce

the down time.

(B) IT OUTSOURCING:

When an organization contracts another organization for managing, deploying and

maintaning its IT architecture or system, it is called as IT Outsourcing. It includes:

1) Application Management:

It includes management and execution of all activities involved in deploying, maintaining,

and upgrading a firm’s IT systems.

2) IS Outsourcing:

The service offered in this segment varies depending on the requirements of the client. The

services offered in IS Outsourcing can be:

Desktop Management

Help Desk Support

Management of Operation systems

Management of Applications systems

Management of Anti Virus systems

Back up equipment service etc.

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Industrial Analysis Report on “Indian IT Industry”

(C) TRAINING AND SUPPORT:

It includes three segments:

1) Software Deployment and Support:

It involves installing, configuring and maintaining software on the client’s systems.

2) Hardware Deployment and Support:

It involves deploying specific hardware devices on the client’s systems.

3) IT education and Training:

It is designed to educate and train the in house team for organization Information Technology

systems. It is imparted to provide ‘organization specific’ skills.

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Industrial Analysis Report on “Indian IT Industry”

ESTABLISHED IT HUBS IN INDIA

1. Bangalore:

The total number of Software Technology Parks (STPI) in Bangalore in the year

2008-09 were 2085 (5% growth as compared to the year 2007-08).

Bangalore witnessed a 23% growth in the software exports as compared to the

national growth of 21% in the year 2008-09.

Major IT/ ITeS in the hub: Infosys, Wipro, TCS, HP, Siemens, HSBC, Compaq.

The ICT cluster in Bangalore has over 1500 IT firms out of about 3500 IT firms in

India. In fiscal 2005-06, the state of Karnataka accounted for 37.6 percent of the

total software exports from India and the city of Bangalore alone accounted for

about 97 percent of it. Thus around one third of all of India’s software exports are

from the city of Bangalore.

2. Hyderabad:

Total number of STPI registered units by the end of 2008-09 were 1060.

Hyderabad registered a 24% growth in software exports.

Major IT/ITeS in the hub: HP, Amazon, Verizon, Convergys, EXL, Infosys, TCS.

3. NCR- Delhi:

Total number of STPI registered units by the end of 2008-09 were 1938.

IT/ITeS majors: IBM, Genpact, Oracle, Am Ex, Convergys, HP, General Motors.

4. Kolkata:

Total STPI registered units by 2006-07: 166 (28 added in 2006-07).

IT/ITeS majors: IBM, Cognizant, TCS, Infosys, Wipro.

5. Mumbai:

Total STPI registered units by 2006-07: 630 (40 added in 2006-07).

IT/ITeS majors: TCS, Infosys, Wipro, Siemens, Accenture.

6. Pune:

Total STPI registered units by 2006-07: 635 (108 added in 2006-07).

IT/ITeS majors: Cognizant, Convergys, EXL, KPIT, Msource.

7. Chennai:

Total STPI registered units by 2006-07: 900 (131 added in 2006-07).

IT/ITeS majors: Infosys, Wipro, Accenture, Cognizant.

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Industrial Analysis Report on “Indian IT Industry”

EXTERNAL ECONOMIC FACTORS & THEIR EFFECT ON THE INDUSTRY

POLITICAL FACTORS

Very little influence of political situation including change of government.

No tax sops to US companies outsourcing IT jobs

Diverse employment practices-qualification, abilities, gender, skill sets

Boosting the image of India in global market.

Certain levels of ambiguity surrounding taxation of IT products and services,

IT SEZ requirement: Infosys controversy.

Continuous change of stand on applicability of labour legislations to the sector

Strengthening of the IT Act- security of data in transmission & storage.

ECONOMIC FACTORS

Stage of business cycle: IT industry is in growth phase and this can seen through

increasing contribution to GDP and employment

Exchange rate:

Indian IT sector is dependent on foreign clients, especially US, for more than 70%

of its revenue. So, the fluctuation in the exchange rate can bring a considerable

difference in the performance of a company.

