IT Sector Trends in India
The Indian information technology sector has been instrumental in driving the nation's economy onto the rapid growth curve. According to the Nasscom-Deloitte study, the IT/ITES industry's contribution to the country's GDP has increased to a share of 5.2 per cent in 2007, as against 1.2 per cent in 1998.
Further, the IT and BPO industries are poised to clock revenues worth US$ 64 billion by the end of fiscal year 2008, registering a growth of 33 per cent with exports expected to cross US$ 40 billion and the domestic market estimated to clock over US$ 23 billion, according to a study. Simultaneously, 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, as per a study by Springboard Research.
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.
A report by the Electronics and Software Export Promotion Council (ESC) estimates software exports to register a 33 per cent growth in the current financial year with export figures during FY 2008 expected to reach US$ 45 billion. The country's IT exports have, in fact, come quite far, starting from a few million dollars in the early 1990s. The Government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum.
Outsourcing
A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. The Outsourcing Service Provider Performance Study 2007, undertaken by sourcing advisory firm Equa Terra, reported that the majority of UK businesses offshore all or parts of their IT functions to India and plan to continue with this strategy as India emerged the favourite outsourcing destination for businesses in UK in terms of satisfaction.
Another study conducted by Nasscom jointly with the Everest consulting firm reports the Indian outsourcing sector logged a 35 percent annual growth over the last five years with annual revenues touching US$ 11 billion, with the bulk coming from exports. India has ousted China as a contender for offshore services and tops the list of 30 countries on criteria’s such as language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.
Since the concept of outsourcing was introduced it has been a subject of debate between politicians and citizens of the United States. Remarkably, it was the United States who supported outsourcing and now it is the United States that feels its economic progress is being threatened by outsourcing. One may argue that the financial situations that existed two decades earlier are not the same as they are today, thus the change of time, business priorities of economies have also changed.
The outsourcing trend continues to eat up the value chain from blue-collar jobs to white collar jobs3. The software industry is experiencing an outsourcing trend to countries such as China and most significantly to India. The proliferation of the Internet has opened easier access to information and collaborative environments. Previously communication costs and access to mind power was limited. The Internet made communication costs virtually free and collaboration with groups around the makes software engineering and collaboration tasks easier. In additional, liberalization of free markets across international lines has made it easier for companies to set up and outsource engineering tasks throughout the world. Business-process and software outsourcing rely on cheaper cost structure as found in East Asia with manufacturing4.
Kesavan, R., Mascarenhas, O. A., & Bernacchi, M. D. (2013). Outsourcing Services to India: A Review and New Evidences. International Management Review, 36-44.
According to the Ministry of Industry, data shows that in 2008 China's software and information services outsourcing industry scale reached 156.77 billion yuan, up 41.2%; software and the number of firms of information service outsourcing in China is 3600, an increase of about 20.0%; the number of employees in the Software and IT outsourcing industry reached 41 million, increased about 36.7%. 2009, China's software and information services outsourcing industry has maintained rapid development, and industry continued to expand, reached 146.36 billion yuan revenue at the first three quarters, an increase of about 24.5%, is expected to be close to 200 billion annual revenue. Vector current industry also shape the northeast, the Bohai Rim, Yangtze River Delta, Pearl River Delta, the Midwest, "the five clusters," "East map," a good development pattern. China's outsourcing industry has been driven from the global to the local industry, industry self type; from offshore outsourcing led to the local market-driven transition from multinational companies and "returnees" to promote entrepreneurship, to private capital, local entrepreneurs to promote the transformation of Chi...
“What’s Next for India? Interest in Offshore IT Operations Keeps Growing, but Increased Competition for Talent May Dull Some Cost Benefits.” Information Week 5 Jan. 2004.
Jacques, V. (2006). International outsourcing strategy and competitiveness: study on current outsourcing trends, IT, business processes, contact centers. Paris: Publibook.
India’s strength in software sector with pool of well-qualified, English speaking software engineers has made India as the outsourcing destination for US companies looking for outsource their computing sector. Nasscom, the association of Indian software companies, claim the volume of work outsourced to India has increased more than 50% in 2003 and Indian IT sector’s exports at the end of March 2004 are $12bn.
Throughout history hundreds of jobs have been outsourced to other countries for the benefit of cheap labor. American outsourcing has been blamed for the constant lack of American jobs causing a controversy between the labor force and businesses that benefit from outsourcing. In the introduction of, Does Outsourcing Harm America?, outsourcing is defined as a “business practice in which a company hires service providers, usually located outside of the country, to do work that the company believes can be performed more efficiently and less expensively by these outside contractors” (7). Although many people believe that outsourcing is a recent practice in business, this is not true. Outsourcing has been around since the colonial times, the production of covered-wagon covers were outsourced to Scotland while the raw materials for the product were imported from India. During the 1970s computer companies began outsourcing their payroll applications to outside providers. Outsourcing became a well-recognized practice during the 1980s due to the high demand of IT workers. Although there was a high demand for IT workers, large corporations viewed the IT workers as an expensive labor force. Therefore many corporations led their demands elsewhere for the sole purpose of lowering their expenses. Outsourcing is not just used for IT solutions; major companies are embracing the benefits of outsourcing, companies such as Apple, Wal-Mart, Boeing, Sears, Disney, etc. US corporations have expanded their needs for outsourcing from just IT departments. Auto parts, cell phone parts, airplane parts, tax return preparations, and clothing manufacturing have all been deemed as jobs that can be produced at a lower cost rate outside of the US.
