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Unformatted text preview: A DETAILED ANALYSIS OF INDIAN INFORMATION TECHNOLOGY INDUSTRY UNDER THE GUIDANCE OF PROF. SAMIK SHOME SUBMITTED BY: GROUP NO: 12, MARKETING ± C PGP (2009-2011) GROUP MEMBERS: ANANT GOPAL (09PG068) JUZAR HUSSAIN (09PG256) PALAK S. DUBEY (09PG449) PRADHEEP R.A. (09PG334) TRIPTI JOSHI (09PG178) 1 2 DECLARATION We, the members of Group 12, Marketing Section C, PGP (2009-2011), would like to declare that the project on ³Information Technology Industry´ is an exclusive & detailed analysis carried out by us. The information, facts & figures in the report have been taken from reliable sources such as Capitaline, NASSCOM, Annual reports of the companies and corporate websites. SR. NO. NAME OF THE REGISTRATION STUDENT NUMBER 1 Anant Gopal 09PG068 2 Juzar Hussain 09PG256 3 Palak Shruti Dubey 09PG449 4 Pradheep R. A. 09PG334 5 Tripti Joshi SIGNATURE 09PG178 3 CERTIFICATE This is to certify that the members of Group 12, Marketing c, PGP (2009-2011) have completed the analysis on ³Information Technology Industry´ under my guidance for the course Industry Analytics in Term III in their PGP in Management (2009-11). NAME OF FACULTY GUIDE: PROF. SAMIK SHOME SIGNATURE: DATE: 4 ACKNOWLE E E NT We express our heart elt gratitude to Prof. Samik Shome for providi g us a chance to explore the Information Technology industry, which has helped us a lot to know the past and the present scenarios of the industry. We are grateful to his valuable suggestions, which helped us to refine our thoughts and his timely feedback helped us to improve our analysis and the report. We express our heartfelt gratitude to the Management of Alliance Business School for providing us the excellent facilities, which enabled us to improve the quality of our work. 5 TABLE OF CONTENTS Chapter No. Topic Page No. 1 Executive Summary 17 2 Review of Literature 18 3 Global Scenario of the IT Industry 24 3.1 Introduction 24 3.2 Evolution of IT 24 3.3 Rise of IT 25 3.4 Development of IT industry 27 3.5 R eview of development in IT industry 28 3.5.1 Early Development- till 1960¶s 28 3.5.2 Early Developments- till 1980¶s 31 3.6 Timeline 32 3.7 Major Global Players 36 3.7.1 IBM 37 3.7.2 Microsoft 38 3.7.3 SAP 38 3.7.4 Yahoo! 39 3.7.5 Symantec 40 3.8 Global Human Capital 40 6 4 Indian Scenario of IT Industry 42 4.1 IT, Hardware and Software 42 4.2 History 44 4.2.1 Pre 1991 44 4.2.2 1991-2001 45 Software Technology Parks 45 1991 Liberalization Policy 45 Satyam Scam 46 4.3 Milestones in Indian IT Industry 47 4.4 Top 20 Software Companies in India 47 4.5 Current Scenario 48 4.6 Indian Software Industry 49 4.7 The NASSC M-McKinsey Report 49 4.8 Invest ments 50 4.8.1 Rural penetration 50 4.8.2 Government initiatives 50 4.9 Employment under IT/ITES 51 4.9.1IT and ITES 51 in Hiring 52 Trends in Salary Hikes 52 4.10 Factors for success of IT in India 4.10.1 Indian Education System 4.10.2 High Quality Human Resources 52 52 53 7 4.10.3 Competitive Costs 53 4.10.4 Infrastructure Scenario 53 4.11 Promotion of IT 53 4.12 Global Sourcing Trends 54 4.13 IT-BPO Sector 55 4.14 IT Services, Engineering Services, 55 R D and Software Products 4.14.1 IT services 55 4.14.2 Engineering Services, R D and Software Products 55 4.14.3 BPO Market 56 4.14.4 Hardware Market 56 4.14.5 India¶s IT-BPO value proposition 56 4.15 Future Outlook 57 4.16 Major Indian Players in IT Industry 57 y y y y y 5 TCS Infosys Wipro Tech Mahindra Oracle Industry Analytics 59 5.1 SWOT 59 5.1.1 Strengths 60 5.1.2 Weaknesses 62 5.1.3 Opportunities 63 8 5.1.4 Threats 64 5.2 Port er¶s 5 Forces Model 65 5.2.1 Substitute products/services 5.2.2 Potential new entrants 66 5.2.3 Rivalry amongst industry firms 67 5.2.4 Empowered buyers 68 5.2.5 Empowered suppliers 6 65 69 Company Analysis 70 6.1 Inter-Company Analysis 70 6.1.1 Current Ratio 70 6.1.2 Debtors Turnover Ratio 71 6.1.3 Interest Coverage Ratio 72 6.1.4 Profit Before Interest and Tax 73 6.1.5 Price to Earnings ratio 74 6.2 Intra-Company Analysis 6.2.1 Infosys Current Ratio Turnover ratio Interest Coverage ratio Profit Before Interest and Tax 75 75 75 76 76 76 Price to Earnings Ratio 76 9 6.2.2 TCS 77 Current Ratio 77 Turnover ratio 78 Interest Coverage ratio 78 Profit Before Interest and Tax 78 Price to Earnings Ratio 78 6.2.3 Wipro Current Ratio Turnover ratio Interest Coverage ratio Profit Before Interest and Tax 79 79 80 80 80 Price to Earnings Ratio 80 6.2.4 HCL 81 Current Ratio 81 Turnover ratio 82 Interest Coverage ratio 82 Profit Before Interest and Tax 82 Price to Earnings Ratio 6.2.5 Oracle Current Ratio Turnover ratio Interest Coverage ratio Profit Before Interest and Tax Price to Earnings Ratio 82 83 83 84 84 84 10 7 IT Related Industries 85 7.1 BPO 85 7.1.1 Background 85 7.1.2 Factors for success in India 85 7.1.3 Current Scenario 86 7.1.4 Top 10 Indian BPO Companies 88 7.1.5 Future Scenario 90 7.1.6 Challenges to Indian BPO Industry 90 7.2 KPO 91 7.2.1 Current Scenario 91 7.2.2 Future Scenario 92 7.3 ITES 93 7.3.1 Engineering Process Services 7.3.2 Legal Process Outsourcing 93 7.3.3 Insurance 94 7.3.4 Procurement Outsourcing 94 7.3.5 Healthcare 9 93 94 Vision and Growth Forecast of the 95 Indian IT Industry 95 8.1 Vision and Mission 95 8.1.1 Vision 95 8.1.2 Mission 11 8.2 Software Technology Parks of India 8.2.1 Basic Characteristics 95 96 8.3 Infrastructure Services provided by 96 STPI 8.4 Growth Forecast Industries in India of IT related 98 8.4.1 2010 Outlook 98 8.4.2 Indian BPO performance estimat es 98 8.4.3 Exports Markets 98 8.4.4 Domestic Markets 99 8.4.5 Market Drivers 99 8.4.6 Segments 99 8.4.7 Inference 100 8.5 Future of Indian IT Industry 100 8.5.1 Major Areas of Benefits 101 8.5.2 Inference 102 8.6 Challenges in Indian IT Industry 102 8.7 Conclusion of the chapter 106 9 Conclusion 107 10 References 109 12 LIST OF TABLES Table no. Topic Page no. Inter-Industry Analysis of 5 companies for 5 years- 1 Current Ratio 70 2 Debtors Turnover Ratio 71 3 Interest Coverage ratio 72 4 Profit before Interest and Tax 73 5 Price to Earnings ratio 74 Intra-Industry Analysis of 5 companies for years 6 Infosysy y y y y 75 Current Ratio Debtors Turnover Ratio Interest Coverage Ratio Profit Before Int erest and Tax Price to Earnings Ratio 13 7 TCSy y y y y 8 81 Current Ratio Debtors Turnover Ratio Interest Coverage Ratio Profit Before Int erest and Tax Price to Earnings Ratio Oracley y y y y 79 Current Ratio Debtors Turnover Ratio Interest Coverage Ratio Profit Before Int erest and Tax Price to Earning Ratio HCLy y y y y 10 Current Ratio Debtors Turnover Ratio Interest Coverage Ratio Profit Before Int erest and Tax Price to Earnings Ratio Wiproy y y y y 9 77 83 Current Ratio Debtors Turnover Ratio Interest Coverage Ratio Profit Before Int erest and Tax Price to Earnings Ratio 14 LIST OF GRAPHS Table no. Topic Page no. Inter-Industry Analysis of 5 Companies of 5 years 1 Current Ratio 70 2 Debtors Turnover Ratio 71 3 Interest Coverage Ratio 72 4 Profit before Interest and Tax 73 5 Price to Earnings Ratio 74 Intra-Industry Analysis of 5Companies for 5 years 6 Infosys 75 7 TCS 77 15 79 8 Wipro 9 HCL 81 10 Oracle 83 16 1. Executive Summary: The information technology (IT) industry has become one of the most robust industries in the world. IT, more than any other industry or economic facet, has an increased productivity, particularly in the developed world, and therefore is a key driver of global economic growth. Information Technology is the fastest growing as well as one of the most important industries in the Indian economy. The principal components of IT include: hardware, and its associated peripherals; software, which includes programming languages and their applications; communications devices, comprising both terrestrial and wireless units and related equipment; and the Int ernet, which is based on a whole generation of new computer languages and protocols that link individual computers into a vast network through which information can flow unimpeded. Mainframe computers though being used since 1950¶s, the introduction and acceptance of PC¶s really heralded the development of this industry. Nowadays the increased use of IT and the fast emergence and dominance of mobile and wireless technology has led to a surge in IT products. IT plays an important role in the economies of countries like India, America, and China. Since IT being a µsyst ems technology¶, it shows a spread effect and therefore has an extensive influence on other sectors. IT went through a structural change in the late 80s as the Asia and Pacific region emerged as one of the major players in global IT production in all the core segments of the industry. This included countries like India, China, and Hong Kong, Japan etc. The IT boom in the 1990s saw the emergence of many software companies and also made this sector as one of the most lucrative industries. Many software companies are among the richest and biggest corporations in the world. These include examples of software giants like IBM, Microsoft, Oracle, Yahoo, Symantec etc. The origin of IT industry in India can be traced to 1974, when the mainframe manufacturer, Burroughs, asked its India sales agent, Tata Consultancy Services (TCS), to export programmers for installing system software for U.S. clients. The IT sector which started in unfavorable conditions like absence of local and govt. regulations today is one of the fastest growing industries. The Indian IT industry has built up valuable brand equity for itself in the global markets. The IT industry of India has registered huge growth in recent years. India's IT industry grew from 150 million US Dollars in 1990-1991 to a whopping 50 billion UD Dollars in 20062007. The contribution of India's IT industry to economic progress has been quite significant. During the t en year period 1992-2002, the Indian software industry grew at double the rate as the US software industry. Owing to its easy accessibility and the wide range of IT products available, the demand for IT services has increased substantially over the years. The IT sector has emerged as a major global source of both growth and employment. India's IT growth in the world is primarily dominated by IT software and services such as Custom Application 17 Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Software testing, and Web services. In the last few years Indian IT industry has seen tremendous growth. Destinations such as Bangalore, Hyderabad and Gurgaon have evolved into global IT hubs. Several IT parks have come up at Bangalore, Hyderabad, Chennai, Pune, Gurgaon etc. These parks offer Silicon Valley type infrastructure. Similarly STPI¶s have been set up under the Ministry of Communications to provide facilities like Infrastructure and technology assessment. In a world where information technology has become the backbone of businesses worldwide, 'outsourcing' is the process through which one company hands over part of its work to another company. The ITES or BPO industry is a sector in India that has been in exist ence for a little more than ten years. Despite its recent arrival on the Indian scene, the industry has grown phenomenally and has now become a very important part of the export-oriented IT software and services environment. Out of the U.S. $35-37 billion offshore BPO market in 2008, India remained the leading offshore destination with 35% market share. The export revenue from ITES-BPO sector is estimat ed to grow from US $ 10.9 