Final pROJECT INDIAN IT sECTOR 1

A PROJECT REPORT On “A STUDY OF INDIAN INFORMATION TECHNOLOGY SECTOR.” For the award of degree of MASTER OF BUSINESS ADMINISTRATION Submitted To Dr. Panjabrao Deshmukh Institute of Management Technology & Research, Department of Dhanwate National College, Nagpur

Submitted By: Ankit N. Fating (Researcher) Guided By Mrs. Aparna Samudra Through Dr. Panjabrao Deshmukh Institute of Management Technology & Research, Department of Dhanwate National College, Nagpur Year 2009-10

Contents 1.

INTRODUCTION

2.

INDIAN IT SECTOR

3.

IT CATAGORIES

4.

CONTRIBUTION IN INDIAN ECONOMY

5.

6.

MAJOR COMPANIES SWOT ANALYSIS OF IT SECTOR

7.

GROWTH

8.

GOVERNMENT INITIATIVE & POLICIES

9.

SCOPE

10.

IMPACT

11.

FUTURE OF IT SECTOR IN INDIA

12.

CONCLUSION

13.

BIBLOGRAPHY

INTRODUCTION The computer systems design and related services industry is among the economy's largest and fastest sources of employment growth. Employment increased by 616,000 over the 1994-2004 period, posting a staggering 8.0-percent annual growth rate. The projected 2004-14 employment increase of 453,000 translates into 1.6 million jobs, and represents a relatively slower annual growth rate of 3.4 percent as productivity increases and offshore outsourcing take their toll. ("Industry output and employment projections to 2014" by Jay M. Berman, Bureau of Labor Statistics) However, the main growth catalyst for this industry is expected to be the persistent evolution of technology and business' constant effort to absorb and integrate these resources to enhance their productivity and expand their market opportunities. Employment of computer and information systems managers is expected to grow between 18 to 26 percent for all occupations through the year 2014. (Career Guide to Industries 2006-07) The Indian IT sector is growing rapidly and it has already made its presence felt in all parts of the world. IT has a major role in

strengthening the economic and technical foundations of India. Indian professionals are setting up examples of their proficiency in IT, in India as well as abroad.

What is information technology?

Information

Technology

Association

of

America

(ITAA)

defined by "the study, design, development, implementation, support or management of computer-based information system, particularly software applications and computer hardware.” IT deals with the use of electronic computers and computer software to convert, store, protect, process, transmit, and securely retrieve information. Information technology is a general term that describes any technology that helps to produce, manipulate, store, communicate, and/or disseminate information

INDIAN IT SECTOR

The Information Technology (IT) sector in India holds the distinction of advancing the country into the new-age economy. The growth momentum attained by the overall economy since the late 1990s to a great extent can be owed to the IT sector, well supported by a liberalized policy regime with reduction in telecommunication cost and import duties on hardware and software. Perceptible is the transformation since liberalization India today is the world leader in information technology and business outsourcing. Correspondingly, the industry’s contribution to India’s GDP has grown significantly from 1.2% in 1999-2000 to around 4.8% in FY06, and has been estimated to cross 5% in FY07. The sector has been growing at an annual rate of 28% per annum since FY01.

Indian IT companies have globally established their superiority in terms of cost advantage, availability of skilled manpower and the quality of services. They have been enhancing their global service delivery capabilities through a combination of organic and inorganic growth initiatives. Global giants like Microsoft, SAP, Oracle, Lenovo have already established their captive centers in India. These companies recognize the advantage India offers and the fact that it is among the fastest growing IT markets in the Asia-Pacific region.

IT CATAGORIES The sector can be classified into 4 broad categories - IT Services, Engineering Services, ITES-BPO Services, E Business.

IT Services can further be categorized into Information Services (IS) outsourcing, packaged software support and installation, systems integration, processing services, hardware support and installation and IT training and education. Engineering Services include Industrial Design, Mechanical Design, Electronic System Design (including Chip/Board and

Embedded Software Industrialization

Design), and

Design Validation Prototyping.

Testing,

IT Enabled Services are services that use telecom networks or the Internet. For example, Remote Maintenance, Back Office Operations, Data Processing, Call Centers, Business Process Outsourcing(BPO), KNOWLEDGE PROCESS OUTSOUECING (KPO)etc. E Business (electronic business) is carrying out business on the Internet; it includes buying and selling, serving customers and collaborating with business partners.

STRUCTURE OF IT SECTOR

The Indian information technology industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National

Association

of

Software

and

Service

Companies

(NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09.

