In Information technology (IT), India has built up valuable brand equity in the global markets.
India's most prized resource in today's knowledge economy is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the U.S.
According the data from ministry of communication and information technology, output of the Indian electronics and IT industry is estimated to have grown by 18.2 per cent to Rs. 1,14,650 crores in 2003-04.
The share of hardware and non-software services in the IT sector has declined consistently every year in the recent past. The share of software services in electronics and IT sector has gone up from 38.7 per cent in 1998-99 to 61.8 percent in 2003-04. However, there has been some welcome acceleration in the hardware sector with a sharp deceleration in the rate of decline of hardware's share in electronics and IT industry. Output of computers in value terms, for example, increased by 36.0, 19.7 and 57.6 per cent in 2000-01, 2002-03, and 2003-04, respectively.
All the sub-sectors of the non-software component of electronic and IT industry grew at over 8 per cent in 2003-04, but this was far below the rate of growth of software services. Overall, after declining precipitously from 61.4 per cent in 1998-99 to 40.9 percent in 2001-02, the share of hardware in this important industry declined only marginally to 38.2 percent in the two subsequent years.
The size of the domestic market in software relative to the export markets for Indian software, which was 45.2 percent in 1998- 99, after declining rapidly to 29.8 percent in 2001-02, fell only to 29.1 percent and 27.7 per cent in the two subsequent years.
Value of software and services export is estimated to have increased by 30 percent to US$12.5 billion in 2003-04. The Software Technology Parks of India have reported software exports of Rs. 31,578 crore (US$ 6,947 million) during April - December 2004- 05 as against Rs. 22,678 crore (US$ 4,913) during the corresponding period last year.
The annual growth rate of India's software exports has been consistently over 50 percent since 1991. No other Indian industry has performed so well against the global competition.
According to a NASSCOM-McKinsey report, annual revenue projections for India?s IT industry in 2008 are US $ 87 billion and market openings are emerging across four broad sectors, IT services, software products, IT enabled services, and e-businesses thus creating a number of opportunities for Indian companies. In addition to the export market, all of these segments have a domestic market component as well.
The IT-enabled service industry in India began to evolve in the early nineties when companies such as American Express, British Airways, GE and Swissair set up their offshore operations in India.
Today a large number of foreign affiliates operate IT-enabled services in India. The different service lines of It enabled services offshore to India include customer care, finance, human resources, billing and payment services, administration and content development
India has emerged in recent years as a major player in the global software and outsourcing services world. The development of the hardware sector has until recently been hampered by a number of constraints, including high tariffs. The hardware sector is looking ahead to potential new measures that are due to take effect during 2007, and what vendors are doing to prepare to take advantage of the huge opportunity presented by the Indian market. During the past 18 months, a series of federal and state level reforms have finally kick-started much faster growth in sales of PCs and computer hardware, mainly due to lower prices. Indeed growth in some categories is now faster than China. At the same time the big discrepancy in tax rates for the hardware sector (20%- 30% plus for India, compared with around 17% in China creates obvious possibilities for further reform and faster growth.
The potential of India’s IT market is plain:
Only 1.3% of people in India own a computer, one-fifth of the China level, meaning particular potential in the lower-end product range. Significantly, 45% of India’s population is under 25, which should boost PC and IT usage. Mindful of increasing global vendor interest, a number of federal and local government initiatives – particularly reforms to the 10-year Special Economic Zones program, and tariff changes in the March 2006 budget to promote the hardware production – have been designed to attract some of the soaring investment in the India IT sector. Despite a number of potential difficulties, including regional imbalances, low incomes and a possible demand slowdown, India should therefore confirm its potential as a key emerging market over the forecast period.