billion in year 2007-08 to US $ 12.8 billion in year 200809, a year-on-year growth of over 17.5 per cent. The major Indian BPO players include giants like IBM Daksh, Wipro BPO, and GENPACT who have managed to create a distinct niche for themselves. Al of this depicts a very positive signal for the IT services as a whole which has been showing its increasing presence in contributing to the Indian GDP. However despite IT majors putting up a brave front, there are a number of challenges which are being faced by the faced by the Industry. For e.g. as per a Nasscom report India faces a strong challenge in IT industry particularly the BPO sector in the coming years from countries like China. Similarly the IT sector needs to create an environment for innovation that could be carried for a long time. Also challenges in the human resource aspect like the challenge of numbers, acquiring and retaining talent, decreasing attrition and turnover are one of the most important crises being faced by the industry today. Since IT is an industry which unlike other industries is knowledge based, people are the primary assets and efficient utili ation of skilled labour forces can help the IT industry achieve rapid pace of economic growth 18 2. Literature Review: 2.1 According to Thinmaya (2009), at the time when top Indian tech firms like TCS, Infosys, and Wipro planned to slow down their growth by hiring less number of people, multinational software companies such as IBM, Accenture and Cap Gemini continued to hire more software professionals in order to expand their offshore capabilities. He continues to say that the large organi ations are seeking to increase their offshore teams so as to lower their operational costs. Tesco, the world's second-biggest retailer, plans to add a few hundreds more professionals to its existing team of around 3,000 employees at the Bangalore centre. The retailer saves around $60 million every year by outsourcing to India. He also talks about many other companies such as Stanton Chase International, Atos Origin and Allegis India which are planning to increase its work force in India by a large number. 2.2 This article t ells about the potential of Indian IT-BPO market which is expected to touch $285 billion by the year 2020 growing at a compound annual growth rate (C AGR) of 15% per year. It also says that India will satisfy approximately 51% of overall global sourcing demand and is expect ed to retain its leadership position by 2020. It also claims about the achievement of impressive growth rates of the IT-BPO industry over the past decade. The contribution of developing countries like India, Sri Lanka, Pakistan and Bangladesh and Thailand are expected to make their mark on the global sourcing supply landscape by 2020. This would be possible as the nations in the Asia- Oceania region will aim for a much larger target market in the information, communication and t echnology (ICT) industry by 2020 and ICT is being used as a key enabler for growth, which is helping these economies move out of the downturn at a faster pace. 2.3 According to Pandey, there has been a clear change in the attitude of the people in the way Marketing has come to be defined in the IT industry. She first talks about the evolution of the IT industry wich took place in 70¶s and 80¶s but after the Y2K, a lot of new technology was adopted. This generated the need for branding and positioning the IT industry. She goes on to tell that marketing can be used to generate leads, create more openings, work to convert suspects into prospects and prospects into customers as one can reach out to them with a range of services that they can choose from. She also says that marketing should be focused towards not just making the customers invest more and more in technology but helping them get the maximum returns from the existing investments. Advertising can play a role but that should be just be an enhancement. Marketing, as she puts, helps proactively identify customer¶s problem and needs, creating value proposition for the customer and position a suitable solution for them, thus leading to business development. 19 2.4 According to Askari & Raghotha, (2008), the IT industry in India is recogni ing that Green Computing is a trend that will have comprehensive effects on both business and the environment. Green-ness of the IT technology would become increasingly important when it comes to selecting their suppliers. With increasing concerns over global warming and climate change, the focus has turned to the Information and Communication Technology (ICT) market and the carbon emissions of the IT industry. According to an estimat e, IT does as much damage to the environment as the airlines industry. They have also included in their excerpt what Naresh Wadhwa, Cisco¶s President and Country Manager for India & SAARC, has to say about the problem. He goes on to say, ³More power is consumed in the data center than in any other IT environment. The emissions that result from generating this power are a serious threat to the health of our global ecosyst em¶¶. Most IT user organi ations are demanding Green IT products. And so, most IT vendor organi ations are adopting the same strategy to meet this demand, by focusing on the energy efficiency of their products. It is an immense business opportunity, but the key is to innovate. Organi ations which come up wit h products and services which have not only a business impact but also social and environmental benefits stand to gain. By saving energy consumption and increasing efficiency can lead to cost savings and therefore, there is a RoI and lower lifecycle costs of IT. 2.5 According to Bhupta (2010), as India is showing great improvement in reviving from the global meltdown, many Indian companies are now investing heavily into hiring people extensively, including many from the IT sector. There will be an investment of over $250 million in the next three years on hiring people. He says close to a million new jobs will b e added by the organi ed sector in 2010-11, an increase of nearly 10 per cent over 2007. In order to understand trends and hiring plans, 1,000 companies have been qui ed, across all major industry segments, geographical areas and si e in the short and medium t erm. Wit h economic growth expected to be in the 7 to 8 per cent range, India will creat e 917,000 new jobs in 2010-11. The country is expected to be a $4-trillion economy by 2019. He says that according to a quarterly survey done by international recruit ment firm Antal on hiring and firing, about 71 per cent of Indian organisations are hiring in 2010 and 78 per cent are likely to hire managerial staff over the next three months. 2.6 According to Kovar (2010), Oracle and storage vendor Hitachi Data Systems are ending the long-term reseller agreement that HDS originally had with Sun in a move that could cause customer confusion but will probably mean channel opportunities. Hitachi Data Systems told its solution providers via an e-mail that the reseller agreement it signed with Sun nine years ago will end on March 31,2010. HDS also said it will provide "solid transition programs" to its partners to ensure its storage solutions continue to be available to partners and their customers under the Hitachi Data Systems brand name. 20 2.7 According to Ahuja (2000), over the years there has been a incredible transformation in the Indian IT industry, from a small sector to a large and growing industry. From being a sector to an industry, from being for specialists to masses, there has been a mention of a few criteria from being perceived what it was earlier and how it is changed now. He also talks about how, earlier, IT industry was not regarded as an industry and it was dealt with as any manufacturing industry. But gradually, it was given support to be considered as a nonconventional industry to make help India become an IT super power in the world. This document also tells about the government taking recommendations of the NASSCOM, who in return acts as a business strategist for the government. He also talks about the IT enabled services which has been recogni ed as a key opportunity area for India and various other facets of the IT industry. 2.8 According to Nambiar (2008), though recent events hit the IT industry badly, vendors and distributors have prepared well to achieve their targets and goals for the year, taking careful steps to cut their costs and ensure that their bottomlines are safe. This might have been the worst time in many decades but the IT industry was better prepared than the other industries. There had also been an impact of the Mumbai attacks on many industries, including IT. Then Nambiar talks about how IT companies are taking steps to confirm the survival in the bad times. One of them, he says, is cost cutting. Companies are cutting their costs not only in real estate but also on people as well as travelling expenses. Departments in organi ations have been instruct ed to only work under the budget allotted to them. Another step is the support from the employees. By not hiring fresh recruits or asking employees to leave, but re-allotting or replacing the existing employees to other departments and paying less than usual can help any firm survive. Some firms even say that they see this as an opportunity to get good peopl e at the right cost. Next step is to be careful on choosing the supplier and seeing that the payments are not delayed. After this, comes choosing which segments to invest in. As of now, government and education seem to be quite healthy and are not affected by the recession. So the IT firms are now thinking to invest in these sectors by identifying the right customer segment and refocusing their business. Last is building a strong financial position because banks would only fund projects of those firms which have sturdy balance sheet. 2.9 According to Brigg (2010), Hyderabad has become the hot destination for IT industry by setting up more SEZ¶s. IT parks and SEZ¶s have become important in the recent years, as they have a multipurpose role in not only promoting IT but also related sectors such as ITES and KPO¶s. Hyderabad provides better infrastructure like better connectivity roads, the concept of green building, parks and improved quality of basic amenities which is facilitating the influx. Moreover with attractive tax benefits the demand for SEZ is likely to intensify further. The city thus has been able to attract companies like Microsoft India Development Centre (MSIDC), Google India, Dell, Yahoo! India and Sun Microsystems. 21 2.10 According to Dhawan (2008), the year 2008 has been quite an interesting year for the IT industry both in nature of IT adoption as well as global economic situation. There has been a high uptake of technology across different indus try sectors such as banking, telecom and manufacturing, and newer industries like retail and BPO/KPO have been substantially adopting IT for their businesses. Leading the pack in IT adoption are the mid-si ed companies which are propelling their invest ments in IT and showing profits at par with their counterparts in the large enterprises. He goes on to say that given the present market conditions of 2008, 2009 is going to be a challenging year for IT companies and partners in India. It would therefore be an increasingly competitive environment wherein customers will look at what vendors (and their partners) will be able to offer in terms of business transformation, cost savings, talent retention, enablement of faster decision-making tools, transparency and compliance. Some of the important trends that will drive IT adoption among enterprises include green practices, corporate governance and compliance, cloud computing, Web 2.0, talent management, social CRM (customer relation management), Internet fraud management, SOA (service-oriented architecture) and business intelligence. Going forward, in 2009 partners should increase the level of engagement with its vendors and collaborate with them to research and develop solutions targeted at their respective markets. They shoul d actively involve in any R&D networks or centers that their vendor has initiated. 