IT sector undertakes various measures like hedging exchange risks using forward

and future contracts. This helps them in mitigating some of the loss due to

exchange rate fluctuation but none the less the impact is substantial.

“Every 1% movement in the Rupee against the US Dollar has an impact of approximately

50 basis points on operating margins” – Infosys Annual Report

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Industrial Analysis Report on “Indian IT Industry”

Economic growth: Due to global slowdown, exports of IT and ITeS services has slightly

dimmed but a great opportunity is waiting in India’s domestic market with increasing

technology adoption within the government sector and the small and medium business (SMB)

sector.

SOCIO CULTURAL FACTORS

The social factors affecting IT industry ranges from employee right, language

barriers, race nationality of company or other issues.

English language being widely spoken in India has help in fostering the industry’s

relationship and interaction in India and on the global stage.

India is one of the few countries to have an increasing share of working population,

since there is great availability of both skilled and unskilled labour force.

Immense intellectual capital

Potential employment opportunity for women in this organized sector.

EDUCATION: Large number of universities and institutes.

LABOUR:  Indian labour is not only cheap but is technically skilled too.

CAREER: In the year 2006-07, the industry hired approximately 3, 80,000 people.

Out of these, the ITeS sector hired 2, 00,000 people and the rest were taken by IT

sector.

TECHNOLOGICAL FACTORS

Government Research spending: Government IT spending in India reached $6.4

billion US Dollars (USD) in 2013, a 7 percent increase over 2012, according to

Gartner, Inc

New Inventions and Development:

National optical fiber network (NOFN)

National Knowledge Network

AADHAAR (Unique Identification Authority of India)

eSeva

Proposed global learning center of the TCS.

(Changes in) Internet: Indian Internet Companies with Innovative business model

Naukri.com

Flipkart

Redbus

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Industrial Analysis Report on “Indian IT Industry”

Lifecycle & speed of technological obsolescence: Desktop to Laptop, Landlines to

Skype, DOS to Windows 8

(Changes in) Mobile Technology: The exploding mobile technology includes

telecommuting, working from partner or client locations, from a plane or train or

simply moving more fluidly around the company's own premise through the use of a

wireless local-area network.

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Industrial Analysis Report on “Indian IT Industry”

PORTER’S FIVE FORCES: COMPETITIVE ENVIRONMENTAL

The competitive landscape of the industry can be understood using the Porter’s five forces

model.

Threat of New Entrants: When the barriers of entry are low, the threat of new entrants

becomes very high. Since in IT software and services, the players enjoy significant

economies of scale and the switching costs are also very high, therefore, the entry barriers for

the IT Software and Services are very high. In contrast to this, in ITeS- BPO, lower

economies of scale are reached and the switching cost is also very low. This leads to very low

entry barriers.

Therefore, there is high threat of new entrants in the ITeS- BPO sector while it is low in the

case of IT software and services.

Rivalry among players: When the number of players increases in a sector, the intensity of

rivalry also increases. With the increase in rivalry, the players resort to a number of strategies

being followed by the players to acquire new customers or to retain older ones. Earlier

players used to provide customized services to attract customers, but now this practice, also

fails to attract them. Therefore, they resorted to providing end to end solutions, niche services

etc.

Bargaining Power of Buyers: Since the switching costs in case of IT Software and Services,

is very high, the Bargaining power of the buyers becomes low. But just opposite to this, in

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Porter's Five Forces

Threat of New Entrants

Rivalry among players

Bargaining Power of BuyersBargaining Power

of Suppliers

Threat of Substitutes

Industrial Analysis Report on “Indian IT Industry”

case of ITeS- BPO sector, the switching cost is relatively very low, which makes the

bargaining power of the buyer very high.

Bargaining Power of Suppliers: Suppliers for the industry can be categorized into: (a)

Knowledge Professionals, (b) Hardware Manufacturers and (c) Telecom industry players.