India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services. The government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum, from the earlier few million dollars worth exports in early 1990s. As per NASSCOM's latest findings: •

Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.

•

IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent. Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and Wipro—have seen revenue growth from all important sources of income: from the North American and

European regions, in the financial services vertical and from application

maintenance

and

development

between fiscal years 2008 and 2009. India’s IT Industry (US$ bn)

(ADM)

offerings

CONTRIBUTION OF INFORMATION TECHNOLOGY IN INDIAN ECONOMY The information technology (IT) industry has increased its contribution to the country's GDP from 1.2 per cent in 1997-98 to 5.2 per cent in 2006-07, according to a Nasscom-Deloitte study. The report, titled Indian IT Industry: Impacting the Economy and Society, further says that export earnings in 2007-08 will hit $40 billion, a growth of 36 per cent. Meanwhile, direct employment is expected to be 2 million in 2007-08, growing at a CAGR of 27 per cent in the last decade. The report, while bringing forth the contribution of the IT/ITeS sector, points out that the industry has been the trigger for many 'firsts' and has contributed not only to unleashing the hitherto untapped entrepreneurial potential of the middle class but also taking Indian excellence to the global market.

MAJOR COMPANIES S. No.

Companies

1.

TCS

2.

Infosys

3.

Wipro

4.

HP

5.

IBM

6.

Satyam

7.

HCL

8.

Patni

9.

Polaris

10.

Cisco

11

KPIT Cummins

12

I-Flex Solutions

13

Microsoft

14

Dell

15

Larsen and Toubro

Type

Public (BSE: 532540) Subsidiary of Tata Group

Founded

1968

Headquarters

Mumbai, India

Key people

Ratan Tata (Chairman) S Ramadorai (Vice Chairman) N Chandrasekaran (CEO & MD) S Mahalingam (Executive Director & CFO) Phiroz Vandrevala (Executive Director & Head, Global Corporate Affairs) Ajoy Mukherjee (VP & Head, Global Human Resources)

Industry

Software services

Products

TCS Bancs Digital Certification Products Healthcare Management Systems

Services

IT Consulting IT Services Outsourcing BPO Software Products

Revenue

▲ US$ 5.70 billion (2009)

Net income

▲ US$ 1.25 billion (2009)

Total assets

▲ US$ 4.36 billion (2009)

Employees

149,654 (As on 31st Dec, 2009)

Parent

Tata Group

Website

TCS.com

Type

Public BSE: 500209 NASDAQ: INFY

Founded

July 2, 1981

Founder(s)

N R Narayana Murthy Nandan Nilekani N. S. Raghavan Kris Gopalakrishnan S. D. Shibulal K. Dinesh Ashok Arora

Headquarters

Bangalore, India

Key people

N R Narayana Murthy (Chairman) Kris Gopalakrishnan (CEO) & (MD) S. D. Shibulal (COO) & (Director)

Industry

Software services

Products

IT Services

Services

Information technology consulting services and solutions

Revenue

▲ $ 4.663 billion (2009)[1]

Operating income

▼ $ 1.374 billion (2009)[1]

Net income

▼ $ 1.281 billion (2009)[1]

Total assets

$ 4.376 billion (2009)[1]

Total equity

$ 3.784 billion (2009)[1]

Employees

103,905 (2009)[2]

Divisions

Infosys BPO Infosys Consulting Infosys Public Services Infosys Australia Infosys Brazil Infosys China Infosys Mexico Infosys Sweden

Website

Infosys.com

Type

Public BSE: 507685 NYSE: WIT

Founded

1945

Founder(s)

M. H. Premji

Headquarter s

Bangalore, Karnataka, India

Key people

Azim Premji (Chairman) Girish Paranjpye (joint CEO) Suresh Vaswani (joint CEO) SA Sudarshan

Industry

IT Services

Services

IT Consulting Business Process Outsourcing Product Engineering Solutions Technology Infrastructure Services

Revenue

▼ US$ 4.98 billion (2009)

Net income

▼ US$ 0.82 billion (2009)

Total assets

▼ US$ 5.38 billion (2009)

Employees

98,391 (As on 27 October, 2009)

Website

Wipro.com

TCS is the market leader in IT sector in India and Other major companies like Wipro, Infosys, Accenture and IBM are the major market share in the economy. The revenue of TCS is now US $ 5.70 billion it is more than the other major companies. The graph shows highest market price of the company.