2.11 According to Dhamodharan (2009), a global research firm IDC says that India and China will contribute to half the total IT spending in 2009. This can take place by focusing on growth and stimulating the market and this will subsequently lead to rise in Indian economy. But despit e of the present economic scenario and the slowdown, IT must concentrate on its long term goals. Some of the key issues that drove the IT industry in 2008 were the increased adoption of the unified communications (UC) platform across sectors, and the emergence of virtuali ation and eco-sustainability initiatives. These issues in return led to TelePresence and digital media, apart from the emergence of Web 2.0. And with IT organi ations transforming into a services management framework, virtuali ation started playing a bigger role. In addition, ³Going Green´ was another important issue. Companies reali ed that, with the association of green technology, came improved business productivity and a reduction in energy costs. Concepts such as alternate and renewable sources of energy, re-cycling, e-wast e management, green archit ecture, green computing, green data centers and reduction of the corporate carbon footprint gained importance on the corporate agenda. As collaboration within and between firms worldwide accelerating, global cross-functional teams will create a virtual boundary-free workspace, collaborating across time zones to capture new opportunities. He also goes on to say that we have abundant opportunities that lie in the prevailing economic condition which will influence the adoption of IT in India. To help further, the government is working with industry to ensure that the impact of the slowdown is reduced. 22 2.12 According to Bhatnagar (2010), who is the director of Xerox India, domestic services revenues are expected to grow by 50 percent with hardware sales stagnating or even show a decline in 2010. He says that with the global recession leading to an economic slowdown in India, they did expect the market to show negative growth. However, what was not expected was the negative growth recorded by the industry in Q3 2009²the highest ever year-on-year decline in almost five years. In 2009, the demand for laser technology products in some segments like government and education decreased significantly. He expects the market t o remain stable at these levels for the next two quarters, and then build momentum from Q3 2010 onwards. Overall, the sub-distribution business, which operates on distributor-leveraged finance, has come down dramatically during the last 12 months. Also, the other important shift has been the transition from hardware to services. He then talks about the economic outlook in which he says that Indian economy will witness a healthy growth trajectory in 2010 and will grow faster than most other economies. Despite it being the year of economi c slowdown, continued to be strong. Domestic services revenues are predicted to grow by almost 50 percent with hardware sales stagnating or even showing decline in 2010. Overall, the IT industry will grow between 8 to 10 percent during this year. Besides, more and more customers are looking at products that consume less power and are easy to recycle. This not only adds to cost efficiency but also complies with corporate responsibility towards the environment. 2.13 According to Krishna (2009), the president of the National Association of Software and Services Companies, or NASSCOM, Som Mittal predicts that at the time of global slowdown also information technology industry in India will grow at 16%-17% by the fiscal year march, 2009. Initially, NASSCOM also predicted that the industry will grow 20% in the current fiscal year, with export revenue of about $50 billion. The growth was expected in bot h software and the hardware industry. Much of the income for the sector will be from exports with the major key players in the field being Tata Consultancy Services Ltd., Infosys Technologies Ltd., Wipro Ltd., Satyam Computer Services Ltd. and HCL Technologies Ltd. Mr. Mittal went on to say that Satyam issue was different and doesn¶t reflect India¶s Information technology industry scenario. 23 3. GLOBAL SCENARIO OF IT INDUSTRY: 3.1 Introduction Remarkable innovations based on information and communications technology (IT) are changing the way we live and the very nature of economic activity. In recognition of this phenomenon, the G8 (the G7 countries plus Russia) recently adopted the Okinawa Charter on the Global Information Society. The Charter, by declaring that ³IT is one of the most important forces shaping the twenty-first century´ has thrust IT to the very center of the development dialogue. The G8 also focused international attention on the issue of asymmetric access to IT, affirming that ³Bridging the digital divide in and among countries has assumed a critical importance on our respective national agendas.´ ADB is aware of IT¶s potential development impact. Through its loans and technical assistance, ADB has helped some developing member countries (DMCs) adopt and implement IT. However, it is aware that a number of DMCs are unlikely to benefit from the spread of IT unless concerted efforts are made to upgrade their capacities. The rapid pace of IT developments and the emergence of new opportunities and challenges also necessitate a more comprehensive and rigorous assessment of development prospects and policies. During the past fifty years innovations in semiconductors, data storage devices, computer architecture, software, and data communications have revolutionized information collection, storage, processing, and distribution, creating new industries and transforming industries inherited from past industrial eras. Explanations of this revolution in information technology have focused on the extraordinary reductions in the cost of the hardware components, largely to the neglect of the role of computer software in these developments. Nonetheless, every application of Information technology has required complementary "software"--comput er instructions that transform the tabula rasa of computer hardware into machines that perform useful functions. This chapter offers answers for several basic questions about the historical development and the current scenario of the Global IT industry. 3.2 Evolution of IT: The last three decades have been characterized by rapid developments in IT. Although mainframe computers have been used since the early 1950s, a greater use of computer applications may be traced to the introduction of the personal comput er (PC) in the 1970s. The 1980s were characterized by significant structural changes in the IT industry. These included the emergence of software as an independent and dynamic component segment of the IT industry and the growth of global production networks. During the 1990s, the Asia and Pacific region emerged as one of the major players in global IT production in all the core segments of the industry. The principal components of IT include: hardware, designed around the ³microchip´ (semiconductor integrated circuit) and its associat ed peripherals; software, which includes programming languages and their applications; communications devices, 24 comprising both terrestrial and wireless units and related equipment; and the Int ernet, which is based on a whole generation of new computer languages and protocols that link individual computers into a vast network through which information can flow unimpeded. The exponential increase in the computing power of microchips led to the PC¶s widespread adoption and the application of IT in other sectors. Advances in microchip design and miniaturization have proceeded to such an extent that the prospect of developing atom-based chips is now under serious consideration. This could lead to the development of ³intelligent ´ minerals and metals. Software developments have facilitated the spread of IT by enormousl y simplifying its usage. Some soft ware packages are now so user-friendly that formal training is hardly required. Using comput ers to develop next generation soft ware has helped programmers write increasingly sophisticat ed and complex software packages. In communications, the development of broadband technology and mobile personal communications devices have provided a boost to IT. The broadband channels, based on the use of optical fibers, carry large quantities of voice communications and data around the globe. This has broken down barriers on the quantity of data²and consequently the type of data, i.e., video²that can be transferred to, or accessed by, PCs. The Internet, by allowing computer users worldwide to access and share a vast array of electronically stored information, is causing a revolution in the way business is transacted globally. Moreover, mobile or wireless technology, embodied in second and third generation mobile phones, has helped users break free from location constraints and allowed them to access the Internet while on the move. IT applications are now available in interactive mode which enables two-way communication. This has resulted in yet another surge in demand for IT products. For example, a leading firm in East Asia signed up 6 million users within less than 16 months of the introduction of its syst em on the market. Operating synergistically, technological advances in each of these areas²hardware, software, communications, and the Internet²have fast expanded and diversified the number of IT innovations and applications. Many of the IT products that were hard to imagine only a few years ago have now become standardized, inexpensive, and commonplace. And with each new application, hardware prices fall, software innovations accelerate, and the IT industry continues to evolve and reorganize itself on the run. 3.3 Rise of IT industry: The claim that IT¶s impact on the economy will be as pervasive as that of other major inventions has yet to be proven, and the evidence relating to IT¶s impact on the economy, though accumulating rapidly, is still incomplete. As with other innovations, IT¶s diffusion and impact, could, aft er a slow start and rapid expansion of diffusion and usage, follow the law of diminishing returns. What is not clear to observers is the likely duration of the increasing rate of diffusion of IT innovations and the consequent overall impact on global economic activity. 25 Four factors perhaps explain the rapid and pervasive impact that IT has had on the economy:  The first and most important is the very rapid decline in the price of computing power over the past three decades. This, especially when seen in real terms and taking quality improvements into account, has not only made the PC more affordable, but also encouraged the use of microchips in a wide range of machines and devices.  