Knowledge Professionals have a high bargaining power in the IT Software and Services

sectors because they demand high level of skill and expertise to render their services. In the

ITeS- BPO sector, the level of skill and expertise required is low, therefore, they have a lower

bargaining power on the industry.

For the IT industry to function properly, proper hardware infrastructure is required.

Therefore, the bargaining power of hardware manufacturer grows. This is supported by the

fact that hardware manufacturing industry is very concentrated (HP, IBM, Dell etc.)

While a robust telecom network is a pre-requisite for proper functionality of the IT industry,

but the presence of a number of players in the industry reduces their bargaining power.

Threat of Substitutes: Since the IT industry is driven by technology, which itself is ever

eveolving, therefore, there is a high risk of substitutes for the industry.

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Industrial Analysis Report on “Indian IT Industry”

FUTURE PROSPECTS OF THE INDUSTRY

Globalization has had a profound impact in shaping the Indian Information Technology

industry. Over the years, verticals like manufacturing, telecom, insurance, banking, finance

and lately the retail, have been the growth drivers for this sector. But it is very fast getting

clear that the future growth of IT and IT enabled services will be fuelled by the verticals of

climate change, mobile applications, healthcare, energy efficiency and sustainable energy.

The near future of Indian IT industry sees a significant rise in share of technology spend as

more and more service providers both Indian and global target new segments and provide low

cost, flexible solutions to customers.

By 2015, IT sector is expected to generate revenues of USD 130 billion (NASSCOM) which

will create a transformational impact on the overall economy. IT spending is expected to

significantly increase in verticals like automotive and healthcare while the government, with

its focus on e-governance, will continue to be a major spender.

Globalisation has had a profound impact in shaping the Indian IT industry with India

capturing a sizeable chunk of the global market for technology sourcing and business

services. Over the years, the growth drivers for this sector have been the verticals of

manufacturing, telecommunication, insurance, banking, finance and, of late, the fledgling

retail revolution. As the new scenario unfolds, it is getting clear that the future growth of IT

and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare,

energy efficiency and sustainable energy. Traditional business strongholds will make way for

new geographies, there would be new customers and more and more of SMEs will go for IT

application and services.

Demand from emerging countries is expected to show strong growth going forward. Tax

holidays are today extended to the IT sector for STPI and SEZs. Further, the country is

providing procedural ease and single window clearance for setting up facilities.

The future of the industry is very bright provided it overcomes the challenges noted above.

The industry will witness a surge in the Engineering and R & D services. Along with there

will be more penetration in new service lines such as packaged software support and

installation, IT consulting, IS outsourcing, IT training and education etc. The domestic

market will also gain more attention and focus. IT spending across verticals like Banking and

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Industrial Analysis Report on “Indian IT Industry”

Financial Sector Institutions (BFSI), healthcare, manufacturing, retail etc. would increase,

with the increase in the internet usage.

CONCLUSION

The Indian Information Technology industry represents one of the most successful

industry showing consistent rapid growth. Very good future prospects. IT & ITeS is ongoing

requirement of every nation. Opportunities for Investors, Entrepreneur, Youth and Countries.

Continuous growth year by year. But with more and more educated people in India, there will

be even more engineers in the future, and software competition will be on a rise. Regardless

of whatever happens to the future of software in India, the people who are outstanding in

their profession will continue to be in demand. Therefore, we can say that the industry is

shining and will continue to do so as well.

Even after facing so many challenges in IT sector, India is able to sustain itself

because not just private but Govt. sector has accepted IT in their system. Not just technically

skilled but also linguistically better at English. But NASSCOM report says major graduates

are not employable and they need to be trained on hard as well as soft skills. Thus we observe

that the Indian IT industry has been facing some challenges but if effective steps are taken

then it will surely help it to remain competitive in the future as well.

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Industrial Analysis Report on “Indian IT Industry”

REFERENCES

http://www.wikipedia.org/

http://www.ibef.org/

http://www.slideshare.net/

http://www.nasscom.in/

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