SWOT ANALYSIS Strengths •

Highly skilled human resource

•

Low wage structure

•

Quality of work

•

Initiatives taken by the Government (setting up Hi-Tech

•

Weaknesses • Absence of practical knowledge • Dearth of suitable candidates • Less Research and Development

Parks and implementation of e-

• Contribution of IT sector to India’s

governance projects)

GDP is still rather small.

Many global players have set-up operations in India like Microsoft, • Employee salaries in IT sector are

•

Oracle, Adobe, etc.

increasing tremendously. Low wages

Following Quality Standards

benefit will soon come to an end.

such as ISO 9000, SEI CMM etc. •

English-speaking professionals

•

Cost competitiveness

•

Quality telecommunications infrastructure

•

Indian time zone (24 x 7 services to the global customers). Time difference between India and America is approximately 12 hours, which is beneficial for outsourcing of work.

Opportunities

Threats

•

High quality IT education market

•

Lack of data security systems

•

Increasing number of working

•

Countries like China and

•

•

age people

Philippines with qualified

India 's well developed soft

workforce making efforts to

infrastructure

overcome the English language

Upcoming International Players

barrier

in the market

•

IT development concentrated in a few cities only

GROWTH OF IT SECTOR IT industry: on a steady growth track •The total revenues for the Indian IT industry were estimated to touch US$ 71.7 billion in 2008-09. •The Indian IT industry has been growing at a compound annual growth rate (CAGR) of 27 per cent for the last five years. •Contribution of IT industry to India’s gross domestic product (GDP) has grown from 1.2 per cent in 1997-08 to an estimated 5.8 per cent in 2008-09. •The total revenues from export were expected to reach US$ 47.3 billion in 2008-09. •The total exports have been growing at a CAGR of 28.7 per cent over the last five years. •During this period 2008-2008, direct and indirect employment was expected to reach 2.23 million and eight million, respectively. •Domestic market revenues were expected to touch US$ 24.3 billion in 2008-09. •Domestic market revenues have been growing at a CAGR of 24 per cent for the last five years.

REVENUES BY SEGMENT –INDIAN IT INDUSTRY CAGR: 27 per cent

INDIA MAINTAINS LEAD IN ITES-BPO •Indian

IT/ITeSsector has matured considerably with its

•expansion

•well

into varied verticals

differentiated service offerings

•increasing

geographic penetration

•India’s

importance among emerging economies, both as a supply and demand centre, is fuelling further IT/ITeSgrowth •Continues

to be one of the fastest growing industries in India; while India maintains its leading position as a strategic offshoringdestination for multinationals worldwide •The

Indian ITeS-BPO (domestic and exports) revenues are estimated at US$ 14.7 billion and the sector grew at a rate of 18.9 per cent in 2008-09

IT SERVICES: ANCHOR SEGMENT FOR THE SECTOR •The Indian IT services market grew by 23 per cent between 2005-06 and 2008-09 and the revenues are estimated at nearly US$ 8.3 billion in 2008-09. •The banking, financial services and insurance (BFSI) vertical continues to account for the largest share of IT/ITeSservices at 41 per cent. •Hi-Tech/ telecom vertical accounts for the second-largest share of the pie at 20 per cent. •Other verticals such as manufacturing, retail, media and healthcare are rapidly gaining pace.

.Domestic IT-ITeSmarket revenues have been growing at a CAGR of 23 per cent between 2005-2006 and 2008-09 and were expected to reach US$ 24.3 billion in 2008-09. •Domestic IT-BPO revenues grew by 24 per cent in and were expected to touch US$ 2 billion in 2008-09. •Hardware accounted for about 49 per cent of the total domestic IT-BPO spends in 2008-09.

ITeS-BPO: outsourcing growth story •Indian ITeS industry grew at a rate of 18.2 per cent in 2008-09 to reach revenues of US$ 14.8 billion. •Exports accounted for 87 per cent of the revenues and grew at a rate of 18 per cent in 2008-09 to reach US$ 12.84 billion. •Services exports account for nearly 67.7 per cent of total IT/ITeSsector exports in 2008-09. •The concept of outsourcing is increasingly gaining acceptance even in the more conservative markets around the world.

•Industry has graduated to providing a high proportion of voicebased services and a range of back-office processing activities. •Scope of services have expanded in the last three to four years to include increasingly complex processes involving rule-based decision making and research services requiring informed individual judgment.