The second factor is the generic nature of IT innovation, resulting in strong ³spread´ effects and extensive linkages with the rest of the economy. IT¶s potential forward linkages extend to virtually all sectors of the economy as it effectively embodies basic intelligence in products and processes, spawning new products, and making existing products more versatile. Its backward linkages extend to material sciences, software, and communications technology where new cycles of processes for yet further improvements in IT is begun.  The third factor is the presence of positive feedback, which implies that new products and technology, engendered by upgraded computing power, reinforce the development of IT. In the process, further new demand is creat ed, and prices of bot h computers and new products are reduced.  Finally, IT is a ³systems´ technology. This is different from the ³standalone´ technologies embodied in individual machines. For example, in most circumstances, the function of a car will not affect or be affected by the function of other cars. However, the function of a telephone depends on how many other telephones are connect ed. As more telephones are linked to the syst em, the value of each telephone increases. Thus, the diffusion and expansion of IT in one sector raises returns in connected sectors, thereby encouraging more widespread adoption. The impact of IT on the economy can be viewed from several different angles. It can be discussed in a fourfold classification which focuses on its information-induced impacts; engineering-induced changes; networking impacts; and changes due to better monitoring and evaluation of outcomes. Alternately, the impact of IT can also be discussed in terms of how it is affecting consumption, production, factor use, and markets, the nature and quantum of invest ment, and the quality of management. In addition, IT¶s impact on the economy can also be looked at in terms of its effects felt in greater integration of products and service markets across countries, which is also described as globalization. At enterprise and sectoral level, the impact may be analyzed in the consequential changes in organizational design and structures as well as in 26 regulatory practices. The impact of IT could also be empirically examined in its effects on labor productivity, transactions costs, scale economies, research and development (R&D) costs, and generating and diffusing technology. 3.4 Development of IT: The economies of the Asian and Pacific region are playing an important and active role in the development of IT and its diffusion around the world. Japan; Korea; and Taipei, China have been in the vanguard and have contributed significantly to making the information revolution possible. In addition, several other economies, such as People¶s Republic of China (PRC); Hong Kong, China; India; Malaysia; and Singapore have contributed to building the global IT industry in several ways. Following Japan, both Korea and Taipei. China for example, have devoted large resources to R&D for the promotion of new t echnologies. In 1999, these two economies spent about 2.7 percent and 2.0 percent, respectively, of their GDPs on R&D. This has enabled them to develop significant technological capability. The emphasis in these two economies has been on improving technology absorption and adaptation capabilities. More recently, a small but increasing share of R&D expenditure in these two economies has been directed to applied and even fundamental research. As a result, they have been able to carve out a niche in the world market for their IT products. Taipei, China is the third largest producer of IT products, next to the US and Japan; in 1999, exports of IT products were worth $34.3 billion (about 28.4 percent of total exports). These exports include a wide range of products, from computer components, assembled computers, and telecommunications products to fabricated semiconductor chips. Similarly, Korea is now the world¶s third largest producer of semiconductor chips; exports amounted to $20.3 billion (about 14 percent of total exports) in 1999. It is also one of the few developing countries in the forefront of mobilephone technology. Exports of code division multiple access (CDMA) equipment and handsets alone were worth about $6.8 billion in 1999, an increase of more than 100 percent over 1998 levels. Singapore has also invested significant resources to develop its high technology capabilities in biotechnology, semiconductors, and other IT products. This has transformed it into a high-technology manufacturing and design center and developed it into a regional hub for commerce, communications, and transportation. It is one of the few countries in the world to have comprehensively used IT to upgrade governance capacity and modernize the delivery of public services. This has helped it in staying ahead in trading activities, port management, public administration, and good governance. It is also one of Asia¶s most ³wired´ economies, with one third of households having access to the Internet. IT is also beginning to emerge as a major industrial component in both India and the PRC. India¶s software skills are internationally recognized and the country is providing a complete range of software products, including t echnical support, intermediate products, and int egrat ed software systems that are custom-built for worldwide export. Export earnings from software have increased significantly in the last 10 years and showed an increase of 57 percent to about $4 billion in fiscal year 1999/2000 over the previous year. Moreover, a large number of 27 Indian software professionals are working on frontline applications in IT enterprises in the US and Europe, making a significant contribution to the development of the global IT industry. 3.5. Review of developments in IT industry: 3.5.1 Early Developments: origins until in 1965: The development of computers during and immediately after World War II was directed toward scientific and technical rather than business objectives. Like their electromechanical business machine precursors, early computers were programmed by rewiring and thus were highly specialized to particular information processing tasks. After the war, Alan Turing and John von Neumann¶s ideas for stored program computer created the possibility of a generalpurpose problem solving device that could be "programmed" to emulat e and replace more specialized data processing machines. Programmability and the possibility of "reusable ³software gave general purpose computers an advantage over the large installed base of punch-card data processing equipment. Maurice Wilkes, Director of Cambridge University¶s Mathematical Library expressed prescient views on the economic importance of reusable software: "There would be almost as much capital sunk in the library of sub-routines as the machine itself and builders of new machines in the future might wish to make use of the same order code as an existing machine in order that the subroutines could be taken over without modification." In short, the problems of soft ware "lock in´ and the incentive for creating machines that could emulate the operation of earlier machines were present at the start of the industry. An important early demonstration that comput ers could be used for purposes other than scientific computation was the development of the SAGE air defense system whose software requirements led to the founding of the Syst em Development Corporation in 1956. The early commercial use of computers in the 1950s however, also gradually stimulated a market for software services. Producers of comput er systems such as IBM provided programming services and software tools. Providing these complements accelerat ed adoption of new general-purpose computers, reinforced links between computer producers and users, and laid a foundation for the reuse of software in future machines. If software instructions could be made less machine-specific, the costs of adopting new machines could be reduced. Computer system manufacturers accordingly focused on producing the tools for creating applications programs, rather than developing application programs themselves. Corporations using computers thus needed to develop software for their own information processing applications. As noted above, computer producers have an incentive to stimulat e the production of any and all software that will increase the value of computers and enhance their sales of computers. Accordingly, IBM also support ed the formation of users groups such as SHARE, which, as the name implies, was devoted to the exchange of software routines. Computer syst em producers that offered services and software to stimulate the use of computers, users that 28 developed applications for their own use, and users that cooperated in the exchange of programming routines and methods formed the early economic organization for software development activities. The structure of this organization heavily favored the "make" rather than the "buy" choice in the acquisition of software. Larger companies scaled up their in-house software development to utilize faster processing capabilities and substantial improvements in peripheral devices such as tape drives, printers, and disk drives. In-house development was facilitated by growing use of higher level languages. One of the first and most successful of these, FORTRAN (FOR mula TRANslator), was introduced in 1957 and a 1958 survey of twenty-six SHARE user installations found that over 50% of these sites employed it for the majority of their problems, a rate of use that soon accelerated with further improvements in available compilers. The substantial improvements in programmer productivity made possible by FORTRAN lessened the severity of bottlenecks in "in house" development efforts, extended the range of feasible applications, and freed users to consider new machines with compatible language features. Higher-level languages reduced the costs of "in house" development, further tilting the "make or buy" decisions toward the "make" outcome because they reduced the requirement for inhouse creation of highly specialized (machine specific) "machine language" programs freeing programmer resources that would otherwise have slowed developments and forced many companies to employ external programming services. While FORTRAN was used for wide range of applications, the demand for a high level language for accounting and other business applications was keenly felt by the user community. These developments, as well as the sponsorship by the Defense Depart ment of a committee t o develop a "common business language," led to the specification of a new language COBOL (Common Business Oriented Language) in 196028 and two years later IBM offered COBOL for several of its 1401 models, including one of the smallest such systems. Growth in COBOL usage was even more rapid than had been true of FORTRAN. IBM estimated that while FORTRAN use peaked in 1965, COBOL continued to grow rapidly growth through 1975, accounting for about 50% of software usage and displacing FORTRAN and use of assembler languages beginning in 1965.30 The development of higher-level language support for IBM computers was an important factor in delaying the growth of an external market for comput er software. Despite rapid growth in applications