The total size of the IT market is forecast by BMI to increase from US$8.8bn in 2005 to around US$18.1bn in 2010, with hardware growing faster than any time since 2000 following recent policy measures. Government initiatives will be an important driver, with 26 new projects to be implemented as part of a national e-government plan. The plan, due to be rolled out over the next five years through to 2010, will be implemented at central-, state- and local-government levels. Continuing reform of political and economic structures will be required, however, if IT spending as a portion of GDP is to advance from its current low level. Vendor attentions will increasingly be focused on the huge potential offered by the domestic sector, which may come into its own should broadband take off to a greater extent than currently.
Geography: India shares borders with Pakistan and China, and has a vast coastline. Its geography is important because some of its most visible challenges — geopolitical risks arising from conflicts with its neighbors, as well as natural disasters, such as the tsunami that hit the east coast of India — could have an impact on business continuity.
Population and Religion: India is among the oldest civilizations in the world and the second most populous nation in the world after China. It is also the largest democracy in the world. With its constitution based on a secular foundation, the country is home to people of many religions. The majority of the population follows Hinduism. The second-largest religion in India is Islam. India is home to the second-largest Muslim population in the world after Indonesia.
Political State: The political makeup of India has historically been socialist democratic; however, during the past five to eight years, there has been a concerted effort to move toward a more capitalistic style of functioning. The move from a socialist planned economy to a capitalist market economy has not been smooth. Reforms are often fueled or constrained by the strength and makeup of the political party or parties in power, and the in-power party's ideology and attitude toward greater global integration of India with the world.
However, there is strong evidence that the path of economic reform and liberalization of the past few years is irreversible and unlikely to be derailed, regardless of the political makeup of the party in power. In this sense, India has achieved a separation of its economic path from the political environment.
And notwithstanding the above, the ICT industry is rapidly growing in size and importance to the overall Indian economy. Its impact is rising in terms of being a larger and more significant component of the overall export market, as well as in helping improve the local and global competitiveness of Indian companies across industries. The fact that the Indian ICT market is the fastest-growing ICT market in the world for the third year running is a strong testimonial to the increased leverage of ICT by the domestic industry.
Against this backdrop of a diverse and politically tumultuous environment — and a rapidly evolving domestic ICT market — the pieces in this collection of research examine the various facets of the Indian ICT environment and how it will affect:
• Global ICT markets
• Global enterprises
• Global ICT vendors looking to conduct business in India
• The domestic industry in India
"India's ICT Industry: Scope, Size and Client Issues" examines the quantitative aspects of the industry, including the better-known offshore service component, as well as the less-visible, but rapidly growing, domestic ICT industry.
"India's Domestic Information and Communication Technology Industry Represents a Significant Opportunity for Global and Local Vendors" discusses the growing inter-relationship and impact of the burgeoning global sourcing (offshore) service industry in India on the evolution of the domestic ICT industry. Future Evolution Scenarios" assesses the unfolding possibilities for the evolution of the Indian ICT industry in the form of three scenarios that vary from India achieving software superpower status to one of fading away into oblivion. We also discuss the drivers, inhibitors and responsibilities of the key stakeholders in each scenario.
"IT Spending Intentions of Indian SMBs" looks at the IT maturity of small and midsize businesses in India.
"User Survey: Businesses' Plans for Mobile Technology, India, 2005" details how companies in India are preparing to spend considerably more on mobile services and associated products for things such as messaging and e-mail. However, they are concerned about patchy coverage and service quality.
"Road Map for Mobile Telecom Markets, Asia/Pacific and Japan, 2006-2010" states that IT spending by India's industries will grow at a five-year compound annual growth rate of 14.8 percent and will exceed $36 billion in 2009. The communication, financial services and service industries will spend the most on IT.
"User Survey: Mobile Data Services, India, 2005" details the results of a Gartner survey of more than 400 mobile phone users in five cities in India. Our findings suggest that carriers need to revisit their pricing strategies to encourage repeat use of data services and improve customer retention.
"Market Trends: IT Industry Analysis, India, 2004-2009" discusses trends and enterprise spending projections across 14 vertical industries in India, including external IT services, hardware, software, telecommunication services, telecommunication equipment and internal services.
