Introduction Of IT Industry Information Technology Essay

Over the past decade, the Information Technology (IT) industry has become one of the fastest growing industries in India because of which it has caught world attention. Indian IT-ITES industry grew at a rate of 33 % in FY2008. India is now being identified as powerhouse for incremental development of computer software. It has grown from USD 4 billion industry to USD 58.8 billion industry in FY2008-09 employing over 2 million people. IT-BPO Industry has become growth engine for the economy contributing substantially to increases in GDP, urban employment and exports to achieve vision of ‘young and resilient India’. Although domestic market is growing in India but still the major propellers of growth are exports. The key segments that have contributed significantly to industry’s exports include-Software and services (IT services) and IT enabled services. In the face of current recession though the mood is that of cautious optimism but Industry is expected to witness sustainable growth over period of two years. But at the same time while industry has significant headroom for growth ,as the competition is increasing with China emerging as major threat ,all the stakeholders of Indian IT industry must give concentrated efforts to ensure that India realizes its potential and maintains its leadership position in future also.

Demand of IT industry:

There has been spur in the demand of IT in India because of :

Breadth of service offerings- Indian players have focused their energy on building domain competencies and expertise in order to ensure superior value addition to clients projects and processes. Service offerings have evolved from low-end application development to high end integrated IT solutions. Worldwide interest in business process re-engineering, the economic imperatives in developed countries of outsourcing, cost efficient maintenance of existing mainframe systems and continuous development of new software for PCs have played significant roles.

Cost advantage: Improved cost of operations is the key factor for growth in outsourcing. It is estimated that cost savings for the MNC’s are around 20-40%of company’s original costs. Apart from lower administration and labour costs , central & state governments offer fiscal and non-fiscal benefits to companies adding to further cost advantage.

Quality of processes-India is host to more than 55% of global SEI CMM Level 5firms and is expected to host highest number of ISO certified companies.

Abundance of qualified software engineers- Indian software engineers have carved out a name in world market for providing unbeatable competition of quality software at low cost. With more than half the million population below 25 yrs India is positioned to meet the swelling demand for IT-ITES professionals. Leading firms add more than 10000 new employees per annum.

Government’s timely national action plan for rapidly improving communication software.

Business infrastructure-Sectors like real estate, transportation (air and road connectivity) and hospitality are actively supporting the burgeoning demand generated by IT-ITES sector.

Supply of IT industry:

1. Employees /professionals-India’s young demographic profile and academic infrastructure have potential to cater to growing demand for IT/ITES. There is an estimated additional demand for 0.8 million IT and 1.4 million ITeS professionals by 2010 and India possesses an abundant talent pool, producing 675,000 technical graduates per annum, of which 400,000 are engineers.

2. Manpower suppliers like manpower ITeS, Quest, Ma Foi (not clear)

Key Players of IT industry:

The top 10 IT-ITES firms are given below:

The key players are:

Tata Consultancy Services:

TCS is the leader in IT services with workforce of 143,761 professionals across 50 delivery centres as on june30, 2009. The key highlights are:

Acquired FNS bringing core banking solutions expertise

Comicron acquisition brought in BPO expertise in South America

Pearl Group JV made in the life insurance and pensions industry in the UK

Tata Technologies acquisition of UK-based INCAT Technologies for US$ 98 million complemented its engineering and design services expertise.

TCS generated revenues of US$6 billion in FY 2008-09.

Major verticals contributing to revenue growth are BFSI verticals (approx 44%) with telecom and manufacturing following it. After these retail sector is main contributor. The others include Life science, transportation, utilities.

Infosys Technologies Limited

Infosys is India’s second largest software and Services Company with approximately 103905employees on board as on june30, 2009. The key highlights are:

One of the pioneers in the development and adoption of the now famous ‘Global Delivery Model’.

Focus on continuous employee training & progression on IT value chain.

“One Infy” service, an initiative to combine different service offerings and go to market strategy for its top 30 clients, helped bring in five large banking orders.

