INDUSTRY OVERVIEW

1. A brief History
The Information Technology Industry of India dates back to 1967 when the Tata Group in
collaboration with Burroughs set up the first software zone, SEEPZ in Mumbai. In 1973
SEEPZ became the first software export zone which saw 80% of the software export in
the 1980s. Since then, the IT sector of India has grown by leaps and bounds and has
acquired India a brand name in the IT and ITES (Information Technology Enabled
Services) sector in the global scenario. The major hubs for the IT export sector are
Bangalore, Chennai, Hyderabad, Delhi, Mumbai and Kolkata. Bangalore has earned the
sobriquet, The Silicon Valley of India owing to the maximum IT export (generating 77%
of the net IT export revenue of India). The IT- ITES sector can be broadly classified into
two categories (i) Business Process Outsourcing (BPO) and (ii) Domestic and IT export.
The growth in the BPO sector under the supervision of the IT-ITES sector has been
phenomenal. According to NASSCOM, The IT-BPO sector in India aggregated revenue
of US$ 100 billion in FY 2012, where export and domestic revenue stood at US$ 69.1
billion and US $31.7 billion respectively.The industry is also an employment intensive
sector. The estimated employment generation in the FY 2012 was an expected 230,000
thus providing direct employment to 2.8 million and indirect employment 88.9 million
people all over the country. According to a report prepared by Gartner, the top five
outsourcing companies of India are TCS, Cognizant, Infosys, Wipro and HCL
Technologies.
2. Current statistics
Market size of IT industry in India
India's technology and BPM sector (including hardware) is estimated to have generated US$
108 billion in revenue during FY13.

Sector-wise breakup of export revenue

Export of IT services has been the major contributor, accounting for 57.9 per cent of total IT
exports (excluding hardware).

3.Factors that affects growth

Rapid industrialization and growth of IT parks in the country

Partial privatization of telecommunication
Development of SEZ; which also help IT companies get tax benefits
A large number of resource readily available in the country
Low operating costs
Tax breaks and sops offered by the government

METRIC Analysis of IT Industry of India The METRIC Analysis helps in doing a

qualitative analysis of the IT industry of India. The results of the same are shown in the form
of a table (refer Table 1). The analysis has been done on the basis of unstructured
conversations (facebook chats), questionnaires, reports, and existing literature.
METRIC Analysis of IT industry of India Focus Key AreasFocus

Key Areas Of Concern

Market

Client Preferences, Quality , Competition,

Government
Acquisitions,

Policies,

Mergers

&

Inter-organizational

Economic factors
Technology

relationships, Piracy, Market size

Project Cost, Macroeconomic environments.
Latest technological updates, Obsolete

Resources

technology , reducing hardware costs

Steady flow of skilled workforce,
Infrastructural support, telecommunications

Institutional Capacity

development
Higher education and Training centres, Rise
of

new

entrepreneurs,

Government

initiatives,

Supportive
Quality

Certifications
4. Government Regulations
Cloud computing is one of the thrust areas in the national IT and ITeS policy.
In order to benefit from cloud, the Department of Electronics and IT (DeitY) has taken an
ambitious project known as GI Cloud. The GI Cloud is the Indian governments initiative
to enable the government (both Centre and States) to leverage cloud computing for effective
delivery of eServices.
The Government of India has extended tax holidays to the IT sector for software technology
parks of India (STPI) and special economic zones (SEZs). Further, the country is providing
procedural ease and single window clearance for setting up facilities.
In the twelfth Five Year Plan (2012-17), the Department of Information Technology proposes
to strengthen and extend the existing core infrastructure projects to provide more horizontal
connectivity, build redundancy connectivity, undertake energy audits of State Data Centres
(SDCs) etc. The core infrastructure including fibre optic based connectivity will be leveraged
and additional 150,000 Common Service Centres (CSCs) will be setup to create the right
Governance and service delivery ecosystem at the Panchayats.
5. Lead players in the industry

TCS (Revenue- 48426.14)

Infosys (Revenue- 36765)
Wipro (Revenue- 31682)
HCL (Revenue- 8907)
Mahindra Satyam (Revenue- 5964)

The top five IT companies of India had a golden time during 2012 when the collective
revenue growth of these companies was 13.3% (6 times faster than the global market).
However, not all the top five companies are on the same page as Cognizant overtook Infosys
(2nd ranking supplier of the industry). Cognizants revenue growth of 20% as compared to
Infosyss 6% compelled the latter to break the retirement of Narayan Murthi (founder of

Infosys and former CEO) to envisage some strategic moves to stay at par in the competition.
According to Sid Pai, partner and president of outsourcing advisory, ISGs Asia Pacific
Division, The Indian firms are going to need to mimic the global firms. And that of course
means a margin dilution, so there is a rough patch ahead for these guys. This in short means
that these companies have to entirely revamp their existing model of service providing,
change the old model of charging for services. Besides a fundamental change has come over
the customers interested in buying IT services and a local proximity to the customers is
essential.
6. Challenges faced by the IT sector in India

The IT sector of India needs to discard its old model of service providing and
operations. The old model popularly known as the ADM (Application, Development
and Maintenance) is obsolete. It is imperative that the IT sector resorts to the new

model of outcome based billing and fixed contract based services

The maturity of the offshore models has created a demand among the customers for a
close proximity of the service providers which may even involve setting up of near

shore stations for support.

