It Industry Report

A Whitepaper
The Indian IT Industry
Author
Siddharth Sarawgi, Director & CEO
Innoversant Solutions Pvt Ltd
info@innoversant.com
www.innoversant.com
TABLE OF CONTENTS
Overview of Indian IT Industry ...................................................................................................................... 4

History and Evolution of IT Industry ............................................................................................................. 5
Industry Segmentation ................................................................................................................................. 8
Software: ................................................................................................................................................... 9
Infrastructure Software:- ...................................................................................................................... 9
Enterprise Application Software:- ......................................................................................................... 9
IT Services: .............................................................................................................................................. 10
(a)
Project- oriented services: ...................................................................................................... 10

IT Consulting: .............................................................................................................................. 10
Systems Integration: .................................................................................................................. 10
CADM: ......................................................................................................................................... 11
Network Consulting and Integration: ........................................................................................ 11
Software Testing:........................................................................................................................ 11
(b)
IT Outsourcing: ........................................................................................................................ 11
When an organization contracts another organization for managing, deploying and maintaning its IT
architecture or system, it is called as IT Outsourcing. It includes:...................................................... 11
(c)
Training and Support: ............................................................................................................. 12
It includes three segments: ................................................................................................................. 12

IT- enabled Services: ............................................................................................................................... 12
Present Industry Structure.......................................................................................................................... 15
Advantage India .......................................................................................................................................... 18
Established IT hubs in India......................................................................................................................... 20
Emerging IT hubs in India ........................................................................................................................ 21
Growth of the Industry ............................................................................................................................... 23
1. IT Software: ......................................................................................................................................... 23
2. IT Services:.......................................................................................................................................... 24
3. ITeS- BPO Sector: ................................................................................................................................ 26
Competitive Landscape of the Industry ...................................................................................................... 28
Competitive Strategies............................................................................................................................ 29
2
Growth Opportunities for the industry....................................................................................................... 31

Major Threats to the Industry..................................................................................................................... 32
Recommendations ...................................................................................................................................... 33
The Way Ahead ........................................................................................................................................... 33
Conclusion................................................................................................................................................... 33
References .................................................................................................................................................. 34
3
Overview of Indian IT Industry

The Indian IT industry is growing steadily despite the global meltdown in the year 2009. When the whole
of the world witnessed the negative growth, Indian IT industry still managed to register a growth of
5.5%. The industry is about to register the historic landmark of US $ 50 billion exports this year,
according to NASSCOM President, Som MIttal. The domestic market is also slotted to witness 12%
growth, this year. Potential size of Indias offshoring industry is estimated at US $ 120 to 180 billion by
2015. The industry currently employs around 1 million people and provides indirect employment to
around 2.5 million people. It is expected to add another 1, 50,000 jobs in the next fiscal according to
NASSCOM.
Indian IT/ ITes sector is growing substantially with its
expansion into varied verticals
well differentiated service offerings
increasing geographic penetration
The phenomenal success of the Indian IT- ITeS industry can be attributed to the favorable government
policies, burgeoning demand conditions, healthy growth of related industries and competitive
environment prevalent in the industry. The interplay of these forces has led to putting the industry on
the global map.
4
History and Evolution of IT Industry

The evolution 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
5
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 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.
6
[Source: D& B Industry Research Service]
Figure 1: Evolution of Indian IT- ITeS Industry
7
Industry Segmentation
IT industry can be broadly classified into three sectors:
Software
IT Services
IT enabled Services (ITeS)- BPO
Indian IT
Industry
Software
Software
Products
IT Services
Engineering and
R& D services
Project
Oriented
Services
IT Outsourcing
ITeS- BPO
Training and
Support
Customer
Interaction
Services
Infrastructure
Software
IT Consulting
Application
Management
Hardware
Deployment
and Support
Financing and
accounting
Enterprise
Application
Software
Systems
Integration
IS Outsourcing
Software
Deployment
and Support
HR Services
IT education
and training
KPO Services
CADM
Others (SOA,
web services, E
commerce)
Network
Consulting and
Integration
Software
Testing
[Source: NASSCOM, D&B Industry Research Service]
Figure 1: Indian IT Industry Segmentation

