INDIAN IT INDUSTRY – A SUCCESS STORY

India is one of the fastest growing IT markets in the world, the fastest growing PC market in
the Asia-Pacific region, and also the country with the fastest growth in Internet usage in this
region. In much of the developed world, India today has a substantial mind share amongst
those involved in information technology (IT) software and services.

TEN YEARS OF THE INDIAN IT INDUSTRY Indian IT Industry growth

The past decade has witnessed the rise of the Indian IT sector from a position of virtual non
existence, to one, where it has occupied a place of pride in the global IT industry. The Indian
IT sector has grown from a mere $6.4 13.6
14
12.1
billion in 1998 – 99 to $ 13.6 billion in 12
2001 – 02. The IT Industry today

IT Market (US $
10
accounts for 2.87 percent of India’s

billion)
8
GDP. Exports from the Indian Software 6.1
6
Industry accounted for over half the
4
industry’s revenues, accounting for US$
5.5 bn of the total IT pie of US$ 10.5 2
bn in 2001. The domestic market was 0
dominated by hardware at US$ 2.9 bn, 1998-99 2000-01 2001-02
followed by services at US$ 1.6 bn, Year
Values estimated at the following exchange
and packaged software brought up the rear rates:
with earnings of US$ 409 mn. 1998 – 99: 1$ = Rs 41.28
2000 – 20001: $1 = Rs 45.72
THE INDIAN SOFTWARE AND SERVICES 2001-2002: $1 = Rs 47.05
MARKET

The IT Software and Services export segment has a very crucial role to play in the overall IT
market in the country. The IT Software
14000 13510
12180
and Services exports has greatly
12000 contributed to the IT sector which
Size (US $ million)

10000 enlarged from US$ 1.73 billion in 1994-95

8360
8000 to a US$ 13.5 billion industry in 2001-02.
6000 6010 NASSCOM also forecasts a future growth of
5020
4000 3760 30% for FY 2002-03.
2575
2000 1730

0
1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001-
95 96 97 98 99 00 01 02

Key Highlights

 The Indian IT Software and Services Industry is the fastest growing sector in India and
across the world. This segment accounts for 16.5% of the country's overall exports;
5,00,000 jobs and about US$ 1.6 billion in investments
 The domestic software market is dominated by products and packages, which account for
around 40% of the market and by projects, which accounted for around 30%. The
presence of domestic companies in the software product market is negligible - estimated
to be less than 20% in value terms
 In FY 01 in the packaged software segment despite the slowdown there was a healthy
growth of 37%. In FY 01 Indian companies launched 92 software packages and MNCs
launched the remaining 152. Packaged software as a market grew from US$ 336 mn to
US$ 409 mn. Software exports grew from US$ 3.4 bn to US$ 5.2 bn, a 57% growth
 US continued to be the prime destination for India’s software exports. According to a
NASSCOM (National Association of Software & Services Companies)-McKinsey projection,
US will continue to be the major market for Indian software services, with the US
generating about $18.3 billion of the projected $50 billion exports by 2008
 The opportunity in e-solution services is tremendous with Indian IT services firms having
positioned themselves as a credible provider of IT services over the past decade. The
revenue opportunity is estimated to be US $ 4-13 bn (~1-3% share of the overall e-
solutions services market) by 2005 for India – NASSCOM & BCG report
 The IT training industry is all poised to spring back after slowing down due to the US
slowdown, with Forrester predicting that by 2003 global demand would be 635,000
compared to the Indian supply of 475,000 software professionals

Key Trends in the Industry in 2001 - 02

 Increase in the number of fixed price multi-year contracts with many large players winning
high value global projects
 Indian companies moving up the value chain with an emergence of new service lines such
as package software implementation, systems integration and network management
 The geographic mix of software exports is shifting with many Indian IT companies
targeting countries apart from the USA such as Europe, Asia Pacific and Latin America
 Offshore projects grew nearly 70 per cent while onsite grew only by 10 per cent
 Top 5 players contributed 55 per cent of growth of industry while top 10 players accounted
for 73 per cent of growth. Some SME players grew more than industry average
 India has emerged as the most preferred destination for BPO and almost every Fortune
100 CEO looking at outsourcing operations to India. Indian companies now service nearly
220 global 1000 customers
 Indian productivity-quality-cost model has emerged as a unbeatable value proposition for
the software and service industry

