5 NASSCOM STRATEGIC REVIEW 2010 Courage is as often the outcome of despair as of hope; in the one case we have nothing to lose, in the other, everything to gain - Diane de Pointiers If there was one word which epitomised the world in 2009, it would be courage. Courage, to pierce the darkness of challenging times and hope, amid despair. 2009 ushered turbulence, with countries around the world plunging into the recession. The housing bubble burst, followed by the fi nancial crisis creating a domino ef ect that, but, brought the world to a standstill. While robust fundamentals ensured that the recession impact on India was relatively moderate, in an increasingly globalised environment, it could not escape declining GDP growth, rising unemployment and weakened consumer demand. However, prompt action by governments across the world and stimulus packages helped to contain this downfall and make way for revival by the end of 2009. Over the past decade, the Indian IT-BPO sector has become the country’s premier growth engine, crossing signifi cant milestones in terms of revenue growth, employment generation and value creation, in addition to becoming the global brand ambassador for India. However, the industry performance was af ected by these recessionary headwinds as the clients cut their IT budgets, cancelled deals, delayed payments and deals, went bankrupt while others renegotiated pricing, looking for severe pricing cuts

and stretching the dollar. The changing demand outlook, customer conversations and requirements acted as a driver to build in greater ei ciencies and fl exibility within the service delivery and the business models – one which is here to stay. 2009 was also instrumental for more ways than one for the industry. While the industry displayed tenacity and resilience, it also commenced its journey to achieve its aspirations in view of the altered landscape. It commenced working on its agenda to diversify beyond core of erings and markets through new business and pricing models, specialise to provide end-to-end service of erings with deeper penetration across verticals, transform the process delivery through reengineering and enabling technology, innovate through research and development and drive inclusive growth in India by developing targeted solutions for the domestic market. All these measures, along with India’s game changing value proposition has helped India widen its leadership position in the global sourcing market. The advent of 2010 has signaled the revival of outsourcing within core markets, along with the emerging markets increasingly adopting outsourcing for enhanced competitiveness. Key demand indicators in the last two quarters such as increased deal fl ow, volume growth, stable pricing, and faster decision making has made the industry post good results. Though full recovery is expected in another two quarters, development of new growth levers, improved ei ciency and changing demand outlook signifi es early signs of recovery

Global Sourcing Trends Worldwide technology products and services related spend is estimated to reach USD 1.5 trillion in 2009, a decline of 2.9 per cent over 2008. Worldwide hardware markets were hit worse than software or service markets as a result of the changing economic outlook, with almost 8 per cent decline in 2009 versus 2008. Corporations extended their hardware lifecycle and delayed plans for new hardware acquisitions, Executive Summary6 NASSCOM STRATEGIC REVIEW 2010 also curtailing their discretionary spend. However global corporations leveraged IT to drive organisation wide ei ciencies, transformation and new business models. While BPO growth moderated on account of lower transaction volumes, overall IT spend was largely driven by a revival in North America and BFSI, along with increased adoption in emerging markets such as APAC and retail/healthcare. A dynamic second half of the year made up for the tepid fi rst half for outsourcing contracts. Recent global M&A activity in the sector indicates stronger services play for global hardware vendors, which will make this segment more competitive for the Indian vendors. Changing customer expectations, emergence of new of shore locations along with new service providers delivering services through the cloud promise to shake up this industry going forward. Indian IT-BPO Performance The industry is estimated to aggregate revenues of USD 73.1 billion in FY2010, with the IT software and services industry accounting for USD 63.7 billion of revenues. During this period, direct employment

is expected to reach nearly 2.3 million, an addition of 90,000 employees, while indirect job creation is estimated at 8.2 million. As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.1 per cent in FY2010. Its share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to almost 26 per cent in FY2010. Exports market: Export revenues are estimated to gross USD 50.1 billion in FY2010, growing by 5.4 per cent over FY2009, and contributing 69 per cent of the total IT-BPO revenues. Software and services exports (including BPO) are expected to account for over 99 per cent of total exports, employing around 1.8 million employees. • Geographic focus: The year was characterised by a strong revival in the US, which increased its share to 61 per cent. Emerging markets of Asia Pacifi c also contributed signifi cantly to overall growth. • Vertical markets: The industry’s vertical market mix is well balanced across several mature and emerging sectors. 2009 saw increased adoption of outsourcing from not only our biggest segment i.e., the Banking, Financial Services and Insurance (BFSI), but also new emerging verticals of retail, healthcare and utilities. • Service lines: The IT Services segment aggregated export revenues of USD 27.3 billion, accounting for 55 per cent of total exports. Indian IT service of erings have evolved from application development and maintenance, to emerge as full service players providing testing services, infrastructure services,

consulting and system integration. Within that, IT outsourcing exhibited a strong growth, in line with the global trend, driven by increased spend in the remote infrastructure management, application management, testing and SOA segments. Further, cloud computing took centre stage this year, as it of ered clients access to best-in-class process management at reduced capital expenditure levels. Even though growth in BPO was single digit for the fi rst time, it still is the fastest growing segment of the industry and is estimated to reach USD 12.4 billion in FY2010, growing at 6 per cent. Increased acceptance of platform BPO solutions was the key highlight, as Indian BPO providers increasingly focused on transforming client businesses through a mix of re-engineering skills, technology enablement, and new service delivery methods. Additionally, the engineering design and products development segments that involve IP driven service capabilities command an exports revenue share of 20 per cent, generating total revenues of USD 10 billion in FY2010, growing by 4.2 per cent.7 NASSCOM STRATEGIC REVIEW 2010 Domestic market: Domestic IT-BPO revenues are expected to grow at almost 8.5 per cent to reach INR 1,088 billion in FY2010. Rise of Indian corporations facing competitive market conditions through an increasingly globalised Indian market, increased spend by the government in several e-Governance initiatives, enhanced connectivity and increased levels of IT spending are key factors, which make the domestic market lucrative today. Coupled with the fact that companies are looking to improve

leverage customised service of erings and new delivery models such as SaaS. The domestic BPO segment has continued its strong performances over the past few years. with addition of 3. supportive regulatory policies. growing by 22 per cent over FY2009. an enabling innovation environment. to reach INR 108 billion. • High calibre talent pool. rapidly developing infrastructure . Indian IT-BPO Value Proposition Av a i l a b i l i t y o f q u a l i t y t a l e n t a t c o s t e f fe c t i v e r a t e s . a scale unmatched by any other country.competitiveness by adopting global best practices.Availability of skilled talent has been India’s foremost attraction as a global sourcing country. an imminent hardware refresh cycle will positively impact revenues next year. . with Tier-I locations of ering savings of ~70 per cent over source locations.India of ers the lowest cost of delivery as compared to other of shore locations. and a positive overall business environment — are all central pillars of India’s value proposition • Low cost of delivery.7 million graduates in FY2010. India’s graduate outturn has more than doubled in the past decade. they are being addressed through strong provider-level initiatives and industry-led programmes. Domestic IT services is expected to grow by 12 per cent in FY2010. driven by large deals in the telecom and BFSI space. Tier-II/III cities in India of er a still larger benefi t. which ensures greater cost savings. While some gaps in talent suitability exist. While hardware spend is largely expected to remain fl at in FY2010.