8
Software:
IT Software comprising of the (a) Software Products and (b) Engineering and R & D Services, forms the
smallest sector of the Indian IT industry.
a. Software Products: The market for software products is growing rapidly as the Small and Medium
Enterprises (SMEs) as well as large organizations are utilizing the services of software in simplifying their
works. The sector is highly concentrated with the top 10 firms, dominating the market.
IT Software comprises of the the
i.
Infrastructure Software
ii.
Enterprise Application Software.
Infrastructure Software:-
The Infrastructure software connects the people and systems across an organization. It helps in
efficiently executing the business processes, share information and the manage the various touchpoints
with the customers and the suppliers. It can be of the following types:
Application development
Application integration and middleware
Business intelligence tools
Database management systems
Data integration tools
IT operations
Security software
Operating-system software
Enterprise Application Software:-
It is a software specifically designed to solve an enterprise problem. The application software performs
various business functionalities like accounting, production scheduling, customer information
management, etc. The Enterprise application softwares currently available are:
9
Customer relationship management
Enterprise resource planning
Supply chain management
Project portfolio management
Content, communication and collaboration
E-learning
b. Engineering and R & D Services: This sector has recently originated in India. Many players are trying to
tap this market by developing their engineering capabilities.
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:
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, Infosys.
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:
o
Integration of various systems deployed by the organization- CRM, ERP, SCM etc.
Integration of business processes and logistics
10
Configuration of customized software
Database Maintenance
Integration of legacy systems with the new software or hardware
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.
Network Consulting and Integration:

These services offer planning, construction and designing of data networks. The range of
services in this service line includes:
Network architecture design
Network connectivity
Systems Management
Project Management
Network Maintenance etc.
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:
o
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:
Application Management: It includes management and execution of all activities involved in

deploying, maintaining, and upgrading a firms IT systems.
IS Outsourcing: The services offered in this segment varies depending on the requirements of
the client. The services offered in IS Outsourcing can be:
o
Desktop Management
11
Help Desk Support
Management of Operation systems
Management of Applications systems
Management of Anti Virus systems
Back up equipment service etc.
(c) Training and Support:

It includes three segments:
Software Deployment and Support: It involves installing, configuring and maintaining software
on the clients systems.
Hardware Deployment and Support: It involves deploying specific hardware devices on the
clients systems.
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.
IT- enabled Services:
It consists of those services which are delivered using software as a means of production and Internet as
a means of transmission. According to AT Kearney, India is considered to be the most preferred
destination for companies which are looking for off shoring their IT and backoffice functions. The factors
favoring the growth of this sector in India are:
Low cost advantage
Technically skilled work force
English speaking population
Superior service maturity
Friendly governmental policies supporting FDI
Robust infrastructure
A thriving indigenous software industry
12
ITeS- BPO
Customer
Information
Services
Financial and
Accounting
Services
KPO
Others
HR Services
B2B
Card Processing
Research
Services
Media
Retirement
Planning
Customer Care
Cheque
Processing
Re- modelling
Publishing
Benefits
Planning
eCRM
Data Capture/
management
Medical
Services
CAD/ CAM
Recruitment
Email Support
Document
management
Language
Translation
Technical
Support
Insurance
claims
Processing
Content
Creation
Tele-marketing
Taxation
Strategy
Consulting
Course
designing/
modelling
Customer Information Services: These services include all the activities related to managing relationship
with the customer i.e. capture, storage and analyisis of customer information.
Financial & Accounting Services: These services manage financial and accounting aspects of businesses.
These services are slowly and steadily gaining pace in the Indian IT industry. It is the second largest
contributor to exports in the ITes segment.
13
Human Resource Services: It entails all the activities pertaining to human resource management. It
includes managing employee records, payroll processing, hiring, staffing and training and development
of the employees etc.
Knowledge Process Outsourcing: The KPO segment offers a bouquet of services, ranging from market
analysis, strategy consulting, business research, content management, medical transcription etc.
Concentration of Players within KPO segment (FY