demand and centralized computer facilities, these higher-level languages supported productivity gains in software development that blunted the demand for ext ernal programming services of large organizations with in-house software developers. In 1960, IBM introduced the IBM 1401, a less expensive general purpose machine addressing the needs of the medium size user. This machine was sold with a new high level software 29 language RPG, whose operations resembled those of punched card systems, and thus could be employed by individuals without costly retraining in the more abstract FORTRAN and COBOL languages. By 1965, IBM as well as its competitors including Burroughs and Control Data, had stimulated a market for programming services, software products, and professional services of $500 million in annual revenues. In 1965, the total value of shipments of U.S. computer manufacturers were estimated to be $2.4-$2.8 billion.32 Much of the $500 million in revenues went to "service bureaus," companies that specialized in developing applications software such as payroll systems and selling information processing services to other, usually small, companies. By contracting externally for information processing services, client companies avoided invest ments in both computer hardware and software, albeit at the cost of having to redefine their information processing requirements to fit the solutions offered by service bureaus. One of the leading service bureau companies, Automatic Data Processing (ADP) was established in 1949 and by 1964 had revenues of $4.7 million, which grew to $20 million by 1968.33 The McDonnell Automation Cent er, formed in 1960 and merged with McDonnell Douglas¶ California comput er operations (following the 1970 merger of McDonnell and Douglas aircraft), recorded $47 million in revenue in 1970.34 These, and other, computer service bureaus were competitive alternatives to the purchase of computer hardware and the in-house development or purchase of software. While many of these companies had strong sales growth in the latter half of the 1960s, the period was also marked by the rapid diffusion of smaller-scale computers such as IBM¶s 1401 that offered medium and smaller-sized organizations their own computer facilities while almost all larger business organizations had installed comput ers by the end of the decade. Early commercial applications of computers were associated with in-house programming using higher-level languages and the growth of service bureaus as an alternative supplier of computing services. This structure for the supply of software, in which computer manufacturer creat ed "tools" for applications development, users developed application software, and a residual of users employed service bureaus for their data processing needs was short-lived. Developments that occurred from 1965-1970, including IBM¶s success with the Syst em/360 and IBM¶s decision to unbundle software from its supply of comput ers, 36 increased the market for multi-installation software sales. The new entrants that formed the base of the independent software vendor (ISV) industry included soft ware tool and utility program suppliers as well as "vertical market ³software companies that provided applications for particular industries and for common soft ware needs such as accounting systems. For these reasons, 1965-1970 were the pivotal years in the emergence of the current structure of the global software industry. 30 3.5.2 Early developments: until 1980: The 1980s were a complex period in the development of the U.S. software industry. The growth in mainframe and minicomputer applications and sales continued through the decade, but additional layers of complexity were introduced by the widespread adoption of workstations and personal computers. The variety and volume of hardware and software mushroomed, and so too did problems of compatibility and complexity in organizing and managing the much larger installed base. The common theme of 1980s developments was the creation of methods for realizing economies of scale in the development of software. Personal computer software companies achieved economies of scale in software development with a "publishing ³approach that tapped the immense installed base. The leading firms¶ positions were further reinforced by the positive ext ernalities in skills and data compatibility. The large installed base of workstations and the use of UNIX as a common operating system supported development of specialized, computationally intensive software. For mainframes, scale advantages were achieved in the creation of organization-specific software through the growth of the new service organizations. In each of these areas, software was developing characteristics of a mature industry with established actors, large scale organizations, effective distribution met hods, and a stable population of users. Although user-produced software continued t o absorb substantial resources, the viability and stability of the independent software vendor industry seemed assured. The developments of the 1980s have many implications for the future of software creating activities, organizational design, and the future hardware and software markets. They also have played an important role in the U.S. software industry¶s int ernational position. Beginning with a brief overview of this int ernational position, the conclusion examines the implications of the growth of networking and the uncertain development of new techniques for software engineering, development, and maintenance. 31 3.6 Time Line 2000 -2009: 2000 Date Event January 14 US Government announce restrictions on exporting cryptography are relaxed (although not removed). This allows many US companies to stop the long running process of having to create US and international copies of their software. January 19 Transmeta releases the Crusoe microprocessor. The Crusoe was intended for laptops and consumed electricity than most microprocessors of the time, comparable performance to the mid-range Pentium II Transmeta and Crusoe, new competitors to Intel and their appeared exciting and promising. February 17 significantly less while providing microprocessors. products, initially Official Launch of Windows 2000 - Microsoft's replacement for Windows 95/98 and Windows NT. Claimed to be faster and more reliable than previous versions of Windows. It is actually a descendant of the NT series, and so the trade-off for increased reliability is that it won't run some old DOS-based games. To keep the home market happy Microsoft has also released Windows ME, the newest member of the 95/98 series. March Be Inc. released BeOS R5 for PowerPC and x86, which was the first release of BeOS for x86 to have a freely downloadable version which could be fully installed on a user's hard drive. March 4 Sony releases the PlayStation 2. March 6 AMD released an Athlon clocked at 1.0 GHz. March 8 Intel releases very limited supplies of the 1 GHz Pentium III chip. June 20 British Telecom (BT) claim the rights to hyperlinks on the basis of a US patent granted in 1989. Similar patents in the rest of the world have now expired. Their claim is widely believed to be absurd since Ted Nelson wrote about hyperlinks in 1965, and this is where Tim Berners Lee says he got the ideas for the World Wide Web from. This is just another in the line of similar incredible cases ± for example Amazon.com's claim to have patented '1-click ordering'. September 6 RSA Security Inc. released their RSA algorithm into the public domain, in advance of the US patent (#4,405,829) expiring on the 20th Sept. of the same 32 year. Following the relaxation of the US government restrictions earlier in the year (January 14) this removed one of the last barriers to the worldwide distribution of much software based on cryptographic systems. It should be noted that the IDEA algorithm is still under pat ent and also that government restrictions still apply in some places. November Intel releases the Pentium 4 2001 Date Event January Linux kernel version 2.4.0 released. 4 March 24 Apple released Mac OS X. At its heart is Darwin, an Open Source operating syst em based on BSD. Mac OS X finally gave Mac users the stability benefits of a protected memory archit ecture along many other enhancements, such as pre emptive multitasking. The BSD base also makes porting Unix applications to Mac OS easier and gives Mac users a full-featured command line int erface alongside their GUI. October Microsoft released Windows 25 NT kernel. XP, based on Windows 2000 and Windows 2002 Date Event May 30 United Linux officially formed. 2003 Date Event February NVIDIA releases GeForce FX, a family of DirectX 9.0-compatible 3D cards wit h extensive support for pixel and vertex shaders. With this new product nVidia makes an emphasis on image quality, proclaiming a "dawn of cinematic computing", illustrated with the popular Dawn demo utilising extremely realistic skin and wing shaders. March 6 SCO Group announces it will sue IBM for 1 billion US dollars. The claim is that Linux contains code inserted by IBM that was the copyrighted property of SCO. December Linux kernel version 2.6.0 is released. 17 33 2004 Date Event April 14 NVIDIA releases GeForce 6800, claiming it is the biggest leap in graphics technology the company ever made. Independent reviews show more than 100% increase in productivity compared with the fastest card on the market. Continuing the tradition, nVidia demonstrates Nalu, a mermaid with extremel y realistic hair. A few weeks later nVidia's main rival ATi announces X800 with nearly the same level of performance and feature support. The card is showcased by the Ruby demo, delivering a smooth real-time rendering of what was previously in the exclusive realm of prerendered cinematics. October 20 Infineon Technologies pleads guilty to charges of DRAM price fixing, resulting in a $160 million fine. Hynix Semiconductor, Samsung and Elpida would later plead guilty to the same. November Mozilla Firefox 1.0 released, Microsoft Internet Explorer's biggest competitor 9 since Netscape Navigator. 2005 Date Event February 26 Jef Raskin, who in 1979 envisioned and established Macintosh project at Apple Computer , dies at the age of 61 the Appl e April 29 Apple Computer releases Mac OS X Tiger (v10.4) for the Apple Macintosh at 6:00 PM (Pacific Time) June 1 AMD starts shipping their first dual-core 64-bit desktop processor, the Athlon 64 X2 June 6 Apple announces they are going to use Int el processors in upcoming Macintosh computers July 22 Microsoft announces their next consumer operating system, Windows Vista, to be released in early 2007 November 22 Microsoft releases the Xbox 360 34 2006 Date Event January 10 Apple Computer introduces the MacBook Pro, their first Intel-based, dual-core mobile computer, as well as an Intel-based iMac. June 19 Researchers create experimental processor that delivers 350 GHz at room temperature. July 27 Intel introduces the Core Intel's Pentium brand name. September 26 Intel announces plans for an 80-core processor that would exceed 1 TFLOP, planned to be available in 2011. November 17 Sony releases the PlayStation 3. November 19 Nintendo releases the Wii. December 24 AmigaOS 4 was released by Hyperion Entertainment (VOF) under license from Amiga, Inc. for AmigaOne registered users. 