"Outsourcing Takes Hold in India's Domestic Market: Signal of India's Rising Economic Profile" reviews recent outsourcing deals in India and assesses how they will affect the evolution of the domestic industry in India, growth of the outsourcing opportunity in India and the global sourcing paradigm.
Table 1. Indian Domestic Enterprise ICT Market Size and Growth (excluding the offshore IT outsourcing and business process outsourcing markets), Source: Gartner Research (March 2005)
|
$ in billions |
2003 |
2004 |
2005 |
|
Total |
$16.73 |
$19.61 |
$22.88 |
|
Hardware |
2.40 |
2.75 |
3.34 |
|
Software |
0.40 |
0.44 |
0.52 |
|
Telecommunications |
12.22 |
14.46 |
16.70 |
|
IT Services |
1.71 |
1.96 |
2.32 |
See Table 1 for the size and growth rates for the Indian ICT market. This table shows our estimate of enterprise ICT spending, which does not include the total ICT spending in India. For the second year in a row, India's ICT market is the fastest growing in the world. China has the second-fastest-growing market, although on a significantly larger ICT revenue base.
In the overall ICT market, Indian service providers are the outliers by far and are reporting individual revenue growth rates of approximately 30 percent to 70 percent. The global sourcing (offshore) delivery model for IT and business process outsourcing is expanding rapidly. "India Maintains Its Offshore Leadership Position" looks at the market forces in India that have shaped the global supply side of the outsourcing business and examines the need for a seamless outsourcing global delivery model for companies in Europe and the United States. The increasing contribution and visibility of India's domestic ICT market is a key differentiator from earlier periods. Some large service deals have been signed (see "Huge IBM Deal Shows Indian Outsourcing Is a Two-Way Street"), many hardware vendors are reporting strong growth rates in India, and telecommunications equipment vendors and providers are reporting a booming business. Companies are also returning to the days of increased spending on ICT, which will likely drive growth in the ICT sector in India in a broader-based fashion than what happened during the past few years in pure offshore services.
The Indian ICT market is complex, and a diverse mix of players is competing for the same resources and skilled workers. Each vendor has its own way of trying to win needed resources. The scramble for these resources will intensify over time and needs to be managed effectively by each organization that is trying to get these resources. These domestic Indian IT dynamics will always affect India's burgeoning role in the global IT landscape and the plans of companies that are considering doing business in India.
Businesses can establish outsourcing relationships with service providers that have most of their development resources in India. An alternative is to use captive centers — wholly owned subsidiaries that use their own offshore-based, full-time employees to deliver IT and business process outsourcing services.
It is important to understand this market from an Indian company's point of view:
• Indian companies are concerned about the continued availability of resources for in-house teams. They also vie for the attention of major service providers on the domestic market.
• Indian IT service providers that are focused primarily on the offshore and global outsourcing business view domestic developments in the context of increased competition for resources. Some also must juggle the split in focus between domestic and offshore business volumes, with priorities strongly skewed in favor of offshore business.
