The IT
industry as a whole in
India comprises of:
- Hardware: This
includes computing and
networking hardware and
peripherals (IT
infrastructure). (It
does not include
consumer electronics.)
- Software and IT
Services: This includes
custom and packaged
software, IT services,
and IT training
services.
- IT-Enabled Services (ITES): This includes all
business and knowledge
processes being
outsourced or off shored
by companies facilitated
by internet, telecom and
similar means.
The global IT service
market is in excess of
US $700 billion and
growing. IT services and
software continue to be
the mainstay of Indian
IT-ITES, accounting for
nearly 60 percent of
industry revenues.
Exports account for a
majority share of the
segment revenue with the
US and Western Europe as
the key markets. There
has also been a steady
growth in domestic
demand, which further
contributes to this
segment's standing in
the Indian IT-ITES
industry.
A report released
jointly by NASSCOM and
McKinsey states that
exports alone by the
Indian IT/ITES and BPO
sectors would touch US$
60 billion by March,
2010. However, what is
significant here is that
the report also suggests
that this next growth
wave would require at
least 12 alternative
locations to the metros
and Tier-I cities, to
come up quickly.
The infrastructure
situation in metros and
big cities by way of
``power shortages, poor
public transport and
limited international
connectivity'' would
make it difficult to
absorb an additional
burden of 1.6 million
(16 lakh) people that
will be required by the
industry to fuel the
growth. Of this number,
1 million (or 10 lakh)
jobs are expected to be
generated near Tier-I
cities like Delhi,
Bangalore, Chennai,
Hyderabad, and Mumbai,
and another 600,000 (6
lakh) in other towns
across the country. The
report goes on to state
that ``Thus the IT and
BPO industries need at
least 5 new `Gurgaon-plus'
and 5 to 7 `Pune-Plus'
integrated townships.''
Meanwhile, India's
supplies 53 percent of
the global offshore
market for IT and
business services,
though the country has
only about 27 percent of
the pool of suitable
talent (that is, people
with the appropriate
education and cultural
orientation, as well as
fluency in the necessary
languages, usually
English). The total
value of the services
off shored to date is
around US $45 billion.
Revenues from the Indian
ITES sector are expected
to double from the
current US $8 billion to
US $17 billion by 2008.
At that level, ITES
output would account for
roughly 7 percent of the
GDP of the country.
Captive units continue
to dominate the BPO
segment, accounting for
over 65 percent of the
value of work off
shored. While
independent/third-party
vendors outnumber the
captive units, the scale
of work undertaken by
each unit in the captive
segment is significantly
higher.
As India grapples with
the shortage of trained
and ready talent, many
regions (such as Eastern
Europe, Latin America,
Southeast Asia and
China) are emerging as
attractive offshore
destinations. However,
India has an early mover
advantage and there are
over 400 companies
operating in this
segment.
In addition to the
low-cost advantage, the
other generic
determinants are
availability of proper
infrastructure and lower
country risk. All these
factors have made Indian
cities hot destinations
for off shoring. In
2003, no more than 3
non-metros were linked
to foreign cities by
direct flights - the
number has now gone up
to 15 and the country is
slated to be 35-market
destination in the
coming years.
The tasks being off
shored in the BPO space
include: call center
work, data entry, and
back-office operations.
The five priorities
common across the range
of tasks include: speed
and flexibility (5
percent and 28 percent),
innovation and
productivity (5 percent
and 22 percent), risk
(20 percent and 10
percent), quality (30
percent and 20 percent),
and cost (40 percent and
20 percent). [Numbers in
brackets reflect the
change in the
expectation of business
customers from vendors
in years 1 and in years
3 to 5 about business
priorities].
Companies are also
rethinking the value
proposition of off
shoring: executives who
once regarded it only as
a way to cut labor
costs, essentially by
replicating current
onshore activities, now
see it as a chance to
raise revenues or
capital productivity. In
fact it's almost no
longer possible to talk
about off shoring simply
as a lever for labor
cost arbitrage. Offshore
costs have simply become
the new baseline on
which to build
scalability and continue
to improve productivity
and revenues year after
year.
With the income tax
concessions for software
companies coming to an
end by March 2009 for
units registered with
STPI (Software
Technology Parks of
India) the demand for
space in SEZs is likely
to intensify further
from such units seeking
to continue enjoying the
extensive fiscal
benefits.
Cumulative office
space demand over the
next three years is
projected to be in
excess of 80 million
square feet. IT
software-BPO-KPO
segments are expected to
account for 70 percent
of net absorption.
To fund this huge
expansion, capital flows
into corporate real
estate is estimated at
over US $5 billion over
the next 3 years.
Potentially high
occupancy levels
combined with extensive
fiscal benefits provided
to developers make IT
and ITES SEZs an
attractive business
proposition.