The industry has been enhancing its abilities to transform client . • Business environment and infrastructure.The industry has been extremely quality focused.• Robust process delivery.8 NASSCOM STRATEGIC REVIEW 2010 • Transformational capabilities. Real average household income has roughly doubled since 1985. the fourth largest economy in the world. It is expected that India will go through a major transformation over the next decade and emerge as the fi fth largest consumer market provided it continues its high growth path. With rising incomes. The industry has also set standards in the establishment and maintenance of best practices in corporate governance. with India based centres accounting for the largest number of quality certifi cations achieved by any country. while the establishment of Software Technology Parks of India (STPI). leading to the development of world class facilities in select cities. • Growing Indian market.Timely government policies and increased public private participation have played a key role in developing an enabling business environment for the Indian IT-BPO sector. India’s economic growth since 1980 has been rapid. and leads in customer satisfaction. household consumption has soared and a new middle class has emerged.India has become. Infrastructure development has been addressed by both public and private sector. India’s strong education framework ensured ample supply of technical and non technical talent. in purchasing power parity terms. and later SEZs provided an enabling ecosystem for the industry to fl ourish.

the industry and employees contribute about USD 4. Impact of IT-BPO Sector on India The impact of the IT-BPO sector is multi-pronged as elucidated below: • Contribution to India’s economy. Over the last two years.Increased focus on global delivery has required the industry to enhance its global footprint. focus on IP creation. with . there has been a 32 per cent increase in the number of global delivery centres with outreach expanding to 12 new countries. • Enabling regional development. Additionally. • Focus on sustainable growth.businesses through increased R&D spend. • Global footprint. which has in turn helped the industry reach out to new customer segments and of er new services.2 billion to the exchequer.In addition to a high contribution to the country’s GDP and share of exports.Going green has become the motto of the industry as it seeks to develop a business model that is not only competitive but sustainable with minimum ecological impact. development of new technologies incorporating process and business model innovation and increased domain expertise. the industry has played a key role in regional development with IT-BPO intensive states accounting for over 14 per cent of respective state GDPs.Also. while consumer spending ef ect from its employees amounted to USD 21 billion in FY2009. the downstream ef ect of the industry’s operating and capital expenditure was estimated to be around USD 30 billion.

• Enhancing the brand image of India. over 30 per cent of total employee base are women. by accounting for over 10 per cent of total FDI in the last decade.The industry has played its part in empowering a diverse set of human assets – 30 per cent of employment in the age group 18-25 yrs. and establishment of over 900 MNC captives in the last decade. • Empowering diverse human assets. and average R&D spend of ~1 per cent of revenues. while 58 per cent of total employment are originally from Tier-II/III cities. with a 29 fold increase in patents over FY2005-FY2008.The industry has been at the forefront of creating an enabling environment for innovation. • Facilitating social development. 60 per cent of companies of er employment to dif erently-abled people. health awareness and ecological development.The industry has imbibed a strong sense of social responsibility with over USD 50 million spent in FY2009 towards CSR activities mainly focused on education. and also account for 75 per cent of SEZs. over 200 cross border acquisitions between FY2005-FY2009. 4 per cent of employment for economically backward people. ITBPO intensive states have 100 per cent higher broadband penetration and 50 per cent higher teledensity than the India average. • Enabling environment for innovation.58 per cent of engineering graduates.The industry has played a key role in enhancing the brand image of India.9 NASSCOM STRATEGIC REVIEW 2010 . and 62 per cent of engineering colleges.

not merely with cost cutting but by changing business processes. virtualisation. Other areas of spending include BPM. and security. and more selective outsourcing will take fi rmer shape as near-term priorities to address constrained IT budgets.4 per cent in 2010. with developing economies growing thrice as fast as the developed economies. Government IT spending continues to rise across the world. but steady end of the worst recession in the past 60 years. is expected to increase by 3. data management. IT services is expected to grow by 2.2 per cent in 2011. is expected to drive IT spending going forward.1 per cent in 2009. after declining by 1. and 4. on demand ERP. workforce practices and information use. Movement toward SaaS and cloud computing. Improving economic conditions signifying return of consumer confi dence and renewal of business growth. Global GDP. and ef orts to increase and deliver enterprise managed services on IP networks.2 per cent in 2011 as companies coming out of recession harness the need for information technology to create competitive advantage. shared services. Organisations now recognise IT’s contribution to economic performance extending beyond managing expenditures.Future Outlook The beginning of the new decade heralds the slow. and 4. They expect IT to play a role in reducing enterprise costs.1 per cent in 2010. Business process outsourcing spending in 2010 is expected to be increasingly driven by F&A segment and procurement. Providers will increase their focus on developing platform . focusing on infrastructure. followed by HR outsourcing.

Signifi cant opportunities exist in core vertical and geographic segments of BFSI and US. Within outsourcing. healthcare and government respectively. albeit in a highly cost constrained environment. and can lead to Indian IT-BPO revenues of USD 225 billion by 2020. 2010 is also expected to be an IT hardware refresh year with Windows 7 driving the replacement cycle. there is tremendous headroom for growth as current of shoring market is still a small part of the outsourcing industry. virtualisation and consolidation will mean that the increase in replacement demand will not necessarily be refl ected in increased levels of spend. and emerging geographies and vertical markets such as Asia Pacifi c. lower ASPs. The industry also has the potential to transform India by harnessing technology for inclusive growth. tactical goals of cost savings. ei ciencies and access to emerging markets. Development of these new opportunities can triple the current addressable market.BPO solutions across verticals and services. but also long term advantages of increased competitiveness. Even though India has a 51 per cent market share of the of shoring market. of shoring will see increased acceptance as of shore based providers grow and traditional service providers ramp up of shore delivery capabilities. Growth in outsourcing is expected to supersede overall IT spend reai rming its potential to not only support short term. realisation of this potential will involve mitigation of several challenges that India faces . retail. However. Lower confi gured systems.

of ering multiple fi scal and training incentives. Last but not the least. Currency fl uctuations have also dented India’s competitiveness. While India has ample supply of talent. not employable. which are nearing peak capacities in terms of infrastructure support. in service delivery. which would need to be addressed. NASSCOM and the government) will need to act together in an unprecedented manner: • Catalysing growth beyond today’s core markets: Breaking ground in new markets (verticals. stakeholders (industry. The impending discontinuation of fi scal incentives and frequent changes in fi scal regulations are making the business environment more challenging. and steps need to be taken to address India’s increased risk perception. making them cost competitive. Costs are expected to rise with wage infl ation and increased attrition. A key impact of the recession has been the rise of protectionist sentiments in major markets for the industry. In doing so. India has to quickly develop other delivery locations to achieve its 2020 vision. Concerted action by all stakeholders around below parameters is required to capture the opportunities and mitigate future risks. over 90 per cent of total revenues are generated from the seven 10 NASSCOM STRATEGIC REVIEW 2010 Tier-I locations. There are concerns around security – both physical and data related. a number of new outsourcing destinations seeking to emulate India’s success have emerged.currently. This leads to incremental training costs and increased downtime for the industry. it is largely trainable in nature. . Currently. which is challenging keeping in mind quality talent availability in competing countries.

and a balanced regional development. • Harnessing ICT for inclusive growth: Stimulating inclusion of citizens by enabling technologyled solutions in healthcare. corporate governance. a t the s ame t ime fue l l ing e f fo r t s t o upgrade cur r i culum. leading to increased connectivity. improved soft infrastructure. This will require the stakeholders to address risk issues associated with India. This would need new business models. • Building a pre-eminent innovation hub in India: Encouraging intellectual property. public services. • Developing a high calibre talent pool: Bridging a crucial talent gap by addressing gaps in t e r t i a r y educ a t i on. Several macro-economic and social trends will support the rise of the IT-BPO sector in the future. in core and emerging markets. However. it is imperative for industry stakeholders to break out of the traditional mould that resulted in past successes and step up to the aspirations of the future. . India’s technology and business services industry has fl ourished in the last decade.geographies. with the potential to quadruple its revenues over the next decade. segments) through reinvented of erings and business models. fa cul t y and training methodologies. fi nancial services. and security) and a strong global image. and make serious ef orts to build a strong global brand. A bright future lies ahead and the industry has much to look forward to. education and public services. establishing distinctive capabilities and fuelling entrepreneurship. • Establishing India as a trusted global hub for professional services: Building a conducive business environment (improved infrastructure.