'07)
5%
5% 2%
1%
18%
5%
7%
15%
7%
9%
14%
12%
Content Management
Business Research
Litigation
Retail Analytics
Forign Language Translations
Course Designing & Modelling
14
Market Analysis
Medical Transcription
Legal Research
Strategy Consulting
CBT/ WBT Content Creation
Re- modelling
Present Industry Structure

The Indian IT industry comprises of well established billion dollor firms as well as start ups or the
emerging players. The industry can be described as fragmented yet concentrated. In terms of the
expanse of presence of the small and medium enterprises (SMEs) and their offerings, they can be
termed as Fragmented. But, on the other hand, when the dominance of the leading players are taken
into consideration, because of their earnings as well as their offerings, the industry can be reffered to as
Concentrated.
The industry can be categorized into:
Tier I Players
Tier II Players
Offshore Global Services Provider
Pure Play BPO Providers
Captive BPO Units
Emerging Players
15
Tier I Players
No. of Players: 5- 7
Share in Exports: 45% of IT
services, 4- 5 % or BPO
Performance: Revenues
greater than US $ 1 billion
Emerging Players
Tier II Players
No. of Players: >3000

Share in Exports: 10- 15%
of IT services & 5% of BPO
less than US $ 100 billion
(IT) & Revenues less than
10 billion (BPO)

Share in Exports: 25% of IT
ser vices, 4- 5% of BPO
greater than US $ 100
billion
Industry
Structure
Offshore Global
Services Provider
Captive BPO Units

No. of Players: 150
Share in Exports: 50% of
BO
US $ 25- 150 billion (top
10 units)

Share in Exports: 10- 15 %
of IT services, 10- 15 % of
BPO
Perfornance: Revenues US
$ 10- 500 billion
Pure Play BPO

Providers
Share in Exports: 20% of
BPO
US $ 10- 200 billion
(excluding top provider
with US $ 500 million)
Figure 3: Present Industry Structure
Tier I Players: Though the number of players in this category is very low (5- 7), but they account for
almost 45 per cent of IT Services and 4- 5 percent of BPO exports. These firms have been able to
increase their sales with the help of their strong management capabilities and Global Delivery Model
(GDM). This has helped them in enhancing their global presence. They are increasing venturing into new
services like IT consulting, Research and Development (R & D), testing etc.
16
Tier II Players: These players have their revenues greater than US $ 100 billion. The number of players
in this category is also low (10- 12), but they account for 25 per cent of IT services and 4- 5 per cent of
BPO exports. Due to limited number of clients, service lines and verticals, these players have registered
a lower growth rate than the Tier I players.
Offshore Global Service Providers: This category has around 30- 40 players who have registered their
sales revenue of US $ 10- 500 billion. These players are recording inorganic growth through acquisitions
in low cost destinations including India. But, due to complex local market conditions, they are facing
challenges in integrating Indian operations.
Pure Play BPO providers: The number of players in this category have hovered around 40- 50. They
account for around 20 per cent of BPO exports. These players are facing serious challenges in terms of
increasing customer expectations in terms of quality and delivery of service.
Captive BPO Units: There are about 150 players in this category. They account for 50 per cent of BPO
exports. They are also increasing their presence in Tier II cities, primarily for cost and resource
considerations.
Emerging Players: The number of players in this category is over 3000. They account for about 10- 15
per cent of IT services exports and 5 per cent of BPO. These players are facing severe challenges as they
have limited access to markets and the lack delivery scales.
17
Advantage India
Technically Skilled Professionals: India has a huge reservoir of technically sound manpower. This has
proved to be one of the most critical success factor for Indian IT sector. This growth is also
complimented by the demographic profile of India, where over 50 per cent of the population is below 25
years of age. The growing number of world class educational institutions along with the policy for
educational loans, have geared the growth of the industry.
English speaking population: Because of Indias colonial past, the medium of education in India is
primarily English. This has proved to be boon to the industry. India is the second largest nation in the
world in terms of English speaking population, first being USA.
Robust Telecom Infrastructure: The telecom industry in India is well established. The
telecommunications network in India, is the third largest network in the world and the second largest
among the emerging nations in Asia. The availability of superior, robust and reliable telecom
connectivity has added to the success of the whole industry in India.
Rendering Customized, end to end and Niche Services/ Solutions: Due to the increasing
pervasiveness of IT and huge potential for earning foreign exchange, Indian firms have slowly graduated
from giving customized solutions to end to end services and also niche solutions/ services.
Lower costs of offshore outsourcing: The initial driver for offshoring to India was cost. But, India has
proved to deliver quality services at affordable costs. According to AT Kearney, offshoring to India
results in saving 25- 60 per cent of the base cost.
18
Technically
Skilled
Professionals
English
Speaking
Population
Quality
Orientation
Advantage
India
Favorable
Governmental
Policies
Robust
Telecom
Infrastructure
Rendering
customized,
end to end and
niche services/
solutions
Lower cost of
Offshore
Outsourcing
Figure 4: Indias Competitive Advantage
Favorable Governmental Policies: After the liberlization of Indian economy, entry barriers for foreign
investors have been removed. Therefore, liberlized FDI policies, tax exemptions, basic infrastructure,
subsidies etc. from the government has definitely given a boost to the establishment of the industry in
India.
Quality Orientation: Indian companies are certifying themselves with ISO 9001, Six Sigma, Just in
Time, COPC certifications to attract foreign clients.
19
Established IT hubs in India
[Source: STPI, Tramell Crow Meghraj]
Figure : 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 Indias 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.