Projects like Instep, Catch Them Young to attract talent globally and at the schooling level.

The company’s training centre in Mysore, Karnataka is acclaimed as the world’s largest corporate university

Infosys revenues reach US$4.66 billion in FY 2008-09.

The BFSI is the major contributor to revenue with 34% contribution followed by manufacturing (20%), retail (13%), telecom (18%) and others (15%).

Wipro Technologies Limited

Wipro is third key player in IT industry with a workforce of 98,521 professionals as on june30, 2009.The key highlights are:

Leading IT solutions and services provider in application development, system integration, product implementation & consulting services.

Business include software development, hardware, consumer care & lighting & health science

Acquisitions plus big ‘total outsourcing’ wins in the domestic market against global competition

Wipro Technologies Limited clocked revenues of about $5billion in FY08-09.

The major revenues come from products and services (28%), closely followed by financial services (23%). Technology, media, transportation services contribute about a quarter of sum of revenues of products and financial services. Other contributors to revenue are retail, energy and utilities, manufacturing and telecommunication verticals.



SIZE: The major contributors to the revenue are exports with 80% contribution to GDP with domestic business comprising of just 20% of revenue.But in the wake of global slowdown Indian domestic market provided a shield to IT industry making it resilient to effects of world economic turmoil. In fact, domestic market is growing at rapid pace with some large transformation deals seen in telecom area.

MARKET SHARE: Indian IT industry is ruled by certain large cap companies with mid- cap companies and niche players. Large cap companies like TCS, Wipro, Infosys, Satyam and HCL Technologies alone comprise 40% market revenue. These large cap companies have expanded nationally as well as registered India as leader in global IT industry. There are other small and mid cap companies like IBM, Tech Mahindra, Capgemini and others. According to NASSCOM these small and niche companies have large potential in future as they cater to customized market segments and improve their services.


Indian IT industry has tapped mainly two service lines i.e. application development and application outsourcing. But other service lines are:

Packaged Software Support and Installation

IT consulting

Network Infrastructure management

Systems Integration

IS outsourcing

IT training and education

Hardware support and Installation

Network consulting and integration

ITES opportunities include:

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HR services

customer care

payment services

content development




India has been able to establish its strong credentials in the IT services arena, India has not been able to make a dent in the software products market. India has only been able to capture a meagre 0.2% of the US$ 180 billion market. A broader spectrum of opportunities is however becoming available to Indian players in areas such as :

embedded Software;

development and delivery of specialized components;

tapping offshore product development opportunities;

product acquisition

Enhancement and developing shrink wrapped products.


Revenue and growth of IT Industry are measured across 3 dimensions:





The IT software and services industry has been segmented into four components:

IT services exports sector-Indian IT services export mainly includes application development and maintenance services. So major revenue comes from traditional line within IT services. But other services lines include enterprise solutions, business intelligence and other emerging service lines. Now, the focus is shifting on lines such as testing services, consulting services, infrastructure structure outsourcing etc.

BPO Services-BPO industry is one of the fastest growing segments of Indian IT industry. It is also expected to maintain the high growth rate led by platform based BPO offerings.

Engineering services, software products and R&D- Engineering design outsourcing includes product design, R& D and other technical services across sectors like automotive, aerospace, hi-tech/telecom, utilities and construction. According to NASSCOM, potential engineering market could exceed $38 bn by 2020.

Hardware -Hardware market is gaining head in domestic market.


The major verticals of IT industry are Banking, Financial Services and Insurance (BFSI).BFSI continues to account for the largest share of Indian IT-ITES exports. The Telecom Vertical accounts for the second largest share of the pie at 20 per cent. Together,

Both verticals account for close to 60% of the Indian IT-ITES exports. The other significant verticals include manufacturing, retail, media and healthcare.


