INDIAN IT INDUSTRY

1. A brief History
Indian Information Technology industry is one of the fastest growing industries in the
country. The Indian IT and ITeS industry is divided into four major segments IT
services, business process management (BPM), software products and engineering
services, and hardware. Indian IT Industry is considered as a pioneer in software
development and a favourite destination for IT-enabled services.
In the year 1974, the origin of IT industry in India can be traced, when the mainframe
manufacturer, Burroughs asked its India sales agent, Tata Consultancy Services (TCS)
to export programmers for installing system software for a U.S. client. The Indian IT
industry originated under very unfavourable conditions. During olden times local
markets were absent and government policy toward private enterprise was hostile.
The Indian IT Industry was begun by Bombay-based conglomerates who entered the
business by supplying programmers to global IT firms located overseas. During
1970's the Indian economy was state-controlled and remained hostile to the software
industry. Even the Import tariffs were high like 135% on hardware and 100% on
software. Even the exporters were ineligible for bank finance. In 1984 Rajiv Gandhi
became Prime Minister and the Government policy towards IT sector changed. The
New Computer Policy (NCP-1984) consisted of a package of reduced import tariffs
on hardware and software which reduced to 60%.
Even during this time the recognition of software exports as a "delicensed industry",
was done so that banks were eligible for finance and freed from license-permit raj,
there was even the permission for foreign firms to set up wholly-owned subsidiaries.
All such policies are reasons for the development of a world-class Indian IT industry.
Today, IT companies in India such as Tata Consultancy Services (TCS), Wipro,
Infosys, HCL are well known in the global market for their IT competency.
Indian IT Industry's development and contribution to the world's information
technology sector is of highest reputation. Metro Cities like Bangalore, Mumbai,
Delhi, Chennai and Hyderabad have become the favourite destinations for all the big
banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multinational firms like Infosys Technologies, Wipro, and Micro land have set up their
offices in these cities as the cities offers good infrastructure, with large floor space
and great telecom facilities. This could be reason for the basis of the high growth
statistics of India and the changing outlook of the companies towards India. The
Indian IT Industry has grown up to US $ 5.7 billion in 1999-2000, with the annual
growth rate not sliding below 50 % since 1991.
2. Current statistics
India is the world's largest sourcing destination for the information technology (IT)
industry, accounting for approximately 52 per cent of the US$ 124-130 billion market.
The IT-BPM sector in India grew at a compound annual growth rate (CAGR) of 25
per cent over 2000-2013, which is 3-4 times higher than the global IT-BPM spend,
and is estimated to expand at a CAGR of 9.5 per cent to US$ 300 billion by 2020.

India, the fourth largest base for young businesses in the world and home to 3,000
tech start-ups, is set to increase its base to 11,500 tech start-ups by 2020, as per a
report by Nasscom and Zinnov Management Consulting Pvt Ltd.
Indias internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by
2018, accounting for 5 per cent of the countrys gross domestic product (GDP),
according to a report by the Boston Consulting Group (BCG) and Internet and Mobile
Association of India (IAMAI). In December 2014, Indias internet user base reached
300 million, the third largest in the world, while the number of social media users and
smartphones grew to 100 million.
Public cloud services revenue in India is expected to reach US$ 838 million in 2015,
growing by 33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet
another Gartner report, the public cloud market alone in the country was estimated to
treble to US$ 1.9 billion by 2018 from US$ 638 million in 2014. The increased
internet penetration and rise of e-commerce are the main reasons for continued growth
of the data centre co-location and hosting market in India.
3. Factors that affects growth
High growth demand for exports from new vertical
Rapidly growing urban infrastructure has fostered several IT centres in the
country
Expanding economy to propel growth in local demand
IT firms having large number of delivery centres in the various parts of the
world
Increased internet penetration
Rise of e-commerce
4. Government Initiatives
The adoption of key technologies across sectors spurred by the 'Digital India
Initiative' could help boost India's gross domestic product (GDP) by US$ 550 billion
to US$ 1 trillion by 2025, as per research firm McKinsey.
Some of the major initiatives taken by the government to promote IT and ITeS sector
in India are as follows:

India and the United States (US) have agreed to jointly explore opportunities
for collaboration on implementing India's ambitious Rs 1.13 trillion (US$ 18.22
billion) Digital India Initiative. The two sides also agreed to hold the US-India
Information and Communication Technology (ICT) Working Group in India later this
year.

India and Japan held a Joint Working Group conference for Comprehensive
Cooperation Framework for ICT. India also offered Japan to manufacture ICT
equipment in India.

The Government of Telangana began construction of a technology incubator in

Hyderabaddubbed T-Hubto reposition the city as a technology destination. The
state government is initially investing Rs 35 crore (US$ 5.64 million) to set up a
60,000 sq ft space, labelled the largest start-up incubator in the county, at the campus
of International Institute of Information Technology-Hyderabad (IIIT-H). Once
completed, the project is proposed to be the worlds biggest start-up incubator housing
1,000 start-ups.