and also will need to drive the domestic industry by spending on e-Governance projects. India faces serious competition from other global sourcing locations.pdf EmErging markEts sEriEs Opportunities for indian it-BPO industry in the germanic region International Youth Centre Teen Murti Marg.nasscom. and to retain its advantage. India T 91 11 2301 0199 F 91 11 2301 5452 research@nasscom. along with upgrading the overall quality of talent pool.reinvented service of erings and an enabling environment supported by adequate levels of infrastructure and . Chanakyapuri New Delhi 110 021. The government needs to continue nurturing this industry with incentives and a simplifi ed tax structure that will promote investments. concerted ef ort is needed by all stakeholders. Development of Tier-II/III cities to support major delivery locations is an imperative.

pwc.in2 NASSCOM – PwC Emerging Markets Series – Opportunities for Indian IT-BPO Industry in the Germanic Region NASSCOM – PwC Emerging Markets Series – Opportunities for Indian IT-BPO Industry in the Germanic Region 3 Copyright ©2010 International Youth Centre. India Tel: +91 11 2301 0199 Fax: +91 11 2301 5452 Email: research@nasscom. Airport Road. The recipient should conduct his/her own investigation and analysis of. for any ‘Muttha Towers’ 5th Floor. without the express prior written consent of NASSCOM and PricewaterhouseCoopers. and form his/her own conclusions with respect to the information contained in the report. . Fax: +91 20 4100 6161 Email: puneet. The recipient must not Designed & Produced by CREATIVE INC Tel: +91 11 41634301 Email: contact@creative-inc. Pune – 411 006 Tel: +91 20 4100 4444.www. Suite No 8. NASSCOM and PricewaterhouseCoopers make no representations or warranties regarding the accuracy or completeness of such information and expressly disclaim any liabilities based on such information or omissions therefrom. disclose or distribute the information contained in this report. Chanakyapuri New Delhi – 110 021. Teen Murti Marg. No recipient is entitled to rely on the work of NASSCOM and PricewaterhouseCoopers contained in this A copy of this report is being provided to the recipient for information purposes only.gaharana@in. Yerwada.

Germany and Switzerland have traditionally been the economic vanguard for rest of Europe. the Indo-Germanic relationship has been based on economic and political cooperation.Executive Summary The German speaking countries of Austria. Germany and Switzerland – is one of India’s most important trading partners with a total annual business of more than $32 Bn. and chemicals being the largest traded commodities. it has been largely resilient. They continue to retain this claim as they strongly recover from the economic downturn while the other European economies continue to struggle or face another round of economic turbulence with unsustainable public debt. has been impacted by the global slowdown. The focus of this study is to identify partnership opportunities for both India and the Germanic countries in the area of IT services. shared values and agreement on international affairs. regulations and the preferences on both the sides. The Germanic region – comprising Austria. it is important to mention that though the Indian economy. There exists an opportunity for the Germanic region and India to leverage the past economic relations and their individual strengths for common interests. energy. Beyond the trade partnership. Germany and Switzerland figure among India’s top 10 trading countries with machinery. This will require both India and the Germanic countries to strategically align themselves – by being conscious of the markets. In this context. Market Overview The changing macroeconomic scenario and opportunities for mutual cooperation . business process outsourcing (BPO) and engineering services. textiles.

combined with its favourable demographic position. saturation in its traditional markets is inducing Germanic companies to approach new markets with lower costs and the continued commitment to quality. These countries. The Germanic clients are mature users of IT outsourcing and are used to handling large-scale multi-vendor engagements. the large technically qualified workforce and lower cost credentials. of which over USD 46 Bn is purchased. Simultaneously. which have traditionally been economic leaders. This. The Germanic clients are discerningly quality. In contrast. Germany is the largest consumer with over USD 36 Bn worth of IT services purchase followed by Switzerland (USD 7 Bn) and Austria (USD 3 Bn). These economies spend over USD 100 Bn on IT services. competitiveness is further under threat considering the aging population and the decreasing availability of science and technology skills critical to deliver innovative and costeffective products to the new markets. India has gradually increased its share in the world GDP and has emerged as a lucrative market. offer opportunities for both India and the Germanic countries to take their economic relations to the next level of co-operation.The Germanic countries are not exceptions to the changing world economic order in which the market hot spots are shifting to newer geographies. are already facing prospects of a reducing dominance in the global output.conscious and expect superior project management skills in addition to high domain and technology 4 NASSCOM – PwC Emerging Markets Series – Opportunities for Indian IT-BPO Industry in the Germanic Region NASSCOM – PwC Emerging Markets Series – Opportunities for Indian IT-BPO Industry in the Germanic Region 5 . Germanic IT and BPO Market Landscape IT Services market: The Germanic countries are the largest IT and BPO markets in Europe. In the long-term.

have significant multi-national operations. Considering this. owing to the large exposure to exports. Offshoring: The propensity to offshore among the Germanic companies has been limited and only USD 5. the companies have been early adopters of the captive shared centre model as a means to improve efficiency and also save costs. cultural fit and data security capabilities are critically evaluated while deciding on a potential destination . India is the single-largest destination for the offshored IT work and constitutes close to 25% of the offshoring pie. Among the larger players are the global IT companies like IBM. As in the case of IT services. HP and Accenture and the regional dominant players like T-systems and Siemens. Human resources and finance are the highest offshored business services. have an established ecosystem of local and regional service providers exists. The market for BPO is estimated to be around USD 4 Bn with a growth rate of 11% CAGR. close to 70% of this pie is served by the Eastern European and CIS countries.6 Bn worth of IT services have been offshored. The supplier side is heavily fragmented with the top five players holding a cumulative market share of less than 40%. More than 40% of the market is still characterised by many small. German language skills.4 Bn from these countries with a market share of about 3%. However. Outsourcing: The Germanic countries have been one of the first proponents of outsourcing and therefore. Among the critical soft factors influencing decisions on prospective partners are the degree of local presence. proficiency in German language and security.expertise. As a result. Indian companies earn close to USD 1. many Germanic companies have dedicated shared service centres either locally or in offshore locations. BPO Services: Germanic companies.and medium-sized players that operate in niche or local markets.

In this context.6 Bn from this region across the IT. BPO and engineering services space. India is the destination of choice for engineering services with export revenues of over USD 900 Mn to these countries in 2009. Among other competitors to India are Eastern Europe. It is a general perception that the only proposition Indian companies bring to the table is offshoring and low cost.5 Bn is offshored currently. provided Indian companies take the strategic and tactical steps required to succeed in this market. Engineering Services Offshoring: The market for engineering services in the Germanic countries is estimated to be around USD 100 Bn. The market rewards long-term players who are willing to invest time and capital in the region. China and CIS countries.for BPO services. Changing this perception is critical for success in the region and Indian companies should focus on establishing relationships and comfort with the clients by accepting . while short-term players are rarely considered. While services worth only USD 3. the trend is increasing and the expected market for offshore engineering services is expected to grow to over USD 20 Bn by 2020. Strategic long-term intent: Indian companies need to strategically develop their presence in this region with adequate German language skills. flexibility to offer nearshoring as well as offshoring options and all of this combined with an evident long-term commitment to the region. Strategies to succeed for Indian IT-BPO companies Indian companies currently earn less than USD 2. Business from the region has the potential to grow to USD 10 Bn by 2020. it is critical that Indian companies establish a local presence either independently or in partnership and develop German language skills among its sales and delivery teams. high domain expertise.