US AND EUROPE account for 90% of exports. The IT services spend in Asia Pacific is expected to register a relatively higher compounded annual growth rate of 11.6% until 2008-09. In future these Asia-pacific countries would grow much faster than US and EUROPE and thus they are the major emerging markets for IT services.



Political Stability: Indian political structure is considered stable enough expect the fact that there is a fear of ‘ hung parliament'(no clear majority).

U.S. Government has declared that U.S. companies that outsource IT work to locations other than U.S. will not get tax benefit.

Government owned companies and PSUs have decided to give more IT projects to Indian IT companies.

Terrorist attack or war


Global IT spending (demand)

Domestic IT spending (demand): Domestic market to grow by 20% and reach approx USD 20 billion in 2008-09 NASSCOM.

Currency Fluctuation

Real Estate Prices: Decline real estate prices have resulted reducing the rental expenditures.

Attrition: Due to recession, the layoffs and job cuts have resulted in low attrition rate.

Economic Attractiveness: due to cost advantage and other factors.


Language spoken: English is widely spoken language in India, English medium being the most accepted medium of education. Thus India boasts of large English speaking population.

Education: A number of technical institutes and universities over the country offer IT education.

Working age population


1 .Telephony:

India has the world’s lowest call rates(1-2 US Cents)

Expected to have total subscriber base of about 500 million by 2010.

ARPU for GSM is USD 6.6 per month.

India has the second largest telephone network after china.


Enterprise telephone services,3G ,WIMAX,VPN are poised to grow.

2. Internet Backbone:

Due to IT revolution of 90’s, Indian cities and India is well connected with undersea optical cables.

New IT Technologies:

Technologies like SOA, web 2.0,high definition content, grid computing etc. And innovation in low cost technologies is presenting new challenges and opportunities for Indian IT industry.


Energy efficient processes and equipments: Companies are focusing on reducing the carbon footprints, energy utilization and water consumption etc.


1. IT SEZ Requirement-IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax benefits and fiscal benefits.

2. Contract /Bound Requirements-Huge debate surrounding the bonds under which the employees are required to work which is not legally required.

3. IT Act-Indian government is strengthening the IT act,2000 to provide a sound legal environment for companies to operate esp. related to security of data in transmission and storage etc.

4. Companies operating in Software Technology Park(STPI) Scheme- will continue to get tax benefit till 2010.

Role of NASSCOM Foundation

NASSCOM Foundation has taken significant strides in fulfilling its stated role.

Providing hand holding support and advisory services:

In order to enable member companies of small size (in terms of turnover) to be a part of the growing number of IT/ITES organizations participating in community initiatives, NASSCOM Foundation (NF) is ideally placed to provide handholding support and connect them to partnering organizations. It can also help create awareness of the fact that it is possible to contribute to society without necessarily setting aside a large amount of funds. Companies can demonstrate social consciousness and sensitivity in the regular course of business or by ‘doing business responsibly’.

Dissemination of information on best practices, international benchmarks and monitoring mechanisms:

NF could help create awareness among companies for the need of having in place guidelines for undertaking community initiatives and dedicated personnel/ department to undertake these activities to ensure greater effectiveness and impact. An effort by NF to prepare a comprehensive database of various successful practices of companies and create awareness of international standards of socially relevant community initiatives would also go a long way in helping the industry move up the learning curve. Educating companies on possible monitoring mechanisms and ways to measure outcomes of their activities would also help in assessing the impact and allowing course correction where necessary.

Identify sector specific investment opportunities:

As the survey has shown, the sectors in which companies undertake their community initiatives are diverse and are often chosen in an isolated manner based on personal perspectives. A conscious decision to link the activities with MDG goals or Government initiatives in promoting socio-economic development could help the IT/ITES industry achieve more in public-private partnerships (PPP) than what is possible through the individual efforts of specific companies.