2 processors, marking the retirement of 2007 Date Event January 30 Microsoft Corporation launches Windows Vista more than 5 years after their last major, new operating syst em, Windows XP , was released. October 26 Apple launches Mac OS X Leopard (v10.5) 2009 Date Event May 13 The European Commission finds Intel guilty of anti-competitive in Europe, including giving rebates to OEMs conditional on not buying, or limiting purchase of, AMD x86 processors. August 28 Apple launches Mac OS X Snow Leopard (v10.6) October Microsoft releases Windows 7, two years after Windows Vista was released. 22 35 3.7 Major Global Player s: The information technology boom may have begun in the 1990¶s and we have seen the software industry grow to be one of the most lucrative industries. Software companies around the world have become global and undeniably one of the richest sectors in the world including the Indian economy. But a little known fact is that these companies had come int o exist ence even as early as 1896 when IBM was established, but as the Tabulating machine Company and now 113 years it holds the top spot in the Fortune 500 list of top software companies. Sl. No Companies 1 IBM 2 Microsoft Corporation 3 Oracle Corporation 4 Google 5 SAP 6 First Data 7 Electronic Data System 8 Softbank 9 Yahoo 10 Symantec 36 T he WWW and internet aided the growth of computer technology and after the demand and use of computers began increasing after the 1990¶s. The computer industry (hardware and software) has grown by leaps and bounds at an unprecedented rate. The North American market holds the top spot in IT spend. Even with the economic slowdown this market is forecasted to be the biggest IT spender accounting for around 41.0 percent of global IT trend, i.e., $1.2 trillion. The largest and most profitable of software companies are located in the United States. As of 2008, the client software industry is dominated by Microsoft. Bill Gates, who held the spot for the wealthiest person is the founder of Microsoft, one the 10 largest software companies in the world. 3.7.1 IBM From an "Acorn" grows a personal computer revolution. In July 1980, IBM representatives met for the first time with Microsoft's Bill Gates to talk about writing an operating system for IBM's new hush-hush personal computer. On August 12 1981, IBM executives held a press conference in New York to introduce a moment ous new computer ± the IBM Personal Computer. The first IBM PC ran on a 4.77 MHz Int el 8088 microprocessor. This is how the 1st IBM PC brought in the world. The top business partner of IBM is Cisco, Oracle, SAP and many more. IBM provides wide range of products such as syst ems and server, software¶s, storage. Semi conductors etc. With IBM¶s Service Oriented Architecture (SOA) blueprint in hand, a person can rely on IBM Soft ware Services to integrate his new solution as quickly as possible. IBM consultants have close relationships with IBM development labs to ensure that the customer has access to the latest technologies over the life of the project. Based on the customers business needs, he or she can choose to apply IBM's software expertise to a tactical SOA-technology project or to a more comprehensive solution by integrating elements from technical consulting, education and mentoring. 37 3.7.2 Microsoft Microsoft Corporation often just MS, is an American multinational computer technology corporation with 79,000 employees in 102 countries and global annual revenue of US $51.12 billion as of 2007. It develops, manufactures, licenses, and supports a wide range of software products for computing devices. Headquartered in Redmond, Washington, USA, its best selling products are the Microsoft Windows operating system and the Microsoft Office suit e of productivity software. These products have prominent positions in the desktop computer market; with market share estimates as high as 90% or more as of 2003 for Microsoft Office and 2006 for Microsoft Windows. One of Bill Gates' key visions is "to get a workstation running our software onto every desk and eventually in every home". Founded to develop and sell BASIC int erpreters for the Altair 8800, Microsoft rose to dominate the home comput er operating system market with MS-DOS in the mid- 1980s. Throughout its history the company has been the target of criticism for various reasons, including monopolistic business practices²both the U.S. Justice Depart ment and the European Commission, among others, brought Microsoft to court for antitrust violations and soft ware bundling. 3.7.3 SAP SAP was founded in 1972 as System analyst by five former IBM engineers in Mannheim, Baden- Württemberg (Diet mar Hopp, Hans-Werner Hector, Hasso Plattner, Klaus Tschira, 38 and Claus Wellenreuther).The acronym was later changed to stand for Systems, Anwendungen und Produkte in der Datenverarbeitung ("Systems, Applications and Products in Data Processing"). In 1976 "SAP GmbH" was founded and the following year it moved headquarters to Walldorf. SAP AG became the company's official name after the 2005 annual general meeting (AG is short for Aktiengesellschaft). In August 1988, SAP GmbH transferred into SAP AG (a corporation by German law), and public trading started November 4. Shares are listed on the Frankfurt and Stuttgart stock exchange. The founding members Diet mar Hopp, Hasso Plattner, Klaus E. Tschira and Hans-Werner Hector form the executive board. In 1995, SAP was included in the German stock index DAX. On Sept ember 22, 2003, SAP was included in the Dow Jones STOXX 50. In 1991, Prof. Dr. Henning Kagermann joins the board; Dr. Peter Zencke becomes a board member in 1993.] Claus Heinrich, and Gerhard Oswald have been members of the SAP Executive Board since 1996. Two years later, in 1998 the first change at the helm takes place. Diet mar Hopp and Klaus Tschira move to the supervisory board, Diet mar Hopp is appointed Chairman of the supervisory board. Henning Kagermann is appointed as Co-Chairman and CEO of SAP next to Hasso Plattner. Werner Brandt joined SAP in 2001 as member of the SAP Executive Board and Chief Financial Officer since 2001. Léo Apo- theker has been a member of the SAP Executive Board and president of Global Customer Solutions & Operations since 2002 and is appointed Deputy CEO in 2007. Henning Kagermann became the sole CEO of SAP in 2003. In February 2007 his contract was extended until 2009. After continuous disputes over the responsibility of the development organization, Shai Agassi, a member of the executive board who had been named as a potential successor to Kagermann, left the organization. 3.7.4 Yahoo! Yahoo! Inc. (NASDAQ: YHOO) is an American public corporation headquartered in Sunnyvale, California, (in Silicon Valley), that provides Internet services worldwide. The company is perhaps best known for its web portal, search engine, Yahoo! Directory, Yahoo! Mail, news, and social media websites and services. Yahoo! was founded by Jerry Yang and David Filo in January 1994 and was incorporated on March 1, 1995. On January 13, 2009, Yahoo appointed Carol Bartz, former executive chairman of Autodesk, as its new chief executive officer and a member of the board of directors. According to Web traffic analysis 39 companies (including Compete.com, comScore, Alexa Internet, Netcraft, and Nielsen Ratings), the domain yahoo.com attracted at least 1.575 billion visitors annually by 2008. The global network of Yahoo! websites receives 3.4 billion page views per day on average as of October 2007. It is the second most visited website in the U.S., and in the world. 3.7.5 SYMANTEC Symantec Corporation was founded in 1982 by Gary Hendrix with a National Science Foundation grant. Symantec was originally focused on artificial intelligence-relat ed projects, including a database program. Hendrix hired several Stanford University natural language processing researchers as the company's first employees. In 1984 Symantec was acquired by another, even smaller computer software startup company, C&E Software, founded by Dennis Coleman and Gordon E. Eubanks, Jr., and headed by Eubanks. The merged company retained the name Symantec, and Eubanks became its chief executive officer. Its first product, Q&A, was released in 1985. Q&A provided database management and bundled a word processor. In August of 1990, Symantec purchased Peter Norton Computing a developer of various applications for DOS. Symantec's consumer antivirus and data management utilities are still marketed under Peter Norton's name. 3.8 GLOBAL HUMAN CAPITAL In recent years there has been significant change in the way labour is pooled across the globe. The influences of technology and growth have effectively caused industry leaders to have to change their focus from the brute force of labour (factor of production of traditional Economics) to the actual quality of the workers available globally (Global Outsourcing). This has produced a shift in tactics for those who manage Human Resources. It is now pertinent to devise strategies to develop the working population by educating them and developing their technological skills so that they can contribute to the organization requirements adequately. High mobility of workers globally (The knowledge or technical workers), wage differentials across countries, borderless business models and cultural fusion problems are some issues involved in HCM. One of the biggest temptations for North American businesses has been t o 40 send jobs overseas. The trend is picking up, no one willing to miss the boat (all most 50% cost reduction in many industries}. With recent university graduates in developing nations earning wages anywhere from a fifth (Comparing 75000$ to 15000 $ a year in India, typically for IT technicians) to a tenth of an American worker, all kinds of work can be sent out at incredibly cheap rates. Such jobs include outsourcing call centres, credit card processing, legal transcription, genetic codes analysis, invoicing, scanning of medical records-anything that has a set of simple instructions that an employee can repeatedly follow throughout the work shift. India's IT industry best exemplifies how human resources can adapt to the needs of a dynamic overseas market. India's IT-ITe¶S industry has generated job opportunities for over 4.3 million people through direct and induced employment in allied sectors such as catering, transportation and real estate. India's case is unique because no other industry in any part of the world has been such a phenomenal success when measured against parameters such as growth in revenues and volume of employment created. it is true that India has one of the greatest reservoirs of talent, this in itself does not mean anything. For instance, the absence of gender bias has encouraged many women to ent er the IT industry. According to a recent Nasscom study, the men-women ratio in the Indian software industry currently stands at 76:24, a ratio which is expected to be 65:35 this year. 41 4. INDIAN SCENARIO OF THE IT INDUSTRY: Information Technology (IT) industry in India is one of the fastest growing industries. Indian IT industry has built up valuable brand equity for itself in the global markets. IT industry in India comprises of software industry and information technology enabled services (ITES), which also includes business process outsourcing (BPO) industry. India is considered as a pioneer in software development and a favourite destination for IT-enabled services. 