onshore engagements. Small and mid-sized companies should seek partnerships with similar-sized Germanic companies for front-end capabilities. This will also help them reach out to the large Germanic companies and the reserved middle market customer segment. quality and project management: These are the top three expectations that Indian companies should meet to succeed in this market. which is quick in learning foreign languages and deploying those skills on client engagements. These companies should capitalise on this latent expertise and the existing German language training capacity in India to endow itself with the basic requirement in these markets. have operating methods which are unique to the region. Indian companies have the advantage of having access to a pool of technically skilled workforce. The Germanic companies. This strategy will also help Indian companies to circumvent the constraints placed by the EU directives on data protection. In spite of these factors. communication and poor project management have been highlighted as the most important factors. which hinder realising the envisaged benefits of engaging with Indian companies. High domain expertise. Indian companies should be mindful of the fundamental need to develop German language expertise among its front end as well as the delivery teams. Nearshore capabilities: To target the huge Germanic market. while synchronised with their global counterparts. Germanic companies will expect their partners to appreciate these . German language skills: The Germanic economies have traditionally been exportdependent and are mature in operating in a complex multi-geography environment. Indian companies should consider setting up delivery centres in the nearshore regions of Eastern Europe and the CIS countries.

which stresses on the need to meet timelines. the transaction size has been small. Further. BFSI. These four sectors mutually consume IT services worth more than USD 30 Bn. the SME segment is largely served by the local SME IT-BPO companies. Currently.unique industry-specific domain peculiarities and showcase resources who either understand or are capable of quickly grasping these technicalities. without compromising on quality and ensuring a continuous stakeholder management. M&A as the opportunity: The Germanic IT services market is fragmented and is in the consolidation phase. Indian companies will need to customise their approach to the SME segment by adopting a more partnership based relationship. has equally complex operations like the larger companies. Services to target . Sectors to target: Manufacturing. on account of its large exposure to international markets. automobile and the logistics sectors are the most attractive targets for Indian companies. Customer segments to target: Over 75% German companies and over 99% Swiss and Austrian companies belong to the SME segment. The SME segment. Though Indian companies have also been active in this scenario. Indian companies should look at large-ticket acquisitions as a viable strategy to establish themselves in this market to gain the necessary scale and have access to specific customer accounts. Indian companies have so far only engaged with large companies leaving the demand from the SME segment untapped. Indian companies will need to ensure that their sales as well the delivery are adequately supported by professional project management.

Amongst the non-voice services. financial services back office. Action points for Germanic Countries Germanic countries are currently facing challenges on the demographic and the talent front. Besides this. Companies with technology expertise in Automobile.IT Services: Indian companies should target package product maintenance and implementation services as a quick win service offering. voice based contact centre services should only be taken to this market after obtaining relevant experience of working with these companies in the non-voice scenario and being equipped with the requisite German language skills. acquisition and deployment and make suitable amendments. F&A and HR are the services to take to this market. Energy. Application Development and Maintenance and Remote Infrastructure Management (RIM) are the services that will find a large market in these countries. To obtain adequate skill sets in German voice contact centre services. BPO: Indian companies should as a first step target the non-voice based transaction services in the Germanic region. These measures are also critical to ensure the realisation of benefits of partnering with India. Engineering Services: Owing to its language independent nature and obvious cost benefits because of easy offshore ability. It is essential that Germany. Austria and Switzerland re-look at their policies which may be impeding talent development. Indian companies should consider partnering or acquiring companies in the Germanic region or Eastern Europe in addition to developing the language capability inventory internally. Considering the Germanic sensitivity to the language. engineering services is a low hanging opportunity for the technically equipped Indian companies. Telecom and Industrial Design and Research have a huge potential to succeed in this market. .

in the knowledge-based sectors. more so. The policy makers need to take steps to reform the education system to ensure that education is relevant and meets the economic and social requirements. able of Contents • • GERMANICS: AN OVERVIEW o Introduction: The Germanic Region o Germanic Economy: Overview o Indo-Germanic Trade Relations IT LANDSCAPE o The Enabling IT Environment o IT Market o Characteristics of IT among Germanic Companies o Experience with Outsourcing .Some of the areas that require immediate attention are: Controlled migration: Germanic countries need a highly qualified and motivated workforce across industries and. in spite of the higher unemployment rate. Popularise region for international studies: Only 8-10% of the total international student base chooses the Germanic region as a destination. these countries continue to face talent shortages in specific sectors. be to attract the best brains from the world over. This inhibits the inflow of talented manpower with high skill sets getting assimilated in the Germanic countries We would like to thank German Trade & Invest for their support. The strategy should. therefore. The current policies on work permits and permanent residency need to be made more industry friendly and flexible. Education reforms: Many of the talent shortage issues that these countries face are also because the education system is not in keeping with the changing nature of the economy and the demographic profile. Encouraging adaptation of science and technology courses has a direct bearing on the innovation capacity for the future. As a result.

nasscom. standard of .in/upload/68924/Impact_Study_2010_Exec_Summary.• • • • • Offshoring BPO Engineering Services Who serves the Market? Indian Experience OPPORTUNITY ASSESSMENT o Opportunities to Collaborate for Indian and Germanic Countries o Opportunity to Collaborate – By Sector o Opportunity to Collaborate – By Customer Segment o Service Offerings – Areas to Collaborate o Opportunity for Collaboration in BPO Services o Engineering Services o Strategies for a Successful Indo-Germanic Collaboration o Action Steps for Germanic Countries and Indian Industry HUMAN RESOURCES o Visa Regulations o Work Environment o Employment-Related Compliances o Employment Norms for Foreign Workers o Social Security Agreements with India DOING BUSINESS o Setting up Offices o Business Etiquettes o Taxation NAVIGATING THE GERMANIC o Airports o Flights from India o Where to Stay o List of Holidays o Finding Assistance FACT SHEET o Economy & Population o Industry o o o o o http://www. this industry is also positively influencing the lives of its people through an active direct and indirect contribution to the various socio-economic parameters such as employment. In addition to fuelling India’s economy.pdf 7 Impact of the IT-BPO Industry in India: A Decade in Review Introduction The Information Technology-Business Process Outsourcing (IT-BPO) industry has become one of the most signifi cant growth catalysts for the Indian economy.

Views of industry participants and experts. “Impact of IT-BPO Industry: A Decade in Review” was conducted to bring in perspective the multifold contribution made by the IT-BPO industry on the various social and economic parameters in India over the past decade. as one of the largest employers in the organised private sector.2 million people. The industry has helped India transform from a rural and agriculture based economy to a knowledge based economy. and select case studies highlighted in the study. The study. the industry has demonstrated a decade of strong growth – growing 15 times to aggregate revenues of USD 69. it provides direct livelihood to 2. have been incorporated to corroborate statements. The study framework assesses the industry impact over six key parameters outlined below.4 billion in FY2009. education and diversity among others. Executive Summary8 Impact of the IT-BPO Industry in India: A Decade in Review Evolution of the IT-BPO Industry The IT-BPO industry in India had humble beginnings with a few Indian entrepreneurs setting up IT . gathered though a nation-wide survey of IT-BPO companies and employees. In The IT-BPO industry has played a signifi cant role in transforming India’s image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. Growing at an extremely high pace.

and Wipro have made their presence felt across the globe. Over a period of time. quality. In recent years. TCS. performance. industry has also witnessed emergence of niche players and new service lines. India based third-party players started of ering similar services to capitalize on the opportunity. Cost arbitrage through abundant talent pool available in India was the key driver for of shoring to India. While cost considerations used to be the primary driver earlier. Contributing to the nation’s economy Over the last 20 years. this industry has witnessed the trend of India based companies actively participating in M&A deals to gain access to diverse talent pool and to expand their global footprint. productivity and increasingly transformation have emerged as key reasons for outsourcing work to India. especially after Indian companies were able to prove their capability in delivering the desired quality and functionality at a signifi cantly lower cost. the IT-BPO industry has evolved from being a niche sector with a limited number . The perceived success of the fi rst few captives led other MNCs to consider entering India to set up their back oi ce and product development centres. Texas Instruments and American Express setting up their captive centres in India. The Y2K phenomenon and the “dot com bust” gave a strong push to outsourcing of technology services to India. While big names such as companies and select MNCs such as GE. this industry has attracted the attention of PE investors leading to a large number of Indian entrepreneurs setting up IT-BPO centres.