Initiate award/recognition system for socially relevant community activities:

To recognize and encourage companies which undertake community initiatives and motivate others to participate as well, there is a need to inform the direct and indirect stakeholders about the activities being undertaken by the companies in the IT/ITES industry. Taking a cue from other NASSCOM initiatives like ‘100 IT Innovators’, NF can initiate a recognition system to showcase some of the commendable activities being undertaken by the member companies.

Capacity building of NGOs:

The activities of NGOs, many of whom partner with IT/ITES companies in their community initiatives, are often hindered by their lack of technical and project management skills and limited access to technology solutions. Capacity building efforts, both technical and functional, supported by NF would help the NGOs to extend the reach and scalability of various innovative community initiatives of the IT/ITES companies.

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1. Threat of Substitutes:

Indian IT industry enjoys high growth rate due to following advantages:

High availability of skilled labour, low cost of labour, availability of large English speaking force, good government policies like tax holidays till 2009 for IT industry & setting up of SEZ.

But now there is a threat because:

1. Other offshore locations such as Eastern Europe, the Philippines and China, are emerging and are posing threat to Indian IT industry because of their cost-advantage. However, this should have an impact only in the medium to long term.

2. Price quoted for projects is a major differentiator, the quality of products being same.

2. Bargaining power of supplier: Medium

1. Due to slowdown, the job-cuts, the layoffs and bleak IT outlook.

2. Demand and supply of IT professionals is no longer that favorable to employees.

3. Availability of vast talent pool – freshers and experienced. Shift from high to low

3. Rivalry among firms: High

1. Commoditized offerings

2. ‘low-cost, little differentiation’ positioning.

3. high industry growth

4. Strong competitors – few numbers of large companies, but large number of small and medium size companies increase competition.

4. Bargaining Power of Customers: Very high

1. Large number of IT companies vying for IT projects – resulting in high competition for projects.

2. Huge decline in IT expenditure: Indian IT sector is dependent on USA and BFSI in particular for majority of its revenues, and with the recent financial crisis, the new spending from these has reduced tremendously.

3. However, for the existing products and services, the clients continue the old companies

5. Barriers to Entry: Low

1. Low capital requirements.

2. Large value chain, space for small enterprises.

3. MNCs are ramping up capacity and employee strength.

4. Government policies promote entrepreneurs by providing benefits in terms of tax holidays and techno parks.

Government Initiatives:

¶ The Foreign Trade Policy 2004 – 2009 permits import of all kinds of computers (except second hand computers) in India without any licenses. In order to promote domestic investment, foreign direct investment, transfer of technology / process knowhow, technical collaboration, joint venture etc in India and export IT software products and services from India to the global market, both Government of India and State Governments in India have been offering a series of policy packages including tax breaks, import duty concessions etc under various schemes which include:

· Export Oriented Units (EOUs) Scheme : The purpose of the scheme was basically to boost exports by creating additional production capacity.

· Electronics Hardware Technology Parks (EHTPs) :

Electronics Hardware Technology Park (EHTP) complexes can be set up by the Central Government, State Government, Public or Private Sector Undertakings or any combination

thereof, duly approved by the Inter- Ministerial Standing Committee (IMSC) in the Ministry of Communication and Information Technology (Department of Information Technology).

· Software Technology Parks (STPs): The Software Technology Parks of India (STPI) have been set up by the Ministry of Information Technology, Government of India and

the International Technology Park in a joint project by the State Government.

· Special Economic Zone (SEZ) Scheme : SEZs are being set up to enable hassle free manufacturing and trading for export purposes. Sales from Domestic Tariff Area (DTA) to

SEZs are being treated as physical export. This entitles domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption. Certain exemptions like Income Tax exemption on export profits is available to SEZ Units for 5 years, 50% for next 2 years and 50% of ploughed back profits for 3 years thereafter are available for units in these designated areas/zones.

· Export Promotion Capital Goods (EPCG) Scheme: The EPCG Scheme allows import of capital goods for preproduction, production and postproduction (including CKD/SKD thereof ) at 5% customs duty subject to export obligations.

Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme. The Export Promotion Industrial Park, built near International Technology Park, gives an exclusive 288 acres of area for export oriented business.

An industrial park, known as Electronic City was set up in 1991 taking more than a hundred electronic industries including Motorola, Infosys, Siemens, ITI, and Wipro, in an area of around 330 acres.

The IT Corridor project, conceptualized by Singapore’s Jurong Town Corporation Private Ltd, was initiated by the Department of IT and the Bangalore Development Authority in order to develop state of the art facilities for the development of knowledge based industries.

Government initiatives for the ITes Sector:

The government of India has already set up a single-window facility for attracting foreign direct investments in this sector. ” Recognizing the potential of this sector, the government

has provided many incentives including a tax holiday up to 2010 and competitive duty structures.” In order to support IT-related services, the government is providing some special incentives and is also providing infrastructure support through organizations such as the Software Technology Parks (STP). Financial institutions and venture capitalists in the country are willing to provide funds at competitive rates for expansion in ITes businesses. All these factors collectively create a number of opportunities in the IT BUDGET 2009-2010

Announcements in Current Budget


Extension of tax holiday under Software Technology Parks of India (STPI) Scheme

Abolition of Fringe Benefit Tax

Withdrawal of multiple taxation on packaged software


Tax holiday under STPI scheme extended by one year

Fringe Benefit Tax abolished

8 per cent excise duty on packaged software removed


Bottomline of IT companies to stay healthy with lesser tax outgo

Will help companies do away with administrative costs and offer stock option as tool to retain employees

Packaged software to become cheaper with removal of duty.


Emerging domestic market -This will become significant, particularly for smaller players who will need to tap this market to build scale. The domestic market can act as a test bed for innovation and new services and it can support rapid accumulation of higher value-added skills With increasing adoption of IT in India, domestic IT services spend is increasing considerably. Domestic IT market (including hardware) reached US24.3 $ billion in 2009 as against USD 23.1 billion in 2008. While custom software development still is the core of domestic demand for IT services, managed service segment, IT consulting segment and application management segment also show significant growth. The classic example for growing maturity of Indian domestic market is IBM- Bharti deal where the deal also involves pricing dependent on the value addition done by IBM by way of provision of services. Several E-governance initiatives by the government are expected to generate sustained growth in domestic spending of IT services. The demand for BPO has also increased considerably, increasing competition and other business pressures are driving organization towards the realisation that they would spend their resource and time on core operations and outsource non-core operations. BFSI, manufacturing and telecom are the key verticals driving growth in domestic market for IT and ITES. But other emerging verticals like retail, healthcare, education and consumer durables are also responsible for growth in domestic market in future. Domestic IT services spend are expected to increase 20% and are showing strong signs of sophistication as building enterprise IT infrastructure and applications, networking and communications gain priority.

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Knowledge process outsourcing -There are emerging global opportunities in knowledge process outsourcing segment.KPO opportunities exist in sectors like financial sector research and legal process outsourcing. The value proposition for KPO lies in cost advantage, process efficiency and availability of sufficient talent pool with domain knowledge and experience.

It is expected to generate US 17$ billion business out of which India has opportunity for US12$ billion business .It is expected to generate employment for 250000 people by 2009-2010.Till date the KPO services include data analytics, content management research and information services, animation, biotech and pharmaceutical research, medical and health services. Third party vendors such as Genpact and Evalueserve have already developed data analytic practices. Global market research and analytics holds opportunity for US$60 billion market. India is estimated to cater to about 50% of market demand. Major growth drivers are labour cost arbitrage advantage, availability, sustainability and productivity of skilled talent pool, India’s strong presence in outsourcing industry and growing options of KPO by small and medium enterprises (SMEs)