4.1 Infor mation technology, and the hardware and software associated with the IT industry, are an integral part of nearly every major global industry. y y y Unlike other common industries, the IT industry is knowledge-based. Efficient utilization of skilled labor forces in the IT sector can help an economy achieve a rapid pace of economic growth. The IT industry helps many other sectors in the growth process of the economy including the services and manufacturing sectors. The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency. It also serves as a medium of skill formation. The information technology (IT) industry has become of the most robust industries in the world. IT, more than any other industry or economic facet, has an increased productivity, particularly in the developed world, and therefore is a key driver of global economic growth. Economies of scale and insatiable demand from both consumers and ent erprises characterize this rapidly growing sector. The Information Technology Association of America (ITAA) explains 'information technology' as encompassing all possible aspects of information systems based on computers. Both software development and the hardware involved in the IT industry include everything from computer systems, to the design, implementation, study and development of IT and management systems. Owing to its easy accessibility and the wide range of IT products available, the demand for IT services has increased substantially over the years. The IT sector has emerged as a major global source of both growth and employment. The industry body expects the sector to grow between 4 per cent and 7 per cent during 200910 and return to over 10 per cent growth next year. 42 India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Software testing, and Web services. According to a study by Springboard Research, the Indian IT services market is estimat ed to remain the fastest growing in the Asia-Pacific region with a compound annual growth rate (CAGR) of 18.6 per cent. At present, there are 60 million Internet users in the country. According to the Manufacturer¶s Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March 2009 from 7.2 million units in March 2008. MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users, 100 million broadband connections and 100 million connected devices by 2012. A study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in 2009-10, with total sales expect ed to cross 7.3 million units. Moreover, software companies continued to constitute the fastest growing firms in the Deloitte Technology Fast 50 India 2009 programme. In 2009, the composition of software companies amounted to as much as 80 per cent. Despit e the slowdown and challenges for growth, the report stated that the average growth rate of the top ten winners increased significantly to 1,003 per cent, compared with 845 per cent in the previous year. India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy, AT Kearney. Global IT giant, IBM, plans to scale up its business process outsourcing (BPO) operations in the country and looks to recruit 5,000 people to support the expansion. Some big deals in the outsourcing space include: y y y HCL Technologies has entered into a five-year deal with media conglomerate News Corp for managing its data centres and IT across British newspapers. The deal is pegged to be in the range of US$ 200-US$ 250 million, according to industry experts. HCL Technologies has also received a contract worth US$ 50 million from UK-based defence equipment maker Meggitt for providing engineering services. Walmart has selected three IT vendors in India ² Infosys Technologies, Cognizant Technology Solutions and UST Global ² for multi-year contracts worth over US$ 600 million. 43 4.2 HISTORY: Till early 1990's, the focus was mainly on Computer industry. With the fast convergence of the 3C's i.e. Computers, Communications, and Controls ", the computer industry started to be referred as "Information Technology Industry" more popularly known as the IT Industry. The IT Industry started growing very fast and it could reach a turnover of almost thirds of the whole Electronics Industry i.e. Rs.4800 Crores out of Rs.14,600 Crores. The tremendous growth achieved by the industry speaks about the potential it has in it. The origin of IT industry in India can be traced to 1974, when the mainframe manufacturer, Burroughs, asked its India sales agent, Tata Consultancy Services (TCS), to export programmers for installing system software for a U.S. client. The IT industry originated under unfavorable conditions. Local markets were absent and government policy toward private ent erprise was hostile. The industry was begun by Bombay-based conglomerates which entered the business by supplying programmers to global IT firms locat ed overseas. During that time Indian economy was state-controlled and the state remained hostile to the software industry through the 1970s. Import tariffs were high (135% on hardware and 100% on soft ware) and soft ware was not considered an "industry", so that exporters were ineligible for bank finance. Government policy towards IT sector changed when Rajiv Gandhi became Prime Minist er in 1984. His New Computer Policy (NCP-1984) consisted of a package of reduced import tariffs on hardware and software (reduced to 60%), recognition of software exports as a "delicensed industry", i.e., henceforth eligible for bank finance and freed from license-permit raj, permission for foreign firms to set up wholly-owned, export -dedicated units and a project to set up a chain of software parks that would offer infrastructure at below-market costs. These policies laid the foundation for the development of a world-class IT industry in India. 4.2.1 Pre-1991: Early Stages Software Exports: During the 1950s and 1960s, there was no Indian software indus-try. Software came bundled with hardware provided by multinational hardware companies like IBM(from the US) and ICL (from UK). IBM's unbundling of software from hardware in the lat e 1960s is seen as a generic global catalyst for the existence of independent software firms (Financial Times1989). In the 1970s too, there was no separate software industry. Multinationals such as IBM and ICLwere the largest providers of hardware to the industry, which used to be bundled with the operating systems and a few basic packages that were generally written in FORTRAN and COBOL languages. Larger enterprises (including the Indian defense and public organizations) that needed customized applications employed in-house teams that did everything from installing systems to writing software. In fact, when specific software applications became popular, stand- alone boxes were made for them. In 1970s, the concept of stand-alone word processing software did not exist. Later,when local companies grew 44 (aft er IBM¶s exit in early 1980s), these companies also had their own proprietary operating systems that generally executed only their computer programs.India exported its first software services and products in the mid-1970s. Although India was among the first developing nations to recognize the importance of software, the key driver behind exporting software was foreign exchange. To export software, Indian companies had to design it for hardware systems that were the standard worldwide, which in the 1970s were the IBM mainframe computers. However, Indian import duties on this hardware were extremely high (almost 300 percent) and hence during the late 1960s and early 1970s, IBM used to sell old, refurbished and antiquated machines (because that is all that Indian companies could afford). Fortunat ely, within a few years, the Indian Government lowered import duties on all IT equipment but with a pre-condition that the exporters would recover twice the value of the foreign exchange spent on importing computers within five years ± a clause that was modified in the 1980s. Hence,overall, the regulatory scenario was not very favorable for software export ers and this constitutes the beginning of the Indian soft ware industry. 4.2.2 1991-2001: STPI: In 1991 the Depart ment of Electronics broke this impasse, creating a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications wit hout breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellit e links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicat ed links, which al-lowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in theclients¶ office. Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to relax regulations on linking in 1991. Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access occurred on a visible scale in 1992. Election results were displayed via National Informatics Centre's NICNET. 1991 Liberalization Policy: The Indian economy underwent economic reforms in 1991, leading to a new era of globalization and international economic int egration. Prime Minist er Narasimha Rao along with his finance minister Manmohan Singh initiated the economic liberalisation of 1991. The reforms did away with the License Raj (investment, industrial and import licensing) and 45 ended many public monopolies, allowing automatic approval of foreign direct invest ment in many sectors.Economic growth of over 6% annually was seen between the years 1993 to 2002. The economic reforms were driven in part by significant the internet usage in India. The new administration under Atal Bihari Vajpayee²which placed the development of Information Technology among its top fivepriorities² formed the Indian National Task Force on Information Technology and Software Development. Within 90 days of its establishment, the Task Force produced an extensivebackground report on the state of technology in India and an IT Action Plan with 108 recommendations. The Task Force could act quickly because it built upon the experience and frustrations of state governments, central government agencies, universities, and the software industry. Much of what it proposed was also consistent with the thinking and recommenda tions of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. Satyam Scam: Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju One of the biggest IT firms of India churned out probably the biggest fraud in Indian corporate history. The fraud can be divided into three phases. For nearly three years since 1999, the firm rode on the Y2K phenomenon, which saw India¶s software industry get huge orders and earn good profits. The second phase began in 2001. According to the SFIO report, the falsification of accounts started then to keep Satyam¶s share price high. The company had gone public in 1992. Riding on the high price, Satyam promot ers offloaded their shareholding in the market and used the proceeds to buy land. In fact, founder B. Ramalinga Raju had set up as many as 374 infrastructure firms and eight invest ment companies to help him become a land baron, the report has found. This phase continued till 2004, which was when things started going wrong. The third and final phase started sometime in mid-2007 and continued till Raju¶s confession on 7 January ,2009. During this period, the company showed huge cash balances and fixed deposits in several banks of international repute. It was, however, actually starved of funds and the promot ers were desperate to raise money to keep the company afloat. After the fiasco, Satyam was acquired by Tech Mahindra. 