• Global service providers, such as IBM and EDS, are more focused on the domestic opportunities in India than elsewhere and have been winning large deals in India, even while competing with some of the major Indian service providers. The pieces in this Spotlight focus on the broader context of the overall ICT market in India. They also provide insight into some of the external factors and countries that have a significant impact on the domestic market dynamics. "Indian Service Outsourcers Need Local Partners in Europe" by Ian Marriott examines why Indian IT companies have struggled to get the same success in Europe that they have enjoyed in the United Kingdom and the United States. Language, cultural issues and work styles are all factors. Indian service providers also must fight against European perceptions about the quality of Indian work and European government attitudes that discourage outsourcing. "India's Government Must Review Hardware Market" by Vinod Nair and Ravi Datar urges the Indian government to encourage hardware manufacturing investments. Laws from the 1980s that were meant to protect India's hardware producers have hampered competitiveness. The demand is heavy from banks and telecommunications companies, as well as from some foreign investors and state governments. The government should enact new tax laws and duty policies and form partnerships with other Asian countries to promote hardware manufacturing in India. "Restrictions Delaying Telecommunications Competition in India" by Kobita Desai examines how regulations have stifled free competition in the telecommunications market. Although demand is high for voice services, competition exists only at the wholesale level, and prices remain higher than in comparable markets. New carriers have stimulated the data market and prices have fallen, but reliability is still inconsistent for some services. "Telecommunications Network Outsourcing Has Promise and Risk" by Bhawani Shankar, Kobita Desai and Sumit Malik looks at the emerging trend of telecommunications outsourcing in India. We examine Bharti Televentures' big deals with IBM and Ericson, and what Bharti's success means for the rest of the industry. "Indian IT Services Market Still Largely Untapped" by Ravi Datar surveys why India has such a small domestic market for IT services, when compared with offshore business. The answer lies in a complex mix of factors, including infrastructure shortcomings, regulations, and cultural attitudes in business and society. Although Bangalore is the most famous of these cities, many others offer attractive resources. Each major IT outsourcing city is rated according to infrastructure, cost, workforce quality and other criteria. Each city also is evaluated for major trends — whether the resources IT companies need are stable, and if they are likely to get better or worse over time.
Since 2004, the average price of a computer has dropped by US$275, to around S$225. While computers are still largely considered a luxury item, with the market responding less than expected to hardware tariff cuts in recent budgets, the low penetration rate should ensure continuing growth. Plans by AMD to set up the country’s first chip fabrication factory (an investment of US$3bn) should help to stimulate local production and lower prices.
Multimedia features are emerging as a major driver of PC purchases in India, particularly for the middle and upper income segments, and vendors are starting to compete to respond. In Bollywood-obsessed India, the ability to access multimedia entertainment on a PC via CDs, DVDs and even terrestrial TV feeds, is becoming a key requirement for some consumers. Lenovo recently released one of the first computers on the market to come complete with a built-in TV tuner, capable of connecting to a TV antenna to pick up all the standard TV feeds. In addition Sony and Dell have launched new multimedia laptop products.
According to BMI figures, sales in India’s computer market will be worth around US$5.2bn in 2006, up from an estimated US$4.3bn in 2005, matching the expected growth of the domestic software industry. BMI predicts the compound annual growth rate (CAGR) for the hardware sector as a whole will be around 15% between 2005-2010, with India set to outdo China over the next couple of years in growth of PC adoption and usage. The predicted demand goes beyond government and business to the huge potential domestic sector.
The software and services industry should continue to show robust growth, with BMI forecasting sales of US$4.1bn in 2006. Price is an important consideration for the small and medium business (SMB) segment, which is becoming an increasingly significant market for applications. Studies suggest that there are at least 215,000 SMBs in India, but the market is highly diverse. SMB buying decisions tend to be solutions driven, with customers looking for packages combining hardware, software and services. Although value-conscious, SMB customers are also concerned about brands. However, open source software is also taking an expanded role in the sector, competing directly with commercial software in many segments.
Looking at the wider domestic software market, telecoms, government, manufacturing and retail are key verticals driving demand, with enterprises looking to improve customer service experience and improve efficiency and decision support.
As consolidation gathers momentum in the software services sector, Satyam posted a big jump in volumes growth for FY05. Big local companies like Wipro, Infosys, TCS, and Satyam are trying to become a one-stop shop for software and BPO outsourcing. Satyam closed the year with revenues of INR3, 520.84 crores as compared to INR2, and 560 crores the previous year, up 38%. Net profits for the same period were INR711.63 crores, up 39% on the previous year’s INR 513.4 crores. During the year, Satyam entered into an agreement with US-based G-Log, a logistics and transportation software company, to offer supply chain management and supply chain execution solutions to its customers.