R &D and engineering services outsourcing -Indian export revenues from R& D and engineering services have reached US 7.3 $ billion in 2009.Overall growth in this sector is expected to be 30% year on year. Global engineering services spend is expected to increase to US 1$ trillion by 2020 and India is predicted to garner a share of about US $ 50 billion by 2020.Increasing business pressures, shorter lead times and and increasing complexity of products is further expected to drive growth of offshore product development services. Engineering and design solutions are being outsourced across verticals like telecommunications, automotive, aerospace, construction etc.TCS and HCL have been top two players in this segment

Legal Process and IP research outsourcing -Outsourcing of legal and IP research is still in nascent stage and present tremendous growth opportunities. India offers advantage of employing full time legal professionals (over 1 million lawyers and 70000 law graduates passing every year) as against paralegals employed overseas for large number of works. India also offers cost arbitrage advantage with Indian lawyers costing 1/10th of their counterparts in US. There is huge untapped opportunity in UK, Canada and Australia. Firms like SDD Global Solutions and RR Donnelley are already looking at the market share.

Testing services outsourcing -The global market for testing services is expected to grow to US$13 billion by 2009-2010.The leading IT players achieve about 7-10% of their revenues from testing services exports. With technology moving towards Service oriented architecture, functional testing of software and applications has taken a new dimension. Further with release cycles of software shrinking and complexity of requirements increasing quality assurance and software testing are becoming bottleneck for product companies. Outsourcing testing enables product companies to focus on building features and functionalities and fixing the identified defects. In order to fully exploit this opportunity Indian players have to focus on and develop solutions in testing services and also update their testing tools in line with business and technology used by the clients.

Software products – Potential of India in this segment is already being exploited by the multinational companies who have set up their captive units in India as part of process value chain for product development. Dataquest estimates that there are 75 large and small companies that have organically as well inorganically build their credentials in software product segment. The three biggest players in this segment are Infosys, I-Flex and TCS.TCS’S banking solution products, with its win in form of deal with SBI, Citibank, ABN AMRO and Allahabad bank trenched its roots in domestic market. Indian Software product segment offers large untapped opportunity for future.

Future overview

Indian IT industry is riding high with rise global spending on technology products and related services. According to the International Data Corporation (IDC) estimates, the global spending on technology related services reached US$ 1.58 trillion (excluding R&D and engineering) in 2006 and is expected to grow at CAGR of 7.12% to reach US$ 2.1 trillion by 2010.

The success of the Global Delivery Model adopted by the global IT companies and the increase in offshore spending by the US and European countries would help countries like India to reap rich benefits. Noticeably, the global offshore IT services spending is expected to reach US$29.4 bn by 2010. The trend underscores opportunities the for Indian IT companies to take significant strides towards global offshore IT services market.

Technology adoption by companies across sectors and rapid evolution of technology and applications will significantly drive growth in the IT sector. Spending on IT is expected to increase across businesses with new sectors driving the new wave of IT growth. The increase in spending on IT sector will be backed by the growth in offshore spending, preference towards multivendor contracts and success of the Global Delivery Model.

According to NASSCOM, Indian IT-ITeS exports would reach US$ 60 bn by 2010. Some key factors supporting this optimism include the growing effect of technology-led innovation, leading the growing demand for global sourcing; favourable policy initiatives; and gradually evolving socio-political attitudes towards the acceptance of IT in professional and social activities. The global IT spending is likely to be sourced through the global delivery model, which has already opened up various avenues of outsourced services for India.

Rapid evolution of technology and Internet applications and invasive computing are expected to drive a rapid, quantum growth in technology adoption by businesses and individuals. The proliferation of client devices and end-user or end-use devices at the network end will result in the addition of billions of devices to the network age, which in turn will drive the need for more enterprise systems, to manage and correctly use them. The ‘Internet generation’ entering the working age population is expected to further accelerate technology usage and adoption.

The sector is expected to witness robust growth, thanks to demand from the domestic market, which is growing steadily over the last couple of years – especially sectors like telecom, retail, logistics and transportation, BFSI, and manufacturing. The domestic ITeS market is expected to reach Rs 362.38 bn by 2011.

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