Bengaluru has received US$ 2.6 billion in venture capital (VC) investments in
2014, making it the fifth largest recipient globally during the year, an indication of the
growing vibrancy of its start-up ecosystem. Among countries, India received the third
highest VC funding worth US$ 4.6 billion.

5. Leading players in IT Industry

Microsoft Corporation
IBM
TCS
Infosys
Wipro
Congnizant
Accenture
Mindtree
Tech Mahindra
Oracle Corporation
SAP AG
VMware Inc.
Cisco
Intel
Symantec Corporation
Adobe Systems Inc.
HCL Technologies Limited
Mphasis
HP
Google
Dell
6. Estimated size of the industry INR? Products/Services sold?
Revenue:
Indian IT-ITES industry revenue is estimated at USD 105 billion in FY2013-14 as
compare to USD 95.2 billion in FY2012-13, registering an increase of around 10.3%.
The overall industrys growth of this sector over the last five years is given in the
table below.
IT ITES Industry Revenue Trends (in USD billion)
Year/
2009- 2010- 2011- 2012
Description
10
11
12
- 13

201314(E)

CAG
R%
(200914)

Exports

49.7

59.0

68.8

76.1

86.0

12.80

Domestic

14.3

17.3

19.0

19.2

19.0

8.22

Total

64.0

76.3

87.8

95.2

105.0

11.88

Source: Nasscom, E: Estimated

Exports
IT-ITES exports is estimated to gross USD 86 billion in FY2013-14, growing by
13.1% over FY 2012-13 and contributing nearly 82% of the total IT-ITES revenues
(excluding hardware). A combination of solutions around disruptive technologies such
as SMAC (Social media, mobility, analytics and cloud)), artificial intelligence,
embedded systems etc. have become the life-force of the industry.
IT services exports (excludes BPO, Engineering, R&D and Software products) is
expected to be the fastest growing segment in FY 2013-14, with an y-o-y growth over
14%, generating exports of USD 52 billion, driven by collaboration, communication,
business intelligence projects, and integration of SMAC services with traditional
offerings. During FY 2013-14, ITES/BPO exports is likely to be USD 20 billion, with
a growth rate of ~11.4% over FY2012-13. Customer Interaction Services (CIS)
continues to have the largest share of 41%, followed by Finance & Accounting (F&A)
23% and Knowledge Services (KS) 19%. Within BPO segment, Knowledge services
is the fastest growing segment and is expected to generate export of USD 3.7 billion,
as compared to USD 3.2 billion, a y-o-y growth of over 15%. Software products and
ER&D segment achieved a double-digit growth rate of ~11% over FY 2012-13 and is
estimated to generate exports of US$ 14.2 billion in FY 2013-14. The domain specific
solutions focusing on convergence, customization, efficiencies and localization, M2M
technology and newer technologies around SMAC are playing a significant role in
driving the growth of ER&D and software products. With over 3,000 firms, India is
emerging as a hotbed for software products with SMAC and a supportive ecosystem
creating successful stories.
Segment wise export Revenue Trends in IT ITES Industry (in USD billion)

Year/ Segment

200910

2010- 11

201112

201213

201314(E)

CAGR
%
(200914)

IT Service

27.3

33.5

39.9

45.4

51.9

15.0

ITeS-BPO

12.4

14.2

15.9

17.9

19.9

11.21

Software Products, Engineering

Services, R&D

10.0

11.4

13.0

12.8

14.2

8.14

Total IT-ITeS

49.7

59.0

68.8

76.1

86.0

12.8

Source: Nasscom, E: Estimated

As per figure 3, the IT Services exports accounts for the largest share of 60.3 %; BPO exports
contribute 23.2 % followed by ER&D and software products that together accounts for
16.5%.
Domestic Market
As shown in figure 4, Domestic IT-ITES revenue (excluding hardware) is estimated to reach
INR 1147 billion in FY2013-14, as compared to INR 1041 billion in FY2012-13, a y-o-y
growth of ~10%. During FY2013-14, domestic IT services growth is likely to be at 9.7% as
large enterprises exhibit cautious spending pattern; driven by technology upgrades in BFSI,
telecom and State Governments, and compliance of MIS investments. The domestic BPO
services growth is estimated at ~12% in FY2013-14, driven by demand from select customers
reverting to outsourcing business processes, especially from the BFSI, automotive and retail
sectors. Domestic software products is estimated at 9.5% due to increased demand for retail,
healthcare, education, manufacturing (vertical-specific) and SMAC (Social media, mobility,
analytics and cloud) -based solutions. With the advent of cloud, the next opportunity is
Indias 47 million SMBs, who are able to rapidly bridge the technology adoption gap.
Segment wise Domestic Revenue Trends in IT ITES Industry (in INR Crores)