The high growth rate of IT-BPO industry has helped the industry in steadily increasing its contribution to India’s GDP by fi ve times over FY 1998-2009 to reach 6. foreign exchange earnings. The industry has been on a constant high growth path and the revenues have grown over 15 times from FY1998 to FY2009. This industry has also been instrumental in fuelling the growth of other sectors by employee spending and by attracting investments. Between FY2002 and FY2009.9 Impact of the IT-BPO Industry in India: A Decade in Review Looking at the growth trajectory of this industry. As a result. where contribution by other segments either declined or remained almost fl at.0 per cent. the contribution of the IT-BPO industry to the Services segment of GDP witnessed maximum incremental growth of 10 per cent. The immense contribution of the industry can be judged from the impact it has had on the country’s GDP. its contribution to India’s GDP is expected to increase . share of Services increased from 56.3 per cent to 62.of companies to one of the largest contributors to the Indian economy in general and the services sector in particular. while share of other components of GDP (Agriculture and Industry) declined over FY2002-2009. contribution to the exchequer and employment generation. Increasing contribution to country’s GDP The ratio of an industry’s output to the GDP of a country is an important indicator of the impact of that industry on the country’s economy. The industry has also played an important role in the growth of the Indian services sector.6 per cent.

Gems and Jewellery.000 crore. IT-BPO exports have also been instrumental in modifying the export mix of India from traditional commodities to services. which comprise two-thirds of the Indian IT-BPO industry revenues. this would require collective action from all stakeholders. The IT-BPO exports have grown faster than total Indian exports over FY 2005-2009 and account for 14 per cent of total exports.000 crore from direct employees of the industry. are one of the most important channels for bringing foreign currency in the country. Though the industry receives benefi ts in terms of lower ef ective tax rates and tax holidays for select units.000 crore contributed from IT-BPO companies and the rest INR 7. Generation of employment The rapid growth in IT-BPO industry has created large number of jobs for the expanding employable . and Textiles. The value of IT-BPO exports is more than the combined value of exports from traditional export sectors. which are estimated at INR 10. Growing exports boosting the foreign exchange earnings Exports.000 crore in direct taxes with INR 8.further in the coming years. The industry contributes almost INR 15. the overall direct tax contribution by the industry to the exchequer outweighs the tax benefi ts received by the STPI units. However. Strong tax contributions IT-BPO companies in India and employees on the payroll of these companies make a signifi cant contribution to the tax collection of the Government of India.

media and entertainment. transportation and house-keeping. The wealth earned by these employees is supporting the households and improving standard of living in under-developed regions of the nation. this industry has played a key role in bringing the attention of PE/VC investors to India as an investment destination. Attracting PE/VC investments The IT-BPO industry was at the forefront of investment activity at the start of the decade 2000-09 and over the years. security. Fuelling the growth of other sectors While the industry strongly contributes through direct channels. The return on investment attained by the investors in the IT-BPO industry has made a positive impact on the perception of the international investor community and .2 million in FY2009. healthcare.population. The employment provided by the industry increased more than 8 times over FY2000-2009 and reached 2. telecom and retail by creating demand for the output generated by these sectors.000 crore in dif erent areas such as telecom. it has also played a key role in driving the growth of other sectors such as real estate. The establishment of an IT-BPO unit provides employment to numerous people involved in ancillary activities such as catering. the IT-BPO industry impacts the lives of around 8 million indirect employees. Apart from infl uencing the life of people directly employed within the industry. A notable point is that a large segment of the indirect employees belong to the rural areas/small towns of India. textiles. and consumer durables. IT-BPO employees spent almost INR 76.

A signifi cant chunk of the employee base of IT-BPO industry comes from dif erent Tier 2/3 cities and the benefi ts received by these employees have percolated down and contributed to the development of their home cities. This clearly indicates that IT-BPO remains one of the most preferred industries for investors as its share of investments. According to the STPI. 8455 units were operative. During the year 2008-09. there has been an emergence of new companies not only in the metropolitan areas. but also in the Tier 2/3 cities leading to the overall development of the local economies. Contributing to regional development across India The benefi ts of strong economic growth provided by the IT-BPO industry have not just been limited to the big Tier 1 cities. with a boom in IT-BPO related entrepreneurship. The economic growth caused by this industry is thus holistic in nature and the industry is positively infl uencing the development of Tier 2/3 cities just as it contributed to the development of cities such . The growth in PE/VC activity has been refl ected in the spurt in entrepreneurship and rise of many start-up units in the technology and IT services domain.other sectors are now also opening up to PE/VC funding. the share of IT-BPO industry in terms of number of PE/VC deals (24 per cent) and the value of PE/VC deals (15. 10 Impact of the IT-BPO Industry in India: A Decade in Review In FY2009. most of which are likely to be set-up by fi rst-generation entrepreneurs. Also. 2009. about 3.000 new STPI units were registered over 2001–06 (almost 50 units per month). 572 new units were registered under STP Scheme and as on March 31.7 per cent) has been the highest in FY2009.

and these states are among the most economically powerful in Indiacontributing to 34 per cent of national GDP.3 million by FY 2009. positively impacting career and personal development. Tier 1 locations generated over 92 per cent of industry revenues in FY 2009. Additionally. either independently or in collaboration with the government. the industry has led to the creation of over 180 million sq ft of oi ce space in Tier 1 locations. and National Capital Region (NCR) into globally-renowned commercial hubs. 77 per cent of all STPI units are located in such Hyderabad. The industry contributes 14 per cent of total GDP from Tier 1 states. . Today Tier 1 locations have 58 per cent of total engineering colleges and account for 62 per cent of total intake of technical graduates in India. Bengaluru. apart from contributing to tax collection and employment generation in these cities. Further. has also supported the development of talent pool as well as physical and social infrastructure. Impact on Tier 1 cities The IT-BPO industry has had a tremendous impact in Tier 1 locations in the past decade. The IT-BPO industry has played a key role in enhancing the education system in Tier 1 locations – the number of engineering colleges and graduates from these locations has doubled in the last fi ve years.9 million. the IT-BPO industry has generated direct industry employment of 1. improving living standards. The industry. Further. empowering women and developing a social infrastructure. and indirect employment of 7. the industry is now moving to rural areas creating employment and wealth.

IT-BPO industry contributes 4. the success of the Indian IT-BPO industry has not been limited to Tier 1 cities. 8 per cent of total industry employment. Tier 2/3 cities generated USD 4. Impact on Tier 2/3 cities The IT-BPO industry has already began to replicate the success achieved in Tier 1 cities and accelerate the growth of Tier 2/3 cities and rural areas.5X) has been higher than that in tier I cities (1. along with 30 per cent of all operational IT SEZs. the industry has created 1.along with 70 per cent of all operational IT SEZs.7 lakh jobs in Tier 2/3 cities. Further. almost 20 million sq ft in Tier 2/3 locations.1 billion – 7 per cent of the industry revenues – in FY 2009. the growth in IT-BPO jobs in Tier 2/3 cities (1. Notably. The growing presence of the IT-BPO companies is being felt in the constantly improving city infrastructure and improving living standards of the workforce.11 Impact of the IT-BPO Industry in India: A Decade in Review Contrary to popular belief. Additionally the industry has played a key role in helping enhance the education system – today there are over 985 engineering colleges in these states. The industry is helping to solve the .5 per cent of total GDP from Tier 2/3 states. there has been signifi cant creation of oi ce space. 23 per cent of all operational STPIs are located in Tier 2/3 cities. These cities also accounted for nearly 25 per cent of India’s domestic IT-BPO market revenues in FY2009. Additionally.3X) over the last two years. The contribution has tripled within the last two years. with 49 delivery centres opening in the last year itself.