GROWTH IN EMPLOYMENT

The bar chart shows that the recruitment of engineers and IT professionals in the industry is growing at the Compound Annual Rate of 14.5% approximately. In the FY06, the direct employment in the IT-ITES sector was 1.3 million people and the indirect employment was 3 million approximately. Trends in Salary Hikes Along with abundant growth opportunities, IT sector is one of the highest paying sectors. The average increase in salary in IT sector across the levels was around 16% and the average increase in the ITeS BPO sector across the levels was in between 16%-18% Requisites for balanced salaries  End to poaching  Review of compensation according to the skills  Developing talent in-house  Entry of talented freshers in the industry

GORVERNMENT INITIATIVE & POLICIES

Software Technology Parks of India (STPI) was setup by the government in 1991 to provide: •Fiscal benefits like tax holidays to attract investment into the industry •Basic infrastructure •Single–window clearances for setting up Export Oriented Units (EOUs) •Virtual model allows firms to avail benefits without restrictions on location.

Progressive policy reform (fiscal/trade/other): •No FDI restrictions. •Fiscal reforms (international taxation, overseas investment, etc.) to facilitate ease of international transactions introduced.

Recent initiatives: • Area limit exemptions for the IT-BPO sector in the SEZ policy. • Special emphasis on talent and infrastructure development . • Infrastructure development; provisions designed to complement the STPI scheme. •

The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country.

•

Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions.

•

The government-led National e-Governance Program, has played an important role in increasing internet penetration in rural India.

IMPACT OF IT SECTOR Impact on Society A society can also refer specifically to any group of people, other animals and/or plants and the interactions within that group. This can be anything from a small neighborhood to the entire global community. Religion, ethnicity, interests, political opinions or other relating factors may help form a group of people. • Common Traditions In the context of this report it is helpful to highlight a difference between "traditions" and "activities/interests". Tradition can be defined as the following: "An inherited, established, or customary pattern of thought, action, or behaviour (as a religious practice or a social custom). Cultural continuity in social attitudes, customs, and institutions." • Cultural Continuity Social attitudes have changed in that citizens of a society now expect the various elements of that society to be better informed than previously. They also expect to be able to access more information about a specific product, service or organization so that they can make informed decisions with regard to their interactions with that entity.

Institutions The word institutions can incorporate a wide variety of organizations. For the purposes of this report the institutions we will examine will be: • • • •

Governments, Commercial businesses, News & media organizations, Educational organizations.

The focus is on how information technology development has improved the processes by which these institutions accomplish their tasks or goals. • Governments The government of a nation is comprised of many varied institutions. However developments in information technology have helped governments to improve their "service" to their citizens. Information technology has also had a major impact on the defense capabilities of governments. This covers both a government's capability to wage war and their intelligence gathering capability. Advances in weapons technology and weapons design have increased the effectiveness of various governments' armed forces. For example it would have been impossible to design aero planes such as the B2 Bomber if it were not for the advances made in information technology. The B2 bomber relies on a "continuous curvature" design to minimize radar signature. It would have been impossible to design or build this machine without the development of computer modeling techniques.

• Commercial Businesses The advances in information technology have heavily influenced commercial businesses in several areas. The most important role of information technology in a commercial business, however, is to provide a commercial advantage. Advances such as computeraided design, relational database technologies, spreadsheets and word processing software provide a commercial benefit to the business, as does automation of manufacturing processes (which Sara-Lee did in 1964). Advances in information technology over the last thirty years have lead to the television. • News & Media Organizations Due to the nature of news and media organizations, information technologies have particular relevance to them. As noted earlier, "Information technology is the technology used to store, manipulate, distribute or create information". News and media organizations are intimately acquainted with each of these elements of information technology. This report focuses on the distribution and creation of information. • Educational Organizations The developments that have occurred in information technology have had many influences on educational establishments. The distribution of information is not the only concern of educational establishments. Impact of Information Governance

Technology

and

Electronic

E-governance is the effective way of governance utilizing IT to enhance efficiency of government offices. The Government of India is devising new policies to envisage a SMART – simple, moral, accountable, responsible, and transparent governance to bring nationwide reforms. The customs department plans to use electronic data interface (EDI) to handle all transactions relating to custom duties more efficiently, for which initiatives have been taken by National Informatics Center (NIC).

IT Policy and Emphasis on E-governance E-governance attempts in the country started with a bang. The initial impetus came from the Ministry of IT, which produced a concept paper, emphasizing the method by which the state has to deliver its services in the information age. The paper envisages a SMART government and promises to establish the required institutional mechanisms to facilitate initiatives towards synergic utilization of IT to enhance effectiveness of governance. NASSCOM conducted a survey of ten leading states (Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Kerala, Uttar Pradesh, Rajas than, Gujarat and West Bengal) and pointed out that all these states have an IT policy, expert group, e-governance cell, and some even have a separate IT department. Some of them have also included specific policy measures that not only aim to facilitate IT investments in the state but also focus on using IT for governance-related issues.