Year/ Segment

200910

201011

201112

201213

201314(E)

CAGR
%
(2009-14)

IT Service

42901

50068

58908

66300

72722

14.01

ITeS-BPO

10898

12699

14849

17500

19594

17.18

Software Products,
Engineering Services

14001

15902

18010

20500

22469

12.72

Total IT-ITeS

67800

78670

91766

104700

114784

14.25

Source: Nasscom, E: Estimated

7. Establish trends in sales over recent years? (Financial/ Ratio Analysis)

8. Determine current trends within the industry? (PESTEL Analysis)
Technological Factors:
Government Research spending : Emphasis on 'Digital India' initiative and
use of technology to deliver citizen services is expected to help IT spending in
the government sector in India to grow five per cent to touch $7.2 billion in
2015, research firm Gartner today said. For the ongoing year, government IT
spending is on pace to total $6.6 billion, according to Gartner.
Changes in Internet : Indian Internet Companies with Innovative business
model Naukri.com Flipkart Redbus
9. 4. Lifecycle & speed of technological obsolescence : Desktop to Laptop ,
Landlines to Skype , DOS to Windows 8 Reference :
9. What types of marketing strategies are prevalent within the industry? ( Porters
5 Forces)

Existing competition: The IT Industry landscape is characterised by intense

completion for conventional IT services: Application Development & Maintenance,
IT Infrastructure Management Services, Network Management Services, Data-center
Services etc. leading therefore to commoditization. There are several firms in the
market offering similar services and it is difficult to differentiate based on these
service offerings. The existing competition comes from both domestic players
(Infosys, TCS, Wipro, HCL technologies, Tech Mahindra, Mindtree and so forth) and
international ones (IBM, Accenture, Capgemini, Cognizant and so forth).
It is in the context of non-conventional services, i.e. the ones focussed (Digitization et
al) on emerging technologies and trends such as Analytics, Cloud computing, Social
Media, Enterprise Mobility, Internet of Things etc. where the opportunity for
differentiation through niche-specialization occurs. Another argument might be for
industry-vertical specialization but the major buyers (in terms of Industries) for
instance Banking & Financial Services (BFSI), Manufacturing, Energy & Utilities etc.
are well catered to and it would be easier to think of IT companies as portfolios of
verticals (across clients) especially when considering growth potential (with the
growth in an industry benefiting the IT service provider that draws most revenues
from the industry in question). Vertical specialization therefore will only be beneficial
for industries going through rapid change (Telecom for instance) or through rapid
growth caused by external factors like government regulation. The healthcare industry
is a major example and thing bode well for it both in developing markets (due to non-

linear permeation to affect broader access) as well as developed ones (based on the
ageing demographics).
Bargaining power of customers: for conventional IT services, bargaining power of
the buyer is large and the possibility of pressure on rates exists. The buyer, having
worked with both with international IT providers as well as Indian ones is largely the
price setter and has negated (to a large extent) the offshore advantages through mature
procurement and global delivery. The international IT firms too have negated the
advantage enjoyed by Indian IT companies through captive centres in India and
globally. In this industry, in case of conventional IT services, the buyer is king!
In case of non-conventional services, i.e. those that cater to emergent technologies and
technology trends (in Data Analytics or Enterprise Mobility for instance) there is
potential for differentiation and higher margins. Also this is the case for nonconventional, partnership-style engagements where both risk and rewards are higher.
Bargaining Power of Suppliers: The bargaining power for suppliers is very low and
since high-standardization exists, there is little scope of suppliers having any clout.
The suppliers consists of IT Infrastructure providers (Servers, computers etc.),
Recruitment firms, Office Space Suppliers etc.
Threat of New Entrants: In context of the highly commoditized IT services, there is
little threat of new entrants. That said, the Industry is also characterised by high
people dependence and therefore can see veterans detach from existing companies to
invest in new ventures. An example of this is Happiest Minds, which was started by a
co-founder of an existing IT provider.
The newer technologies allow the possibility of new niche players that are not
dependant on size or experience constraints.
Availability of Substitutes: There are no substantial substitutes to IT services apart
from Internal IT departments, which have lost clout over the years and are ever
thinner in numbers and significance. One argument for internal IT is retaining control
over pertinent aspects of business but the argument against would be since the main
business of the company is not IT services, it should outsource as much as possible
and focus on future growth in core areas. Over time there has been a steady decrease
in in-house IT development and maintenance with more and more being outsourced
and the internal IT staff has settled into a supervisory (program management) role.
This has been a mixed bag for newer services as well since internal specialization is
very low, most of the work is outsourced. For critical areas, governance has been
retained in-house and this trend seems to have found favour with most large
enterprises worldwide.
10. Global Economic fluctuation and its impact on your Industry? (For Example,
Greece Economic crisis and Its Impact on Indian Economy)