Broadband has yet to take off in India, with just 3mn subscribers envisaged by the end of 2005, according to the MCIT. The main reason for the slow uptake is thought to be insufficient demand and, as a result, the government recently announced a reduction in license fees for NLD/ILD services from January 2006. One brake on PC penetration is a poor dial-up internet home user experience, even in cities. If this is to change, the government must take the initiative in improving bandwidth availability.
India ranks poorly on digital access to ICT compared to other countries in East Asia. In January 2005, the Working Committee of the Ministry of Communications and IT was set up by the IT ministry. It has set ambitious targets of taking PC penetration from the current 14 per thousand to 65 per thousand and internet penetration from five per thousand to 40 per thousand by 2008.
As India's information and communication technology market matures, it is important to assess how it will contribute toward India becoming one of the world's software superpowers.
For two consecutive years, India's information and communication technology market has been the fastest growing in the world. Recent expansion entails more than the much-hyped offshore service market.
The hardware boom in manufacturing over the past two years and the expectation that this will continue with government assistance has been stimulating unprecedented foreign investment in this sector in India. Giants such as IBM and Lenovo have announced new investments to expand capacity, while others such as Microsoft, Dell and Intel have been dispatching top officials to India and drawing up plans. According to Dayanidhi Maran, the Union Minister of Communications and IT (MCIT) , the government has set a target for inward investment into the hardware sector of around US$20bn by 2010, which will obviously have a hugely significant impact on GDP, jobs and government revenues.
According to the Manufacturers Association of IT (MAIT), desktop sales in 2006-2007 are expected to surpass 5.6mn units, while overall PC shipments will exceed 6mn units. The major PC vendors are responding. Dell has said that it is planning for more than 60% growth in the country by setting up a unit at Sriperumbudr. The multi-million investment is intended to cut shipment and production costs. Meanwhile, Chinese giant Lenovo is planning to expand capacity from 600,000 to 1mn units at its facility at Pondicherry. Local companies are also expanding and planning to make personal computers available at cheaper prices.
The vision of Information Technology (IT) policy is to use IT as a tool for raising the living standards of the common man and enriching their lives. Though, urban India has a high internet density, the government also wants PC and Internet penetration in the rural India.
With the formation of a ministry for IT, Government of India has taken a major step towards promoting the domestic industry and achieving the full potential of the Indian IT entrepreneurs. Constraints have been comprehensively identified and steps taken to overcome them and also to provide incentives.
In order to broaden the internet base, the Department OF Information technology has also announced a programme to establish State Wide Area Network (SWAN) up to the block level to provide connectivity for e-governance. The Department has also set up Community Information Centers (CICs) in hilly, far-flung areas of the North-East and Jammu and Kashmir to facilitate the spread of benefit of information and communication technology. It is also proposed to set up CICs in other hilly, far-flung areas of the country like Uttaranchal, Andaman & Nicobar and Lakshadweep.
A number of steps have been taken to meet the challenge of zero duty regime in 2005 under the Information Technology Agreement (ITA-1). Tariffs on raw materials, parts, other inputs and capital goods have been rationalized to make domestic manufacturing viable and competitive.
In order to broaden the internet base, the Department OF Information technology has also announced a programme to establish State Wide Area Network (SWAN) up to the block level to provide connectivity for e-governance. The Department has also set up Community Information Centre (CICs) in hilly, far-flung areas of the North-East and Jammu and Kashmir to facilitate the spread of benefit of information and communication technology. It is also proposed to set up CICs in other hilly, far-flung areas of the country like Uttaranchal, Andaman & Nicobar and Lakshadweep.
A number of steps have been taken to meet the challenge of zero duty regimes in 2005 under the Information Technology Agreement (ITA-1). Tariffs on raw materials, parts, other inputs and capital goods have been rationalized to make domestic manufacturing viable and competitive.