20
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
IT/ITeS majors: TCS, Infosys, Wipro, Siemens, Accenture
6. Pune
IT/ITeS majors: Cognizant, Convergys, EXL, KPIT, Msource
7. Chennai
IT/ITeS majors: Infosys, Wipro, Accenture, Cognizant
Emerging IT hubs in India
Slowly and steadily the Tier 2 and Tier 3 cities are also emerging to become IT hubs. The major
advantage which these cities provide are
Higher savings in administration
Lower infrastructural costs
Large pool of talent in the form of skilled professionals
21
[Source: STPI, Tramell Crow Meghraj]
Figure : Emerging IT Hubs in India
22
Growth of the Industry

The Indian IT industry has been growing at a rapid pace by offering a wide range of products and
services. This growth can be attributed to the exports of lower end services, but slowly and steadily the
Indian IT industry is moving towards rendering higher end services.
The growth of the industry can be studied by observing the growth in all the segments of the industry.
There has been a growth in the exports as well as domestic sales.
1. IT Software:
This segment represents the smallest segment of the Indian IT industry. It comprises of (a) the Software
products and (b) engineering and R& D services.
Growth of Software Sector

10
20
18
16
14
12
10
0
FY '01
FY '02
FY '03
FY '04
FY '05
US $ Billion
FY '06
FY '07
FY '08
Percent
Figure : Growth of IT Software sector

Before FY 03, Engineering and R & D services was not a part of this segment. Therefore, there was not
much scope for exports. But after the advent of Engineering and R & D services, Indian IT firms have
23
been making a historic progress in the export orientation. The export orientation has been increasing
year after year. Looking at the graph below, representing the increase in exports, after FY 03, we can
conclude that this segment is extremely lucrative and going to flurish in the future.
Software: Share of Exports and Domestic Sales

