The IT-BPO Sector in India

Strategic Review 2012

Executive Summary
For years on end, technology has continued to take the world by surprise, enabling an industrial revolution, economic change as well as social transformation. Information technology is no exception its evolution, advancements and results continue to spread at a rapid pace, as does humanitys dependence on technology in general. This probably explains the fact that despite global uncertainties, natural disasters and low consumer confidence in 2011, global spending on technology continued unabated, and demand for global sourcing for IT-BPO services remained strong. In a volatile operating environment, the Indian IT-BPO industry continued to exhibit resilience. However, with the uncertainty, customer demands have also fluctuated, and the industry has had to exhibit change rapidly to stay ahead of the curve, and continue to be relevant. IT-BPO service providers have understood that the capabilities that made them leaders in the past may not be enough to ensure future success. A shift is taking place and firms are rethinking existing capabilities, developing new ones, strengthening their relationships with upstream suppliers, downstream sales channels and extending relations with customers and other go-to-market partners.

The Indian IT-BPO industry has embarked on a focused path of change which includes:

Redesigning internal operations: Disruptive technologies especially cloud, mobility, social and big data/analytics are impacting service providers themselves who are applying these technologies to their internal operations from IT to human resources to finance, and dramatically changing how they do business, in addition to developing solutions around the same for their customers

2 Flexibility in product/solution portfolios: Aiming to be agile and to bring products and

services to market quickly. Firms are now operating within the context of increasingly global partnerships, joint ventures, and M&A activity, and to act fast when opportunities to improve the product/solution portfolio arise as more customers demand open, flexible platforms on which to develop their increasingly digitised businesses

Compelling vertical market strategies: Imperatives to understand how industry verticals and customer segments will themselves adjust to the changing technology landscape, devise specific strategies for developing products and services that serve these vertical needs, and to align and mobilise people and the organisation to these verticals. This has also led to an increasingly collaborative relationship and enabled shared vision with customers and service providers

At the same time, the lessons from 2009 were not unlearnt, so the focus on cost efficiencies, business models and non-linear growth has only grown stronger. Service providers continue on their drive to create synergies

as highlighted by the 77 per cent growth in M&A value in 2011 over 2009. Not to be left behind, the global inhouse centres have also made concerted efforts to move up the value chain and take on additional roles. The ability to sync with global trends and the intent on building a global delivery model that currently encompasses over 560 centres in 70 countries across the world has ensured that the Indian IT-BPO industry has heralded the rise of the Indian MNC with global footprint and talent, as a result of which India has been able to significantly increase its market share in the global sourcing

landscape, from 55 per cent in 2010, to 58 per cent in 2011.

NASSCOM STRATEGIC REVIEW 2012

Global sourcing trends

In the face of the volatility in economic environment and currency, 2011 recorded steady growth for the technology and related services sector, with worldwide spending exceeding USD 1.7 trillion, a growth of 5.4 per cent over 2010. Software products, IT and BPO services continued to lead, accounting for over USD 1 trillion 63 per cent of the total spend. IT-hardware spend, at USD 645 billion, accounted for the balance 38 per cent of the worldwide technology spend in 2011. The year saw renewed demand for overall global sourcing, which grew by 12 per cent over 2010, nearly twice the global technology spend growth.

The global outsourcing market recorded a healthy growth driven by record contracting activity in small size deals, as clients aim to conserve cash flows and at the same time try out new models and service offerings. This decisive shift towards smaller contract deals is coupled with strong growth from the EMEA region. Service providers continued expanding to offshore locations; however, this year saw an increased preference for onshore locations, specifically Tier II cities in their quest to tap into the local resources available. A change in the overall structure in global sourcing is expected as organisations embark on a journey with enhanced focus on the customer. With customers demanding more immediate value from IT and forward-looking strategies that support growth and innovation, service providers are adopting agile methods focusing on operational excellence through ongoing innovation, diversification, renewed partnerships/alliances and new business models.

Indian IT-BPO performance

FY2012 is a landmark year while the Indian IT-BPO industry weathered uncertainties in the global business environment, this is also the year when the industry is set to reach a significant milestone aggregate revenue for FY2012 is expected to cross USD 100 billion. Aggregate IT software and services revenue (excluding hardware) is estimated at USD 88 billion.

During this year, direct employment is expected to reach nearly 2.8 million, an addition of 230,000 employees, while indirect job creation is estimated at 8.9 million. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 7.5 per cent in FY2012. Its share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to about 25 per cent in FY2012.
Exports market: Export revenue (excluding hardware) during FY2012 is likely to reach USD 69 billion, accounted for by about a 2.2 million workforce. This represents a growth of 16.3 per cent; these exports also account for over 68.5 per cent share in aggregate IT-BPO revenue.

1 Servicelines: Within exports, IT services segment is the fastest growing at 19 per cent
over FY2011 with export revenue of USD 40 billion, accounting for 58 per cent of total

exports. This sector has seen the emergence of full service players offering traditional services like application development and maintenance to testing, infrastructure, consulting and system integration, as also niche providers offering end-to-end services in particular verticals or customer segments. This sector is now focusing on moving further up the value chain by positively impacting business outcomes and customer revenues.

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NASSCOM STRATEGIC REVIEW 2012

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