Rural BPO presents a win-win situation for both stakeholders – rural BPO companies and the local population. thus making India’s growth story inclusive.2 million people directly associated with it. some of which have been operational for less than three years have together generated a total of USD 10 million in revenues in FY 2009. Impact on Rural areas The IT-BPO industry is exploring the advantages of operating centres in rural areas of India and some players have started their units in rural India. The industry has not only leveraged the vast and diverse talent pool of our nation but has also focused on training and development aspects to further improve the skill-sets and employability of the 2. the IT-BPO industry has shared its growth with millions of constituents of its workforce. While people in villages get jobs and a better life.problem of unemployment and migration. These centres together employ 5. but is also working towards bridging the gender divide and improving the state of the dif erently-abled by making all sections of the society a part of its expanding community.000 people in rural areas. Enabling wealth creation and asset building . companies can gain hugely in the long-term in terms of cost savings. Rural BPOs. This industry has not only provided an answer to the unemployment concerns. Empowering the diverse human assets Being one of the largest organised private sector employers India.

The industry has played an important role not only in wealth creation for individuals but has also helped in supporting and sustaining extended households. Empowering the youth One of the key changes that the IT-BPO industry has af ected in the Indian society relates to the fi nancial independence of the youth. the IT-BPO industry of ers numerous other employee-friendly schemes and plans that enhance the working experience. In addition. the employees believe that the industry encourages a meritocratic environment of ering equal opportunity to every employee. The industry employs a relatively younger workforce when compared with . around 22 per cent of employees own all the three assets. a signifi cant majority of employees agreed that they felt more satisfi ed with work environment and job profi le in IT-BPO as compared with other industry/industries. Enriching work environment In addition to direct monetary benefi ts. As per the NASSCOMEvalueserve survey. In addition. The NASSCOM-Evalueserve survey shows that 62 per cent of the IT-BPO employees own an automobile. The NASSCOMEvalueserve survey shows that 77 per cent of employees support their extended families while 56 per cent are the primary bread earners of their households. the IT-BPO industry has played a pivotal role in asset building. 84 per cent spend a portion towards housing (7 per cent invest in real estate) and 42 per cent employees are able to save more than 12 Impact of the IT-BPO Industry in India: A Decade in Review 10 per cent of their salary.

domain expertise. The participation of employees in these programmes is also very encouraging as revealed by the NASSCOM-Evalueserve survey. for instance. while about 81 per cent attended training to enhance their soft skills. The industry is also identifi ed as one of the high paying sectors. 45 per cent of the total amount spent on training is toward skill development of new recruits. IT-BPO companies conduct training programs focused at dif erent areas such as communication. 87 per cent employees had attended training on communication skills. Also. Further. Bridging the gender divide The IT-BPO industry has played a pivotal role in bridging the gender divide in the Indian workforce by ensuring no bias while of ering positions to women candidates. leadership. due to the inherent nature of the industry and focus on skill development.other Indian industries. This is evident from the fact that around 35 per cent of employees are in the age group 18-25 and around 41 per cent belong to the 25-30 age bracket. IT-BPO employees are able to increase their income in lesser time. Indian IT-BPO companies spend nearly INR 6. about one-fi fth of the . etc. With one of the highest gender ratios for the workforce. which is estimated to reach 31 per cent by FY 2009. In addition.450 crore on training their employees. Enhancing skill development IT-BPO industry is investing in employee training and aiding in the expansion of talent pool. the industry has witnessed an increase in the number of women professionals over the years.

female employees in the IT-BPO industry are at managerial level or above indicating the numerous opportunities provided to them by this industry. 72 per cent of the females entering engineering in 2008 opted for IT engineering (‘Systems Engineering’ and ‘Information & Communication Engineering’). Helping the dif erently-abled The industry has provided huge support in upliftment of the dif erently-abled people. formation of anti-sexual harassment committees. . but also of women from the rural or uneducated backgrounds. Further. The IT-BPO industry has impacted the lives of not only girls/women from educated middle-class families in urban areas. Females in rural areas are increasingly enrolling for computer education courses initiated by various IT-BPO companies. These initiatives include special ‘pick-and-drop’ cab facilities. and provision of maternity leaves during pregnancy. and creation of exclusive web portals for females. Companies have encouraged women participation through various initiatives which take care of the special needs of the female employees. The increase can be attributed to the gender agnostic requirements of the industry and the fl exible work environment provided by the IT-BPO companies. which is helping them earn a livelihood by taking up jobs as teachers in primary schools or other computer training centres. This can be elicited from the fact that year-on-year growth rate of girls opting for engineering increased from 22 per cent (y-o-y) 13 Impact of the IT-BPO Industry in India: A Decade in Review in 2001–02 to 125 per cent (y-o-y) in 2007–08. Currently.

60 per cent IT-BPO companies employ dif ferently-abled people as the industry continues to proactively undertake initiatives to create more employment opportunities. The policies and ef orts of IT-BPO companies have been well recognised and felicitated by various associations and NGOs. the industry has aided not only in the development at an individual level. Enabling environment for innovation The inherent focus of the IT-BPO industry on the skill enhancement of its workforce has helped the industry in moving up the value chain. These employees have been an inherent part of the IT-BPO workforce and have helped in creating a diverse workplace environment at most of the IT-BPO companies. companies are focusing on their skill development in various technical and process-related fi elds and providing equal career growth opportunities that are linked to performance. By generating employment for people from these cities. as the employees send back a sizeable amount of their earnings to their families. In addition to providing livelihood to the dif erently-abled. More and more companies are now focusing on innovating and . The NASSCOM-Evalueserve survey indicates that the employees originally belonging to non tier-I cities constitute 58 per cent of the total IT-BPO workforce. the IT-BPO industry is actively reaching out to people in smaller cities for recruitment. but also at a regional economic level. Attracting talent across regions As the demand for skilled workforce has increased.

Growing R&D spend In FY 2009. TCS.5-1 per cent of their revenues on R&D while companies engaged in software product development and engineering spent around 6-7 per cent of their revenues. IT services companies spent around 0. and Wipro are aggressively fi ling more patent applications in India and abroad.providing high-end services. As per the NASSCOM-Evalueserve survey. R&D expenditure forms a greater portion of the total revenues for companies engaged in product development as compared with pure play services companies. Top Indian IT companies viz. than just traditional support services. Indian IT-BPO companies spent USD 450 million on R&D activities. of shore product development and made-in-India software products segment of the industry are experiencing a doubledigit growth. . This expenditure was primarily directed towards improving existing product of erings and processes and developing solutions around emerging technologies such as cloud computing and virtualisation. In 2009. Infosys. almost 1000 patents were granted in software related sub-segment in the Computer/Electronics category.14 Impact of the IT-BPO Industry in India: A Decade in Review Strengthening role in IP creation The ef orts of IT-BPO companies towards boosting R&D are perfectly corroborated by the rising numbers of patents fi led by Indian companies especially over the past few years. India is now becoming a strong force in global IP creation and its exports in the engineering and R&D. Patents in the computer/ electronics segment have increased 30 times in the last fi ve years.