100%
90%
80%
42.86
70%
50
60%
78.95
83.34
81.58
21.05
16.66
18.42
FY '03
FY '04
FY '05
75.48
75.76
75.59
24.52
24.24
24.41
FY '06
FY '07
FY '08
50%
40%
30%
57.14
20%
50
10%
0%
FY '01
FY '02
Domestic Sales
Exports
Figure : Share of Exports and Domestic Sales
2. IT Services:
India is an expert in provinding customized IT services which are very specific to the needs and
requirements of the clients and the end user. These services have always dominated the Indian IT
industry, accounting for over 60%. Before the advent of engineering and R & D services, the share of IT
services in the overall revenue of the industry was above 71%. Nonetheless, the segment is growing at a
CAGR of 26% since FY 00, and is expected to reach US $ 29.7 billion in FY 08.
This segment is divided into three categories: (a) Project- oriented services, (b) IT Outsourcing and (c)
Training and Support.
24
Growth of IT Services Segment

35
90
80
30
70
25
60
20
50
15
40
30
10
20
5
10
0
FY '00
FY '01
FY '02
FY '03
FY '04
IT Service Revenue (US $ billion)
FY '05
FY '06
FY '07
FY '08
Share in Industry Revenue (%)
Figure : Growth of IT Services Segment

100%
90%
80%
70%
3.1
5.8
5.5
7.3
10
13.3
18
23.2
1.5
2.1
2.4
3.1
3.5
4.5
5.6
6.5
FY '00
FY '01
FY '02
FY '03
FY '04
FY '05
FY '06
FY '07
FY '08
60%
50%
40%
30%
20%
10%
0%
Domestic Sales
Exports
25
Figure : Share of Exports and Domestic Sales
Share of Exports of IT Services

16,000
14,000
US $ Million
12,000
10,000
8,000
6,000
4,000
2,000
0
FY '06
Project Oriented Services
FY '07
FY '08
Outsourcing
FY '09
Training and Support
[Source: NASSCOM]
3. ITeS- BPO Sector:
The Indian ITeS- BPO sector was known to specialize in offering the lower end services. But with the
initiation of reforms in the early 1990s, the industry is moving up in the value chain by offering higher
end services.
26
Growth of ITeS Sector

14
30
12
25
10
20
8
15
6
10
2
0
0
FY '00
FY '01
FY '02
FY '03
FY '04
FY '05
Total Revenues (US $ billion)
FY '06
FY '07
FY '08
Share in Industry Revenues
Figure : Growth of ITeS Services Segment
Share of ITeS Exports

6000
US $ Million
5000
4000
3000
2000
1000
0
FY '05
FY '05
CIS
F&A
FY '05
HR
FY '05
KPO
Figure : Growth of ITeS Services Segment
27
Competitive Landscape of the Industry

The competitive landscape of the industry can be understood using the Porters five forces model.
Rivalry among
Players
Threat of New
Entrants
Bargaining
Power of
Buyers
Indian IT
Industry
Bargainig
Power of
Suppliers
Threat of
Substitutes
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 case of ITeS- BPO
sector, the switching cost is relatively very low, which makes the bargaining power of the buyer very
high.
28
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.
Competitive Strategies
After studying the competitive landscape of the industry, the following competitive strategies can be
followed by the players:
1. Consolidating Business from Repeat Clients and win new clients: TCS, Infosys and Satyam
have a major chunk of their revenues from their repeat clients. In the year 2007, the revenues from
repeat clients for TCS, Infosys and Satyam were 96.8%, 95.0% and 90.0% respectively. These figures
highlight the importance of Customer Relationship Management.
In order to retain their clients, the companies increase the size and number of projects and also,
extend the range of services they offer.
2. Focus on Niche Service Lines: Some mid size players have adopted this model where they render
specialized services rather than offering end to end services. This helps them to differentiate
themselves amongst other players.
29
Consolidating
business from
'repeat clients'
and win new
clients
Wide spectrum
of service
offerings
Setting up
ODCs
Competitive
Strategies
Focus on
Product
Innovations
Focus on niche
service lines
Higher Capital
Expenditures
Mergers and
Acquisitions
Figure : The Competitive Strategies followed by the players
3. Mergers and Acquisitions: M& A help in consolidating the whole industry. It enables firms to
expand, enhance its skill sets, expand its service offerings and enter new geographies.
4. Higher Capital Expenditure: This can help in enhancing business activities as well as increasing
the operational effectiveness of these companies.
5. Setting up ODCs: Offshore Development Centres have helped in instilling customer satisfaction to
a great extent. It also has helped in reducing the operating expenses of the companies.
6. Wide Spectrum of Services: The players are constantly extending their bouquet of services to
attract the new clients as well as retain the existing ones. They are also offering higher value added
services which ensures greater earnings and on the same time lower resource utilization as well.
30
Growth Opportunities for the industry