Nowadays, many large companies are using outsourcing through IS/IT sector in order to gain benefits to their company especially reducing expenses. it also to ensure that the company can focus on their core business and give other operation to outsourcing company that is expertise on the field.
In the late 1980's the rise of India outsourcing had its start. During this phase, India provided skilled contract workers for the US. Efforts to outsource projects to India arose in the late 1990's. This was driven by a combination of rapidly changing technologies and shrinking IT budgets Little by little the small offshore development projects started to multiply. In the beginning it was trial and error because there wasn't much focus on a repeatable and process driven model. During this time offshore outsourcing led to several failures. The big outsourcing force during the late 1990's came with Y2K. Work needed to get done quick and outsourcing to Indian companies was a solution to this. Indian companies had the ability to scale rapidly.
The market for IT industry was huge and expanding at a fast pace. However the market leaders were Accenture and IBM which had a negligent market share and rest was captured by small enterprises. Indian companies also ventured in the industry and due to their competition, IT multinational giants had to increase their base in India. Due to high opportunities, attrition rate was also high in this industry. As a result Indian companies like Wipro, Infosys increased their base level salaries. During this phase, Indian economy was transforming towards an era of information and knowledge. This can be seen from the fact that contribution of services towards the economy’s GDP was higher than 18% in 2001 as against in 1980. No other industry had done better standing against global competition. The annual exports had always been over 50% over a decade. U.S.A. share represents highest with 61% and about a third of Fortune 500 companies outsource their software work to India. To foster development, Indian government has taken a number of steps like liberalization of policies and providing necessary capital and infrastructure to foster growth. Thus Indian environment has been conducive for growth. (Ref: Indian Embassy.org) Competitor analysis- The market for IT industry was fairly competitive with IBM and Accenture as global leaders and rest of the market was pretty diffused. IBM and Accenture had strong brand and a global presence with a large customer base. They also offered panoply of services viz. technology implementation, business consulting, offshore services, customer relationship management etc. Both offered breadth and depth of services. IT market in India offered technical and business consulting with Tata Consultancy Services which was the market leader in IT exports and Wipro Technologies and Infosys being other major market players. TCS offered consultancy services, IT services, asset based solution etc. Wipro was third largest IT provider with service offerings in IT consulting, software solutions, BPO etc. Both had a strong global presence. Intensity of Rivalry: Rivalry amongst competitors was pretty intense as can be seen the Indian competition caused IBM to increase their presence in India. However leaders like IBM and Accenture had a wide range of service offerings so competition was only amongst few sectors. Rivalry was to hire the top talent as human capital is the most important thing in the IT sector. This is the reason that attrition rate lead to a rise in pay packages.
Infosys is the third largest Indian Multi National Company that provides Information Technology, Business Consulting, Software engineering and Outsourcing services. Infosys was founded in 1981 by Seven Software engineers with a capital of Rs.10000, turned to be the most reputed company with 160405 employees, earning billions of income, assets and equity in the three decades of glory. Though the success continues, Infosys suffers the lack of Employee Retention and so the high employee turnover ever of 18.7%. Infosys is undoubtedly one of the most respected IT companies in India has been showing remarkable results on revenue and income every year. No Indian IT company has a better “Job security” proven than Infosys.
IT market research firm Gartner Dataquest 1 says that companies outsourcing their software jobs see lower cost foreign labor as a key to growth in 2003 because of large pool of highly educated English speaking workers in countries like India and Philippines who get relatively low wages. As of year-end 2002, there were at least 14 mega deals worth a total of $28.4 billion compared with nine mega deals in 2001 worth a total of $15.1 billion. Companies are lured towards the savings obtained by hiring a programmer in India who would be paid $2500 per year whereas the same job would require a wage of at least $45000 in US.
The fourth largest sector in the Indian economy is all set for 16% growth during 2008-09, from a base of Rs. 85470 crores, as predicted by FICCI. Going forward, as anticipated by CRISIL, FMCG sector will touch around Rs. 140000 crores by 2015 (33.4B$).
Information Technology (IT) is a foundation for conducting business today. It plays a critical role in increasing productivity of firms and entire nation. It is proven that firms who invested in IT have experienced continued growth in productivity and efficiency. Many companies' survival and even existence without use of IT is unimaginable. IT has become the largest component of capital investment for companies in the United States and many other countries.