The entrepreneurial-friendly environment and interest from PE/VC investors also drove growth of software product set-ups in India. Some of them include: • Holding events/competitions focused on developing innovative ideas. • Setting up of R&D centres. workshops and seminars. revenues for the software product industry increased by about 58 per cent and the share of the software products segment in the total Indian IT-BPO industry reached around 6. • Recognising innovation through rewards and incentives.Providing platform for innovation Indian IT-BPO companies are undertaking several organization-wide internal initiatives to create a rich environment which encourages employees to innovate. and • Conducting training. IT-BPO players are collaborating with academic institutions and providing the necessary support in dif erent forms to boost innovation. • Supporting initiatives in implementation stage. developed and marketed by them. In addition. Growing Software Product industry The software products industry has experienced high growth in revenues due to the increasing focus of Indian companies towards product development.5 per cent in FY 2009. Indian product companies are gaining recognition for the innovative and feature-rich software products that have been fully conceived. In addition. From FY 2007 to FY 2009. Several packaged software products and applications developed by Indian software companies are being deployed by .

p df The IT-BPO Sector in India Strategic Review 20114 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 When it rains. and so it did in 2010. Evolving as a key R&D centre for global technology giants Global IT leaders such as Microsoft. but also as a promising market for their products and services. Oracle. http://www. And not all of it was customer-led – service providers did their part too. However. As a result. These Indian centres have been the incubators for some of the most successful products of these companies who now view India. the Indian R&D units of many major companies are largest (in terms of number of employees) outside their home country.leading organisations across the globe. SAP. Adobe. Google and Yahoo have setup their full fl edged R&D centres in India with focus on product innovation. both traditional and emerging. The global economic downturn of the past year had a lingering ef ect on the GDP growth and employment in developed markets. based on pent-up demand from the corporate sector and return of discretionary spending. there was a surge in IT spending across markets. it pours as they say. and . not only as a source for talent. by providing new business models that encouraged fi rst time

the sector had begun to transform itself by actively diversifying beyond core of erings and markets through new business and pricing . the industry has acted as socially responsible corporations playing an active role in regional development across India. Further. with sector focus shifting from basic outsourcing advantages of cost and talent. innovation and transformation. In addition to fuelling India’s economy. and enhancing the overall brand image of India. global sourcing is now evolving from being tactical to being of strategic benefi t to clients. The industry has helped India transform from a rural and agriculture-based economy to a knowledge based economy. empowerment of diverse human assets. since value propositions for existing ones. The IT-BPO sector has become one of the most signifi cant growth catalysts for the Indian economy. to higher value added services. this industry is also positively infl uencing the lives of its people through an active direct and indirect contribution to the various socio-economic parameters such as employment. On its part. Further. driving technology and innovation to transform client businesses. standard of living and diversity among others. The industry has played a signifi cant role in transforming India’s image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. The ef orts of the industry towards the holistic development of the Indian economy and society will continue making a positive impact and changing lives as it has done so far. as a result of an altered demand landscape.

Within IT outsourcing. driving growth. specialise to provide end-to-end service of erings with deeper penetration across verticals. validating the industry’s integral position in service delivery chain.4 per cent. When demand returned in 2010. a growth of 4 per cent over 2010. and application development. Continuous ROI focus led to BPO growing by 4 per cent. transform process delivery through re-engineering and enabling technology. within which IT outsourcing grew by 2.4 per cent on the back of a global refresh cycle. accounting for almost 90 per cent of incremental growth in the global sourcing market. multisourcing saw higher . innovate through research and development and drive inclusive growth in India by developing targeted solutions for the domestic Indian market. Global sourcing trends Worldwide technology products and services related spend is estimated to reach USD 1.models. in addition to US.6 trillion in 2010. and deal size reductions as buyers came to terms with new business models and budgetary constraints. Executive Summary5 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 The year saw wide ranging contract restructuring exercises. IT services spend increasing by 1. global sourcing grew by 10.4 per cent in 2010. Worldwide hardware spends increased by 6. storage.7 per cent led by increased focus on security. while software products rose by 3.4 per cent in 2010. the combined ef ect of all these factors helped India grow faster than its competitors. with emerging verticals and emerging geographies. However.

2 per cent in FY1998 to an estimated 6. Recent global M&A activity in the sector indicates select acquisitions by established service providers to enhance skill and scale.4 per cent in FY 2011.3 million. savvy customers are constantly demanding more – growth markets. precipitated by the increased maturity of Indian providers. service providers are adopting agile methods focusing on operational excellence through ongoing innovation. which increased . • Geographic focus: The year was characterised by a consistent demand from the US.adoption. the sector revenues have grown from 1. fl exibility and innovation. with the IT software and services sector (excluding hardware) accounting for USD 76. With customers demanding more immediate value from IT and forward-looking strategies that support growth and innovation. While cost and talent still remain essential considerations for global sourcing. an addition of 240.1 billion in FY2011.5 million. Its share of total Indian exports (merchandise plus services) increased from less than 4 per cent in FY1998 to 26 per cent in FY2011. diversifi cation.000 employees.1 billion of revenues. Exports market: Export revenues are estimated to gross USD 59 billion in FY2011 accounting for a 2 million workforce. As a proportion of national GDP. renewed partnerships/alliances and new business models. During this period. Indian IT-BPO performance The sector is estimated to aggregate revenues of USD 88. direct employment is expected to reach nearly 2. while indirect job creation is estimated at 8.

• Service Lines: Within exports. accounting for 57 per cent of total exports. increased delivery of analytics and knowledge based . IT Services segment was the fastest growing segment.BPO 3.7 per cent over FY2010. • Vertical Markets: While the sector’s vertical market mix is well balanced across several mature and emerging sectors. Central to this strategy is the growing customer acceptance of Cloud-based solutions which of er best in class services at reduced capital expenditure levels.1 billion in FY2011. growing by 22. from a ‘one factory. but also new emerging verticals of retail.0 . consulting and system integration. Indian IT service of erings have evolved from application development and maintenance. and aggregating export revenues of USD 33. The coming of a new decade heralds a strategic shift for IT services organisations. FY2011 was characterised by broad based demand across traditional segments such as Banking. all customers’ model. infrastructure services.characterised by greater breadth and depth of services. process re-engineering across the value chain. The year also witnessed the next phase of BPO sector evolution .5 billion. Media and Utilities.5 per cent. The BPO segment grew by 14 per cent to reach USD 14. to emerge as full service players providing testing services. Financial Services and Insurance (BFSI). one customer’ model to a ‘one factory.its share to 61. Healthcare. Emerging markets of Asia Pacifi c and Rest of the world also contributed signifi cantly to overall growth.

fuel ei ciency norms. mining existing 6 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 clients and restructured operations to provide focused vertical solutions. Increasing confi dence in relationships between customers and service providers successfully executing a variety of activities across low-medium-high complexity projects has led to increasingly larger sizes of projects being sourced from India. Domestic market: Domestic IT-BPO revenues excluding hardware are expected to grow at almost 16 per cent to reach ` 787 billion in FY2011. the BPO sector growth was af ected by delayed decision making and deal restructuring in the fi rst half of the year. driven by increasing use of electronics. through platforms. growing by 13. Strong economic growth. strong domestic market focus and SMB centric delivery models.6 per cent.high focus on client relationships. and localised products. The engineering design and products development segments generated revenues of USD 9 billion in FY2011. the industry focused on achieving excellence in business process management. enhanced focus by the government and emergence of business models that help provide IT to new customer segments are the key drivers for increased technology adoption in India . During the year. rapid advancement in technology infrastructure. increasingly competitive Indian organisations. though it picked up momentum in the second half. Changing demand patterns led to revamp of operations for service providers . convergence of local markets. and delivering strong transformational benefi ts creating revenue impact for clients.