SCOPE OF IT INDUSTRY IN INDIA The IT industry has great scope for people as it provides employment to technical and non-technical graduates and has the capability to generate huge foreign exchange inflow for India. India exports software and services to approximately 95 countries in the world. By outsourcing to India, many countries get benefits in terms of labor costs and business processes. Also, the Indian companies are broadening the range of services being provided to the customers, which is resulting in more off shoring. Talent acquisition, development and retention initiatives taken by the companies have brought down the employee attrition rates, thereby providing more stability to the employees and increasing their job commitment.

Many financial institutions are providing funds for the expansion of IT and ITeS businesses. In order to support IT and ITES, the Indian Government is also taking many steps. For example: 1. The Govt. has provided incentives including tax holiday up to 2010 and

competitive duty structures.

2. The Govt. is trying to reduce the international communication cost. 3. It is providing infrastructure support through organizations such as software technology parks. All these factors collectively create a number of opportunities in the IT sector.

FUTURE OF IT SECTOR IN INDIA IT will continue to gain momentum; telecom and wireless will follow

the

trend.

The

immense

expansion

in

networking

technologies is expected to continue into the next decade also. IT will bring about a drastic improvement in the quality of life as it impacts

application

domains

and

global

competitiveness.

Technologies that are emerging are Data Warehousing and Data Mining. They involve collecting data to find patterns and testing hypothesis in normal research. Software services that are being used in outsourcing will go a long way.

FUTURE OPPORTUNITIES :

Domestic market •Overall size of the domestic market in 2008-09 was estimated to grow by 20 per cent and reach be US$ 24.3 billion •Domestic IT BPO spending grew by 40 per cent during 2008-09 •The domestic market is picking-up, showing definite signs of breaking-out of the trend of hardware linked growth with the contribution of software and services exceeding that of hardware •Government is taking up e-governance initiatives and increasing its IT spends/ outlays; allocation has increased from US$ 96 million in 2006-07 to US$ 175 million in 2007-08, indicating increasing IT spends. •Demand for domestic BPO services increasing rapidly, with niche verticals like healthcare and retail fast gaining traction apart from the traditional verticals of BFSI and manufacturing.

Engineering: a new outsourcing opportunity

•Global engineering services spend estimated at US$ 750 billion which is expected to increase to more than US$1 trillion by 2020 •India’s share is about US$ 4.9 billion of the US$ 12.8 billion outsourced services in 2008-09; India is estimated to garner a share of about US$ 50 billion by 2020 •Range of services include engineering and designing solutions across diverse industry verticals like telecommunications,

automotive, construction, aerospace, utilities and industrial design •Labourcost arbitrage in this sector is about 60 per cent of the US counterparts •Bechtel, General Motors, Ford, John Deere, Caterpillar, Silicon Automation Systems, John Brown Engineering are a few global giants that have set up their engineering services divisions in India

Knowledge Process Outsourcing (KPO) •The genesis of KPO followed BPO services in India, however KPO is now growing at a rapid pace with MNCs setting up third party captive units for data analytics, data modeling, etc. •CRISIL estimates that the Indian KPO export market constitutes about eight percent of Indian ITeSrevenues and employs nearly three percent of the work force •Growth drivers for this business include high productivity of Indian resources and growing adoption of KPO by Small and Medium Enterprises (SMEs). •Opportunities span across several service offerings: legal process outsourcing (LPO), financial and market research and engineering services outsourcing, which are considered fast moving service offerings.

CONCLUSION

Today, we are all in agreement that the world is becoming increasingly dependent upon technology as is evidenced by the big role it is playing. The Internet has become a major shareholder. All developing nations can derive tremendous advantages from this technology for updating the knowledge of its researchers and scientists. The Indian software and services industry has significantly helped to boost the Indian economy. Society expects to be able to store information more than was previously conceived. Society expects to be able to manipulate the information it has for its own benefit, to increase understanding and discover new relationships. Society expects to be able to distribute information quickly, efficiently and cheaply. The Government of India has been working gradually and successfully towards improving the IT policy climate in the country.

BIBLOGRAPHY

Websites: www.ibef.org www.nasscom.org www.scribd.com www.wikepedia.com Articles: From Business Standard Newspaper growth And the opportunity of IT sector.