Quick Facts:

1999- 2000- 2002-

00 01 2001-02 03*
IT
Services 14750 24250 29400 35800*
ITES 2400 4100 7100 11700*
Total 17150 28350 36500 47500 *

INDIA’S OUTSOURCING POTENTIAL

 India currently exports software to some 95 countries around the globe and 185 of the
Fortune 500 companies have outsourced some part of their software requirement to India
 During 2001-02, despite the US economic downturn, the ITES segment continued to grow
at a blazing 70% to clock revenues of over $1.46 bn in 2001-02
 NASSCOM has forecast India's revenues from IT-enabled services to rise more than 20
times to Rs 81000 crores (US $16.94 billion) by 2008 from Rs 7100 crores in 2001-02
 NASSCOM has predicted that employment in the Indian IT-enabled services industry could
rise to 1.1 million by 2008. NASSCOM has also predicted that revenues from ITES sector
will sky rocket to Rs. 81,000 crore (US$17 billion) by 2008 capturing over a 10 % share of
the global ITES market
 NASSCOM study revealed that the ITES sector has emerged as a leading employment
generator with about 68,000 people being employed in the Indian IT-enabled services
industry. The research indicates that an additional 36,000 jobs have been created over the
 past one year by the ITES sector, which is expected to employ over 1,06,000 employeesas
of March 2002
 Top Five Focus markets for Indian ITES companies include Insurance, E-commerce,
Technology Vendors, Financial Services and Telecommunication services
 A major strength of India’s export oriented software companies has been the high quality
of their products, solutions and services. Of the 300 large players in the Indian software
industry, more than 216 have already acquired ISO 9000 certification. Indian software
Industry has over 36 companies certified as SEI CMM Level 5 accreditation
 Business Process Outsourcing (BPO) has been identified as the next high growth business
for the Indian IT industry

OFF-SHORING: ENLARGING MARKET

Global trends indicate that more and more IT spending will go to offshore solution providers
and for India these trends hold many positives.

 According to a Forrester Research survey, the average percent spent on off shore will grow
from 12 percent to over 28 percent by 2004
 A NASSCOM study shows that over one in four global giants outsource their software
requirements to Indian companies
 Many US companies such as DuPont and Deutsche Bank announced an increase in their
outsourcing services to India
 A survey indicates an increase in the IT spend outsourced to India from below 5 percent to
over 15 percent in the next two years
 Indian companies have the necessary experience and infrastructure to offer offshoring
services
 In terms of pricing ,the offshoring segment India represents a stable environment

INDIAN SOFTWARE EXPORTS:DELIVERY MODEL

(Rs crore) 1999-2000 2000-01 2001-02 E

Onsite 9,850 15,900 17,500
Offshore 5,950 10,950 18,000
Products & 1,350 1,500 1,500
Unclassified
Total 17,150 28,350 37,000

STRUCTURE OF THE INDIAN SOFTWARE EXPORTS INDUSTRY

Annual turnover No. of companies

Above Rs. 1,000 crore 5
Rs. 500 crore-Rs.1,000 crore 7
Rs.250 crore-Rs.500 crore 14
Rs.100 crore-Rs.250 crore 28
Rs.50 crore-Rs.100 crore 25
Rs.10 crore-Rs.50 crore 193
Below Rs. 10 crore 544

TIER 1 PLAYER: LEADING THE PACK

 Tier 1 players lead the industry with a 33-35 percent share of the overall software export
market during 2000-01 and will continue to log in above industry growth rates during
2001-02
 Some of India’s software and export revenue leaders are TCS, Infosys Technologies,
Silverline Technologies, Wipro Ltd. Satyam Computer Services, HCL Technologies,
 Cognizant Technology Solutions, NIIT Ltd., Pentasoft Technologies Ltd. and Pentamedia
Graphics
 MNCs such as GE, American Express, Texas Instruments, Hewlett-Packard ISO, Intel,
Microsoft have been showing rapid growth and accounted for 14-15 percent of overall
software export revenues during 2000-01.