and value based transformational outsourcing platforms • Indian software product segment is estimated to grow by 14 per cent to reach ` 157 billion. in addition to adoption from emerging verticals.• IT services is one of the fastest growing segment in the Indian domestic market. and been able to increase its market share in spite of competitive challenges presented by emerging of shoring destinations. rising by 16. This has been only possible due to the development of a set of factors unique to India.9 per cent in FY2011. and the Unique Identifi cation Development Authority of India (UIDAI) programme that creates large scale IT infrastructure and promotes corporate participation Indian IT-BPO Value Proposition India has retained its’ position as the leading global shoring destination with a 55 per cent share of global ITO and BPO market in 2010. India has the world’s largest pool of employable talent.through sectors reforms that encourage IT acceptance. new customer segments. National eGovernance Programmes (NeGP) . driven by localised strategies designed by service providers. service delivery infrastructure .8 per cent to reach ` 501 billion. While the cost advantage is unparalleled. fueled by replacement of in-house software applications to standardised products from large organisations and innovative start-ups • Government sector is a key catalyst for increased IT adoption. to reach ` 127 billion. that multiply India’s value proposition manifold. • Domestic BPO segment is expected to grow by 16. driven by demand from voice based services.

incremental . infrastructure and processes which are considered as basic tools to operate in the global sourcing landscape.Technology enablement – Development of solutions around platforms. With customers also pushing for more collaborative contracts where there is business metric performance measurement and greater risk-reward sharing.Process innovation/re-engineering – Coupled with automation and six sigma skills. cloud based products integrating business intelligence. and a supportive policy regime. However. talent. creating products aimed at growing emerging markets and creating a substantial revenue impact for them. Indian industry is increasingly being driven by the following four factors:7 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 • Transformational Business impact – Client business transformation happening through.Verticalised solutioning – A number of organisations have restructured themselves around verticals and Centres of Excellences . the Indian global sourcing industry is no longer hinging its value proposition on cost.across multiple geographically dispersed locations within the country. These verticalised business units act as a source of innovation and development of proof of concept solutions . and application development tools are proving to be game changers for an increasing set of customers. This is also prompting customers to move from CAPEX to OPEX based models .so as to develop and deliver end to end services keeping in mind customer needs.

which had declined by 0. with Indian service providers having developed end to end service delivery capabilities around all verticals. Developing nations continue to grow faster than the developed countries by at least three times. Worldwide GDP.6 per cent in 2009. There is a highly rationalised and competent provider base which is again one factor where India scores over other countries • Sustainability – Industry focusing on sustainable practices – including diversity. The demand side has also been maturing gradually.set of enhancements imbibing best in class learning and practices in established service delivery processes also have the ability to create wide ranging transformation for clients • Service Delivery maturity – India is the most mature outsourcing market. and reengineering of the talent pool for greater productivity and ei ciency • Scalability – India’s scale and fl exibility is unique. there is increased globalisation in service delivery. moving away from commoditised services at lowest possible cost to demand for higher end solutions and measurable business value. cross border collaboration and partnerships to enhance service of erings. Further. grew 5 per cent in 2010 and is expected to stablise at about 4. network of Tier II/III cities of ering further cost reduction and increased infrastructure spend are the cornerstones to this advantage of ered by India over other locations.4 per cent in 2011.a vast labour pool. green and corporate social responsibility Future Outlook The underlying theme of 2010 has been the steady recovery from recession. .

In 2011. Emerging Asian enterprises across multiple industries will continue to accelerate services spending in their ef orts to challenge existing global MNCs.IT spend is directly linked to growth in GDP and in line with this trend. growth will refl ect new demand for IT goods and services.5 per cent in 2011 and 4. not pent-up demand from prior years. Worldwide packaged software revenue is estimated to reach USD 297 billion in 2011. Shipments of app-capable. Organisations will look for alternative IT models .leading to an increase in project-based spending. 2011 will also see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. which will generate more than half of all new IT spending worldwide in 2011. IT spend in 2011 is expected to grow nearly 4 per cent. a Y-o-Y growth of .5 per cent in 2012. customers are also evaluating how investments in IT impact can further business goals – ROI led transformation . consolidation.8 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 IT services is expected to grow by about 3. Worldwide IT spending will also benefi t from the accelerated recovery in emerging markets. Services such as virtualisation. and managed services that focus on ROI in the short term will drive opportunities in the market. media tablets) are expected to outnumber PC shipments.Cloud. Hardware is likely to grow the fastest at about 7 per cent. While focus on cost control and ei ciency/productivity remain. on-demand services and SaaS – in order to reduce hardware infrastructure costs and provide scalability on demand. led by the refresh cycle in the Government sector. non-PC mobile devices (smartphones.

Asia. of erings will shift from . such as APAC and LATAM. deeply embedded in customer value chains will emerge. etc. increasing demand for innovation and end-toend transformation Service Of erings – Of erings that are high-end. the global IT-BPO industry is likely to go through a paradigm shift across fi ve parametersMarkets – Growth will be driven by new markets – SMBs. These regions are expected to invest heavily in enterprise software initiatives as they continue to round out the IT infrastructure necessary to do business. that go beyond lower-cost replication. as technology creates virtual supply chains. In the future. customers will require a seamless experience across time zones and geographies. public sector and government-infl uenced entities which will become a priority customer base Customers – Customers will demand ‘transformative’ value propositions. Remote Infrastructure Management (RIM). led by emerging regions. Solutions for the domestic market will be a key focus area Talent – Government pressures to create local jobs and the need for local knowledge will alter the employee mix . F&A and industry-specifi c BPO solutions. Business Process Outsourcing spending is expected to be driven by analytical services. There will be a much greater focus on ongoing development of specialised skills and capabilities Business models – Driven by a focus on expertise and intellectual property.over 5 per cent.a higher proportion of non-Indians with multilingual and localised capabilities. Services and delivery will become location-agnostic leading to new opportunities such as design services in manufacturing.

Further. new verticals (Public sector and Defence.piecemeal. India supply base is well placed to tap this potential. Healthcare. increasingly emerging markets are spearheading growth as a large consumer base becomes increasingly tech-savvy and enterprises adopt IT solutions to improve their global competitiveness.3 million employment opportunities (direct and indirect). By 2020. Suitably exploiting these emerging opportunities both in the global and domestic markets can help India reach USD 130 billion in IT-BPO revenues by FY2015. mature service capabilities. the Indian supply base has begun to explore market opportunities beyond US and UK. Given this scenario. with their two decade long experience. The industry is now moving to rural areas . a CAGR of 14 per cent. technology-centric applications to a range of integrated solutions and higher-end services. new segments (SMBs). spanning new service lines (e. the India supply base has also begun to look for expansion across various non-metros both to control costs and have access to a large talent pool. the Indian 9 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 IT-BPO industry is expected to contribute about 7 per cent to annual GDP and create about 14. Utilities. global footprint and an abundant talent pool. presence in almost all verticals. This expansion has resulted in the development of a local talent pool and the physical and social infrastructure. Printing and Publishing) and new geographies (BRIC) will account for 50-55 per cent growth in the addressable market.. green IT) While developed markets constitute the largest share of IT spend.g. By FY2015.

etc.299 NASSCOM STRATEGIC REVIEW 2010 NASSCOM STRATEGIC REVIEW 2011 International Youth Centre Teen Murti Marg. empowering women and developing a social infrastructure. mobile clinics). However. public distribution systems). Healthcare (telemedicine. Education (eLearning. all stakeholders – Industry. The government will be a key driver for increased adoption of IT-based products and solutions. Academia and NASSCOM – will need to jointly take decisive action to develop a high calibre talent pool. positively impacting career and personal development. catalyse growth in the domestic market. thereby reducing the government’s fi scal burden. citizen identifi cation. thus leading to balanced regional growth. India T 91 11 2301 0199 F 91 11 2301 5452 www. actively work to establish India as a trusted global hub for professional services. Chanakyapuri New Delhi 110 021. continue to harness technology for inclusive . to realise this opportunity. Government.nasscom. remote consultation. etc) and Financial service (mobile banking/payment gateways). and ensure adequate policy support to keep the momentum strong. foster a sustainable ecosystem for research and innovation. It has embarked on various IT-enabled initiatives including in Public services (Government to citizen services. improving living standards. under-served population.creating employment. virtual classrooms. These initiatives are expected to substantially improve the economic conditions of a large.

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