There are two ways in which the industry can witness growth:
Increasing the domestic sales
Moving up the value chain
The industry is right now predominantly export oriented. When we look at the growth in exports and
the growth in domestic sales, we can observe that the domestic sales growth are left far behind. So if
the domestic sales increases, growth of the overall industry will happen. Therefore, the players as well
as the government should take initiatives to increase the domestic consumption.
The Indian IT players are pre dominantly involved in rendering lower end services to their clients.
Therefore, the industry can grow only when it starts moving up in the value chain. Presently, the Indian
IT industry is basically focusing on the Application Maintenance and Infrastructure Management. But the
focus on rendering higher end services will help in strengthening the brand image of the industry.
Application Design
and Development,
Package
Implementation
Application
Management,
System
Integration
Infrastructure
and Network
Management
Figure : The IT Value Chain

31
Business
Intelligence
Solutions, Business
Process Redesign
Business & IT
Strategy
Major Threats to the Industry

1. High Attrition Rate: Staff shortage can prove to be a major bottleneck to the growth of the
industry. According to McKinsey & Co., only 25 percent of the technical graduates are competent
enough to work in the offshore IT industry in India. In the BPO sector also, only 10- 15 per cent of
the graduates are suitable for employment. Therefore, managing attrition rate is becoming a big
task for the IT companies in India.
High attrition rate results in loss of skilled manpower, loss of skill sets etc. Apart from loss in skill
sets, cost of recruitment, training and development of the new recruits also becomes a major
investment for these companies.
2. Competition from other emerging nations: Chinese IT hubs like Beijing and Shanghai are set to
overtake Indian hubs by the year 2011, according to a report by IDC. These cities are competing with
India on account of their stable socio- economic environment, excellent infrastructure, low attrition
rates and skilled talent pool.
3. There is a need for improvement in the urban infrastructure. According to McKinsey, further growth
of the industry has to come from small districts, outside the Tier 1 and Tier 2 cities.
4. Lack of fluency in languages other than English, e.g. French, Spanish, Italian etc. is proving to be a
weakness of the Indian IT industry.
5. End of Tax Benefits at STPIs: There is a dissimilarity in the tax regimes at STPIs. This would lead to
conversion of these STPIs into SEZ units.
6. Overdependence on US Economy: Almost 70% of the IT industry revenues comes from USA.
Therefore, any downscale in the US market, adversely impacts the Indian market too. E.g. recent
downsizing and job cuts due to recession in the US market.
7. Rupee Appreciation: As most of the earnings are in foreign currencies, therefore Rupee
appreciation becomes an area of concern for the industry.
8. Lack of Product Innovation: India specialises in services but not in products. The nation lacks in
product innovation, which can be considered a major area of concern. It will be difficult to maintain
competitive advantage if product innovation doesnt occur.
9. Limited Domestic Market: The domestic market is still in the nascent stage in India. This makes
the whole industry vulnerable to export market only.
32
Recommendations
Building Domain Knowledge: If the players in the industry have to move up the value chain, the first
pre requisite is building up domain knowledge. Only this can help them in satisfying their customers and
in turn winning their confidence. Once this is achieved, they will become repeat customers for them.
Investing in Research and Development: This will help in innovating new products and services
which will help in the growth of the company as well as the industry as a whole.
Knowledge Management: The industry faces a high attrition rate which deprives the company of its
talents. Knowledge management is a technique which helps in retaining the knowledge in the firm, even
when these knowledgeable persons leave the organization. It is a technique of assembly, preservation,
transfer and management of data and knowledge in companies.
A boost in the domestic sales can occur with more favourable government policies and also
improvement in the infrastructure which is a pre requisite for the growth of IT industry as a whole.
The Way Ahead