THE INDIAN INTERNET MARKET SCENARIO

 According to NASSCOM’s Internet Survey 2002 the Indian Internet market is growing
steadily in terms of subscribers and the number of active subscribers is projected to touch
1.5 million as of March 2002. This represents a growth of 30 per cent compared to the 1.1
million active subscriber base in March 2001
 The number of licensed ISPs during 2001 was 470 and of this only 130 are operational.
The total investments made by all ISPs are estimated to be around Rs 5,500 crore in
2001. The industry revenues are likely to be around Rs 1000 crore, which is a fifth of the
investments made
 NASSCOM has forecasted that Internet subscribers base will increase to 7.7 million by
2004-05 and user base to 50 million

Internet Telephony is the latest buzzword

 Only Internet service providers (ISPs) will be allowed by the government to offer Internet
telephony services from April 1. Interconnectivity between ISPs will only be permitted only
if both service providers have license to offer Net telephony
 The government has, however, limited the scope of the Net telephony service. A call from
PC to a phone can be made only from India to an overseas location. Within the country, it
has to be PC-to-PC

THE INDIAN HARDWARE INDUSTRY

 The total number of installed PC base in the country is 7.5 million.

 PC shipments were 1,881,640 in 2000-01 and are estimated to be 1,650,000 for
2001-02.
 The domestic IT hardware market has grown 76 percent over the last five years, from
$1.7 billion in '97-98 to $3 billion in '01-02, but the segment has seen a gradual shift from
indigenously sourced production in favour of imports
 MNC brands maintained a robust performance – a market share of 36%, up from 24%
in the first half of 2000-01, registering a growth of 44%
 Overall the PC purchases in the top 4 metros (Delhi, Mumbai, Kolkatta & Chennai)
accounted for 53% of the total PCs purchased.

THE INDIAN TELECOM INDUSTRY

 India has 6th largest telecom network in the world and

the second largest among the emerging economies (after
China) – Morgan Stanley
 India is the world’s 12th biggest telecom market with
the telecom pie of $6.4 billion. Bulk of the revenues comes
from long distance telephony (both domestic &
international) - Merrill Lynch
 Telecom industry only accounts for 1.2% of GDP. The
telecom pie is expected to expand at a 15.6% CAGR -
Merrill Lynch.
 India has a relatively low tele-density of over 3% for
fixed line and 0.45% for cellular (4.5 million - August
 2001) with plans for attaining telephone on demand by 2002 and a tele-density of 7 by
2005.
 At present the status of number of telephones (including mobile phones) is over 36
million.
 Government ended VSNL’s monopoly over International Long Distance and opened the
long distance and International telephony sectors for private participation provides a
much-need impetus to the industry and benefit to consumers
 This initiative has led to reduction in STD tariffs by 40% and ISD by 20%
 Over the last 5 years, private cellular service providers have roped in 6.2 million as
against private basic service providers who have only managed to rope in 0.39 million
subscribers

Overview
 This year, the government has laid out guidelines to open up and encourage
competition in almost all telecom segments: national long distance (NLD), fixed line and
cellular
 The government has re-opened the fixed-line services segment for private players
 The prescribed entry fees are now one seventh to one tenth lower than what the
government charged in 1994, during the first phase of liberalization
 The government has also provided a boost for cellular services to take off in India by
allowing the entry of the more cellular operators per circle and fixed-line operators to
provide limited mobility using wireless in local loop (WLL)
 One of the focus area for Indian companies is telecommunication software and
services
 Many telecom majors such as CISCO, Nortel, Lucent, Motorola and Nokia have already
set up R&D centres in the country

Morgan Stanley estimates the annual telecom revenue in India will grow to more
than Rs 1.6 trillion (US$23.3 billion) by F2010 – a CAGR of 17%. The bulk of the
growth, is estimated, would come from the cellular and data segments.