The Indian information technology sector has been
instrumental in driving the nation’s economy onto the
rapid growth curve. According
to the Nasscom-Deloitte study, the IT/ITES industry’s
contribution to the country’s GDP has increased to a share of 5.2
per cent in 2007, as against 1.2 per cent in 1998.
Further, the IT and BPO industries are poised to
clock revenues worth US$ 64 billion by the end of fiscal year
2008, registering a growth of 33 per cent with exports expected to cross US$
40 billion and the domestic market estimated to clock over US$
23 billion, according to a study. Simultaneously, 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.
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.
CHALLENGES AND POSITIVES:
Can we stay Competitive? In the
recent past we have seen that the Globalization 3.0 has
resulted in Outsourcing and Off-shoring spreading to various other countries
like China, Vietnam, Philippines
and the Eastern European countries. In the wake of such
competition can we still remain competitive? The answer is pretty much yes. We
know that our assets are the talented pool of people who are not only competent
technically but also linguistically better at English
compared to the other competitors. Also the government support, labor pool, infrastructure,
educational system, cost, political and economic environment, cultural
compatibility, global and legal maturity, and data
and intellectual property security and privacy give Indian IT
companies and edge. But contradicting this is the Nasscom survey, which states
that majority of the graduates coming out of the
colleges today are unemployable. We need to introduce training programs in colleges to train the talent
pool of students not only technically but also on soft skills.
The training should also be imparted to the faculty to generate a better
equipped talent force. These measures have already being taken by the IT
companies, which also helps in reducing the training costs incurred by the IT
companies after recruitment.
Dependency on the US: In the
wake of the Sub-Prime crisis and subsequent economic recession in the US, the
companies there started cutting down costs and one of them being IT
expenditures. Because the majority of the IT companies in India have
an export driven business model and majority of it is to the US, the companies
have been facing a lot of heat. Some of the clients of these IT companies have
gone bankrupt; some others have incurred heavy losses (Citigroup, Bear
Sterns, and HSBC etc.) The IT companies should therefore explore
options in Europe, the western Asia and Asia-Pacific and reduce
direct dependency on the US.
Though it seems paradoxical but recession in the
US is only going to make the Industries over there outsource more, primarily to
reduce their costs by efficient application of IT, cheaper labor and cost
effectiveness.
Indian IT firms outsourced and
Off-shored! : It is observed that competitive markets have emerged in
Latin America, Eastern Europe and South East Asia. Moreover
there are emerging economies present in these areas like Brazil, Russia etc.
The IT companies have already forayed in these countries for two primary
reasons: First, it provides them to take advantages of cost-effectiveness
in these areas due to new talent pool, Lower wages and greater advantage by
making their exports cheaper and competitive. Second, places
like Mexico have emerged as a major outsourcing and offshore
development centre for the IT companies due to the proximity to their major
business clientele in the USA. This not only provides
cost-effectiveness, but also helping the client in round the clock service
providing environment.
Rupee Appreciation and FII: In
the wake of US crisis it was observed that the rupee appreciated due to the
weakened US economy, Federal bank interest cuts and subsequent FII inflows in
the country. Due to this IT companies in India incurred lower profit margins.
On the flipside it surely gave them a wake-up call to effectively utilize the
resources and bench strength. FII inflows and FDI in the IT sector surely helps
in rolling out further expansion plans but excess FII also make the exports
incompetent. So the govt. should take steps to manage excess FII inflows into
the country and hedge the export driven sectors against the rupee appreciation.
IT SEZ’s: To further make the IT
fraternity competitive, the govt. should take steps to develop IT Sez’s.
This will reduce the excess tax burden on these IT companies. Moreover STPI
(Software Technology Parks of India) have already enabled the IT
companies and new startups to carry out the documentation and licensing and tax
payment hassles through a single window system. Moreover the govt. should also
relax norms for DTA (domestic Tariff Areas) to promote IT
spending in the country itself at a lesser cost leading to development of the
country.
Diversification In Verticals: In
the wake of US crisis, one of the Indian IT company suffered major drop in
profits because majority of its clientele in the BFSI (Banking
Financial Sector and Insurance). This was the sector which took the
brunt of the recession. And the company’ BFSI clients cut down on their IT
spending leading to lower profits. Thus the companies should balance their presence
in various verticals which will surely make them immune to unforeseen events.
Telecom and 3G: The roll out of
3G of mobile phones in India should be seen as a positive development for the
IT companies. In the long run it is going to provide basic communication
facilities in the rural areas of the country. Unlike the US where 3G brings
luxury, In India it is going to provide basic communication and broadband
access to the rural youth. This will result in dissemination of information and
creating further talent pool for the country. We have already seen the IT
industry moving to Tier-II and Tier-III cities to tap local talent and maintain
cost-effectiveness. Moreover Growth in Telecom industry also demands greater IT
application in terms of VAS (Value Added Services), Telecom Billing
Solutions, IVRS etc.
Domestic Markets: Dalian in
China has been growing as the major IT hub there. If actually compared China’s
IT spending is five times that of India, most of it being domestically. This
could be also seen in the organization of retail sector in China showcasing the
presence of Retail majors like Wal-Mart there. Hence IT companies should also
focus more on the domestic markets with major projects lining up inside the
country as well for instance the Railways ERP project, the BSNL
systems integration, networking projects, IT
work from ministry of finance and private telecom companies, banks
and others are offering multi-year contracts that are over US$ 100
million. Moreover multinationals have been lining up in India further
strengthening the IT growth in India.
·
Capgemini, Europe’s largest
consulting and computer services firm is gradually moving its internal support
services to India.
·
After sourcing IT applications from some IT
firms last year Wal-Mart will now expand its existing
operations given India’s impressive IT capability to cover more firms and
augment its work in the United States.
·
Intel-the globally renowned
chip maker is looking to invest more than US$ 1 billion in India over the next
three years in partnership with Indian and foreign hardware firms to prepare
light weight personal computers.
·
Cisco posted over 100 per cent
year-on-year growth in its SME business in India.
·
Oracle is expecting over 100
per cent growth in India for its CRM business on the back of increased
technology awareness and need for cost-effective customer servicing.
·
Yahoo! Inc and Tata Sons subsidiary firm
Computational Research Laboratories (CRL) have entered into a joint
agreement to make available-EKA, a supercomputer (the fourth fastest) in the
world for cloud computing research in India.
·
Dell India witnessed 80 per
cent sales over last year with revenues to the tune of US$ 700 million.
·
World’s leading chip designer firm ARM
is expanding its India design centre to make it the largest outside Britain.
·
IT biggies like Microsoft, IBM, Cisco, Oracle
and a host of other IT entities are working overtime to tap the smaller and
medium businesses.
CONCLUSION: Thus we observe that
the Indian IT industry has been facing some challenges but if effective steps
are taken then it will surely help it to remain competitive in the future as
well.
Gaurav Khanna
Dy. Director
CT Group of Institutions
