Indian IT industry:NASSCOM Analysis.

- Indian Software and Services Exports clock revenues of USD 17.2 billion, registering growth of 34.5 % in FY 2004-05
- Total software and services revenues were USD 22 billion in 2004-05
- Domestic market revenues grow by 24% in FY 04-05
- Indian Software and Services exports industry forecast to register strong growth of around 30-32% in FY 05-06

Sector-wise break-up

USD billion 2003-04 2004-05 2005-06E
IT Software and Services Exports 9.2 12.0 15.2
ITES-BPO Exports 3.6 5.2 7.3
Domestic Market 3.9 4.8 6.0
Total IT-ITES (IT Software and Services + ITES-BPO)
16.7 22.0 28.5
Source: NASSCOM

Geographical Breakdown

· North America, which accounts for over 55 per cent of the global IT spend, represented approx. 70 per cent of Indian software exports in 2004-05, with Europe ranking second at 22 per cent of total exports. North America remains the dominant market for ITES-BPO services, accounting for over 80 per cent of the ITES-BPO business in India. While US and UK still remain the dominant markets, Indian companies are gaining traction in newer geographies like Japan, Singapore and Germany
· Over the next few years, the Asia-Pacific region will emerge as a key target region for the Indian software and services industry as it will be important for Indian players to expand to new regions

Exports by Verticals

· The financial services sector (IT spending by banks, insurance companies, and securities firms) accounted for the largest share of Indian software and services exports at around 40 per cent followed by manufacturing with around 12 percent
· Emerging verticals: Healthcare, Telecom Service providers, Retail and Government

Exports by Service Lines

§ Custom application development and maintenance, and application outsourcing, accounting for 88 percent of total software exports
§ Emerging service lines: IT consulting, System Integration, Network Consulting and Integration, Hardware Support and Installation, Processing Services and IS outsourcing

Quality

· As of January 2005, India has 76 companies at SEI CMM Level 5 assessment. The quality maturity of Indian software and BPO industry can be measured from the fact that already 275 Indian software and ITES-BPO companies have acquired quality certifications and about 80 more companies are in the pipeline.
· Many leading Indian BPO companies have received recognized quality certifications such as COPC. One of the most recognized and widely used standards is ISO 9000, the international quality management standard.
· Although it is relatively early days for the Indian BPO sector, the sector is maturing rapidly and this is increasingly apparent in the volume and complexity of work that is being outsourced to India. The Indian BPO companies are world class in their offerings as compared to those in other countries. Indian providers have a client satisfaction level of over 80 percent, while quality fatal defects are less than 2 percent.

India’s Security Environment

· Indian companies as well as the Government have been proactive in taking appropriate steps to tackle security concerns. Many Indian companies are aware of and are opting for international security standards such as ISO 17799, BS7799, COBIT and ITSM. NASSCOM, with the Indian government, has laid the foundation for the required legal framework. The IT Act, 2000 includes laws and policies concerning data security and cyber crimes. Other than IT Act, the Indian Copyright Act of 1972 deals with copyright issues in computer programs.
· As a part of the recently launched ‘Trusted Sourcing’ initiative, NASSCOM has researched comprehensively on the security framework (regulatory environment and security practices) in India. The report benchmarks Indian ITS and BPO companies with their counterparts in US and UK with regards to practices followed on data security, confidentiality and privacy laws.

Structure of Indian Software and Services Industry

The Indian IT services industry comprises a diverse group of companies-large, near-billion dollar global companies and small start-ups, Indian companies and multinationals. Growth rates across companies is quite varied.

· Tier 1 companies (i.e. the top 5 firms) account for about 32 percent of total software exports; and have benefited from customers’ recent scaling of operations
· Tier 2 companies (with revenues of between Rs. 1 billion and Rs. 10 billion) account for about 24 percent of the industry, and face the challenge of differentiation from Tier 1 players. The revenues of these companies are under pressure because of fierce bidding by those in Tier 1
· MNC back-ends account for about 26 percent of the industry
· Focused companies (about 3-4 percent of the industry) include those with a focus on a particular domain/service line/products, who are facing the challenge of cutbacks in key markets such as telecom, and managing to diversify their offerings
· Small companies, with revenues of less than Rs. 1 billion, account for 12-14 percent of the market, and many have witnessed a slow growth due to excessive dependence on staff augmentation

Country Competitiveness

India has become one of the most favoured destinations for sourcing software and IT enabled services. India in comparison to other locations ranks high in several critical parameters including, level of government support, quality of the labor pool, English language skills, cost advantages, project management skills and over-all quality control. Additionally, a favorable time zone difference with North America and Europe helps organizations achieve 24x7 internal operations and customer service.

India’s strengths include

· Highly skilled, abundant labor pool and market-driven education system
· Labor cost advantages
· Process and quality focus - large number of companies have received SEI-CMM Level 5 certifications
· Project management and complex project execution skills and experience
· Entrepreneurial culture
· Indian diasporas and strong customer relationships
· Friendly government policies for IT exports

India’s opportunities include

· Creation of global household brands
· Service lines such as systems integration and IT consulting
· Deeper penetration in existing service lines, verticals and geographies (Europe, China, Japan)