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 Financial Sector Institutions (BFSI), healthcare, manufacturing, retail
etc. would increase, with the increase in the internet usage. Slowly and steadily, the Tier II and Tier III
cities will also witness increase in the number of IT companies.
Conclusion
The Indian Information Technology industry represents one of the most successful industry showing
consistent rapid growth. In a report, Perspective 2020: Transform Business, Transform India, prepared
by Mc Kinsey, the export revenues of Indian IT industry will touch US $ 175 billion by the year 2020. The
domestic sales revenue will also contribute US $ 50 billion by the year 2020. Therefore, we can say that
the industry is shining and will continue to do so as well.
33
References
http://www.businessweek.com/adsections/indian/infotech/2001/growth.html
http://timesofindia.indiatimes.com/biz/india-business/IT-exports-to-touch-50billion/articleshow/5536663.cms
http://blog.nasscom.in/nasscomnewsline/2009/02/a-view-on-the-indian-it-bpo-industry-in-2009/
http://www.blr.stpi.in/pop_stpindustrygrowth.htm
www.blr.stpi.in
http://www.infoworld.com/t/business/indias-outsourcing-valued-60-billion-2010-684
www.hyd.stpi.in
http://www.naukri.com/nri/article2.htm
http://www.dnb.co.in/TopIT_08/overview.asp
http://www.mindbranch.com/India-Information-Technology-R302-10603/
India's
offshore
outsourcing
revenue
grew
34.5%
at
networkworld.com
http://www.networkworld.com/news/2005/060205-india-outsourcing.html
http://www.ibef.org/artdispview.aspx?in=38&art_id=25847&cat_id=121&page=2
Perspective 2020: Transform Business, Transform India
http://www.nasscom.in/upload/Perspective%202020%20Press%20release%20presentation.pdf
34

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A Whitepaper

The Indian IT Industry

Overview of Indian IT Industry ...................................................................................................................... 4

Project- oriented services: ...................................................................................................... 10

Training and Support: ............................................................................................................. 12

It includes three segments: ................................................................................................................. 12

Growth Opportunities for the industry....................................................................................................... 31

Overview of Indian IT Industry

expansion into varied verticals

well differentiated service offerings

increasing geographic penetration

History and Evolution of IT Industry

Phase I: Prior to 1980

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

Phase IV: Post 2000

[Source: D& B Industry Research Service]

Figure 1: Evolution of Indian IT- ITeS Industry

IT enabled Services (ITeS)- BPO

[Source: NASSCOM, D&B Industry Research Service]

Figure 1: Indian IT Industry Segmentation

Enterprise Application Software.

Application integration and middleware

Business intelligence tools

Database management systems

Data integration tools

Enterprise Application Software:-

Customer relationship management

Enterprise resource planning

Supply chain management

Project portfolio management

Content, communication and collaboration

Integration of business processes and logistics

Configuration of customized software

Integration of legacy systems with the new software or hardware

Network Consulting and Integration:

Network architecture design

Network Maintenance etc.

Application Management: It includes management and execution of all activities involved in

Innoversant Solutions Pvt Ltd

Help Desk Support

Management of Operation systems

Management of Applications systems

Management of Anti Virus systems

Back up equipment service etc.

(c) Training and Support:

IT- enabled Services:

Low cost advantage

Technically skilled work force

English speaking population

Superior service maturity

Friendly governmental policies supporting FDI

A thriving indigenous software industry

Concentration of Players within KPO segment (FY

Present Industry Structure

Offshore Global Services Provider

Pure Play BPO Providers

Captive BPO Units

No. of Players: >3000

No. of Players: 10- 12

Captive BPO Units

No. of Players: 30- 40

Pure Play BPO

[Source: NASSCOM, D&B Industry Research Service]