There is a stiff competition from China, Philippines and Eastern Europe which are
also proving to be low cost and competitive countries. It is estimated that by 2020

they will be a 20% stakeholder in the global IT export scenario.

A shrinking talent pool in our country is also largely affecting the IT sector. The
number of employable graduates in the business sector is as low as 10% to 15% while

that of qualified and employable engineers is 26% only.

IT giants like IBM and Accenture have now opened up their own centres in India with

the same target audience as that of the Indian IT Sector.

The proposed development of the tier 2 and 3 cities has not gone as planned so the

entire IT sector is stagnated in the 9 major cities.

It is imperative that the IT sector of India should focus on the new emerging trends

like Social media, Mobility, Analytics and Cloud (SMAC)

There is a need for a total revamping of the infrastructure of the IT sector which
unfortunately is pending due to fund unavailability. Fund shortage is also affecting the
medium and small IT enterprises which need a basic financial injection for their startup.

7. PEST analysis of IT industry in India:

Political factors:

Very little influence of political situation including change of government.

No tax sops to US companies outsourcing IT jobs
Diverse employment practices-qualification, abilities, gender, skill sets
Boosting the image of India in global market.
Certain levels of ambiguity surrounding taxation of IT products and services,
IT SEZ requirement: Infosys controversy.
Continuous change of stand on applicability of labour legislations to the sector
Strengthening of the IT Act- security of data in transmission & storage.

Economic factors:

Stage of business cycle: IT industry is in growth phase and this can seen through

increasing contribution to GDP and employment

Exchange rate:
Indian IT sector is dependent on foreign clients, especially US, for more than 70% of
its revenue. So, the fluctuation in the exchange rate can bring a considerable
difference in the performance of a company.
IT sector undertakes various measures like hedging exchange risks using forward and
future contracts. This helps them in mitigating some of the loss due to exchange rate
fluctuation but none the less the impact is substantial.
Every 1% movement in the Rupee against the US Dollar has an impact of

approximately 50 basis points on operating margins Infosys Annual Report

Economic growth: Due to global slowdown, exports of IT and ITeS services has
slightly dimmed but a great opportunity is waiting in Indias domestic market with
increasing technology adoption within the government sector and the small and
medium business (SMB) sector.

Socio-cultural Factors:

The social factors affecting IT industry ranges from employee right, language barriers,

race nationality of company or other issues.

English language being widely spoken in India has help in fostering the industrys

relationship and interaction in India and on the global stage.

India is one of the few countries to have an increasing share of working population,

since there is great availability of both skilled and unskilled labour force.
Immense intellectual capital
Potential employment opportunity for women in this organized sector.
EDUCATION: Large number of universities and institutes.
LABOUR: Indian labour is not only cheap but is technically skilled too.

CAREER: In the year 2006-07, the industry hired approximately 3, 80,000 people.
Out of these, the ITeS sector hired 2, 00,000 people and the rest were taken by IT
sector.

Technological Factors:

Government Research spending : Government IT spending in India reached $6.4

billion US Dollars (USD) in 2013, a 7 percent increase over 2012, according to

Gartner, Inc.
New Inventions and Development:
National optical fiber network (NOFN)
National Knowledge Network
ADHAR (Unique Identification Authority of India) eSeva
Proposed global learning centre of the TCS.
(Changes in) Internet:
Indian Internet Companies with Innovative business model such as Naukri.com,

Flipkart and Redbus.

Lifecycle & speed of technological obsolescence: Desktop to Laptop , Landlines to

Skype , DOS to Windows 8

(Changes in) Mobile Technology:

The exploding mobile technology includes

telecommuting, working from partner or client locations, from a plane or train or

simply moving more fluidly around the company's own premise through the use of a
wireless local-area network
8. Marketing strategies are prevalent within the industry

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 inhouse and this trend seems to have found favour with most large enterprises worldwide.
Broadly speaking the market for conventional services is highly commoditised with
potential for differentiation concentrated around niche expertise in new technologies and
trends (SMAC + Internet of Things) and around non-conventional engagements
(revenue/profit share, risk-reward models). It is unlikely that the market for conventional
services will vanish overnight but the future promises to hold a highly modified view.
Application development is fast morphing into app-development and a large part of
revenues continue to be drawn from conventional services as the need to adapt and
incorporate new technologies and engagement models looms over an IT industry that
needs to reform and re-invent itself rapidly.