46 4.3 MILESTONES IN THE INDIAN IT INDUSTRY: y y y y y y y y y 1968: The Tata industrial conglomerate forms software services unit Tata Consultancy Services. Mid-1970s: IBM exits India. Import duties of 150 percent or more mean that VCRs cost $3,000 and TVs cost $6,000. Wipro starts to create India's first homegrown PC. 1991: National financial crisis causes government to introduce major reforms. 1993: A group of IT leaders determines plan for IT industry. Professor Deepak Phatak predicts India's IT output will hit $100 billion by 2010. "Everyone thought that sounded crazy, so we changed it to $50 billion by 2008," he said. The latter figure is on track. 1994: Telecom liberalized. 1995: TCS det ermines that its CasePac tool developed for IBM can be used to scan software for Y2K problems. An industry is born. 1999: Y2K contracts pile into India. 2002: Indian companies expand hiring. Massive layoffs in US 2003: Led by service conglomerates such as Wipro and Infosys, India becomes a primary destination for offshore outsourcing as foreign companies seek to lower cost 4.4 TOP 20 SOFT WARE COMPANIES IN INDIA Rank Company 1 Tata Consultancy Services Ltd. 2 Infosys Technologies Ltd. 3 Wipro Technologies Ltd. 4 Satyam Computer Services Ltd. 5 HCL Technologies Ltd. 6 Patni Computer Systems Ltd. 7 I-flex Solutions Ltd. 8 Tech Mahindra Ltd. (formerly Mahindra-British Telecom Ltd. 9 Perot Systems TSI (I) Ltd. 10 L&T Infotech Ltd. 11 Polaris Software Lab Ltd. 12 Hexaware Technologies Ltd. 47 13 Mastek Ltd. 14 Mphasis BFL Ltd. 15 Siemens Information Systems Ltd. 16 Genpact 17 i-Gate Global Solutions Ltd. 18 Flextronics Software Systems Ltd. (Standalone for FSS) 19 NIIT Technologies Ltd. 20 Covansys India Ltd. (Source: NASSCOM, June 2006) 4.5 CURRENT SCENARIO: IT has a major role in strengthening the economic and technical foundations of India. Indian professionals are setting up examples of their proficiency in IT, in India as well as abroad. The sector can be classified into 4 broad categories - IT Services, Engineering Services, ITES-BPO Services, E Business IT Services can further be categorized into Information Services (IS) outsourcing, packaged software support and installation, systems integration, processing services, hardware support and installation and IT training and education. Engineering Services include Industrial Design, Mechanical Design, Electronic System Design (including Chip/Board and Embedded Software Design), Design Validation Testing , Industrialization and Prototyping. IT Enabled Services are services that use telecom networks or the Int ernet. For example, Remote Maintenance, Back Office Operations, Data Processing, Call Centers, Business Process Outsourcing, etc. E Business (electronic business) is carrying out business on the Internet; it includes buying and selling, serving customers and collaborating with business partners. The Indian software industry has grown from a mere US $ 150 million in 1991-92 to a staggering US $ 5.7 billion (including over $4 billion worth of software exports) in 19992000. No other Indian industry has performed so well against the global competition. The annual growth rate of India¶s software exports has been consistently over 50 percent since 1991. As per the projections made by the National Association of Software and 48 Services Companies (NASSCOM) for 2000-2001 (April 1, 2000 - March 31, 2001), India¶s software exports would be around $ 6.3 billion, in addition to $ 2.5 billion in domestic sale. 4.6 INDIAN SOFTWARE INDUSTRY 1995 -2000 (US $ million) 1995 -96 1996 -97 1997 -98 1998 -99 1999 -2000 2000 -01* Domestic software 490 Market Software Exports 734 Indian Software 1224 Industry 670 1085 920 1750 1250 2650 1700 4000 2450 6300 1755 2670 3900 5700 8750 (* Source: NASSCOM Report) Today, India exports software and services to nearly 95 countries around the world. The share of North America (U.S. & Canada) in India¶s software exports is about 61 per cent. In 19992000, more than a third of Fortune 500 companies outsourced their software requirements to India. NASSCOM¶s survey during 1999-2000 indicates a reversal in the mode of services offered by India. In 1991-92, offshore services account ed 5 per cent and on-site services 95 % of the total exports. However, during 1999-2000 offshore services contributed over 40 percent of the total exports. 4.7 The NASSCOM - McKinsey report on India's IT industry According to a NASSCOM-McKinsey report, annual revenue projections for India¶s IT industry in 2008 are US $ 87 billion and market openings are emerging across four broad sectors, IT services, software products, IT enabled services, and e-businesses thus creating a number of opportunities for Indian companies. In addition to the export market, all of these segments have a domestic market component as well. Other key findings of this report are: y y y y Software & Services will contribute over 7.5 % of the overall GDP growth of India IT Exports will account for 35% of the total exports from India Potential for 2.2 million jobs in IT by 2008 IT industry will attract Foreign Direct Invest ment (FDI) of U.S. $ 4-5 billion 49 y Market capitalization of IT shares will be around U.S. $ 225 billion India Inc's demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for grabs. The market for enterprise net working equipment in India is estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rat e (CAGR) of 15 per cent during this period, according to a study by Springboard Research. HCL Infosystems has bagged an order worth US$ 23.69 million from the Gujarat government to supply and implement biometric attendance and comput er aided learning syst ems in over 7,000 schools across the state. 4.8 INVESTMENT: y y y y The Andhra Pradesh Government expects the IT-related SEZs and Software Technology Parks of India (STPI) in the State to receive about US$ 3.27 billion invest ments in the next five years. Mahindra Satyam has tied up with defence and security company Saab to develop its operations in India for the global defence and homeland security market. The estimat ed deal value is US$ 400 million. San Francisco-based Virtualisation solutions provider VMware Inc plans to invest US$ 100 million in India by end 2010. The total invest ments of EMC Corporation, a leading global player of information infrastructure solutions, in India will touch US$ 2 billion by 2014. 4.8.1 Rural Penetration According to a report of the Internet and Mobile Association of India (IAMAI), rural India has 3.3 million active internet users as on March 2008. (Since rural India was mapped for the first time, the year-on-year growth of internet users in rural India could not be estimated.) The research also notes there are 5.5 million people who claim to have used Internet at some point in time. 4.8.2Government Initiatives y y The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country. Enact ment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions. 50 The government-led National e-Governance Programme, has played an important role in increasing internet penetration in rural India. 4.9 EMPLOYMENT UNDER IT/ITES: 4.9.1 IT AND ITES Total E mployee Base: 17,93,000 New Jobs: 97,000 Having dominated the job market with the greatest number of new job additions year after year, India's IT and ITES industry is showing signs of stabilising. An indication of this trend is visible at job portals where the share of IT jobs is down from 35 per cent in 2007 to 25 per cent. NASSCOM estimates that the Indian IT-BPO industry is slated to record 5.5 per cent growt h and reach $49.7 billion in the year ending 2009-10. Clearly, the industry is dependent on revival in the US and Europe. This trend is reflected in the recruit ment drive of IT majors in business schools and engineering institutes. While entry level hiring is happening, it's more need-based. The bench strength of most IT majors is not fully exhausted. Saurabh Govil, senior vice-president (talent engagement and development) at Wipro Technologies, says: "Our hiring will be a mix of campus and, wherever necessary, laterals. We will continue to hire B Sc, BC A and BCM graduates for our Wipro Academy of Software Excellence programme." The knowledge-based outsourcing, however, is still going strong. Not only are the KPOs doubling employee strength but are also giving fancy increases as niche talent in legal, pharma and analytic KPOs is still not very easy to find. Says Pramod Bhasin, president and CEO of Genpact: "As the industry goes up in the value chain, more jobs will be created. These will be from growth in R&D, finance, accounting, retail, supply chain and banking industries." 51 Trends in Hiring Source: http://www.naukrihub.com/india/information-technology/overview/ The bar chart shows that the recruitment of engineers and IT professionals in the industry is growing at the Compound Annua l Rate of 14.5% approximat ely. In the FY06, the direct employment in the IT-ITES sector was 1.3 million people and the indirect employment was 3 million approximately. Trends in Salary Hikes Along with abundant growth opportunities, IT sector is one of the highest paying sectors. The average increase in salary in IT sector across the levels was around 16% and the average increase in the ITeS BPO sector across the levels was in between 16%-18% Requisites for balanced salaries ± y End to poaching y Review of compensation according to the skills y Developing talent in-house y Entry of talented freshers in the industry 4.10 Factors f or Successful IT Industry: Some of the major factors which played a key role in India's emergence as key global IT player are: 4.10.1 Indian Education System: The Indian education system places strong emphasis on mathematics and science, resulting in a large number of science and engineering graduates. Mastery over quantitative concepts coupled with English proficiency has resulted in a skill s et that has enabled India to reap the benefits of the current international demand for IT.\ 52 4.10.2 High Quality Human Resource: Indian programmers are known for their strong technical and analytical skills and their willingness to accommodate clients. India also has one of the largest pools of Englishspeaking professionals 4.10.3 Competitive Costs: The cost of soft ware development and other services in India is very competitive as compared to the West. 4.10.4 Infrastructure Scenario: Indian IT industry has also gained immensely from the availability of a robust infrastructure (telecom, power and roads) in the country. In the last few years Indian IT industry has seen tremendous growth. Destinations such as Bangalore, Hyderabad and Gurgaon have evolved into global IT hubs. Several IT parks have come up at Bangalore, Hyderabad, Chennai, Pune, Gurgaon etc. These parks offer Silicon Valley type infrastructure. In the light of all the factors that have added to the strength of Indian IT industry, it seems that Indian success story is all set to continue. 4.11 Promotion of IT - Governmental incentives: With the formation of a new ministry for IT, Government of India (GOI) has taken a major step towards promoting the domestic industry and achieving the full potential of the Indian IT entrepreneurs. Constraints have been comprehensively identified and steps taken to overcome them and also to provide incentives. Thus for example, venture capital has been the main source of finance for software industry around the world. However, majority of the software units in India is in the small and medium enterprise sector and there is a critical shortage of venture capital kind of support. In order to alleviate this situation and to promot e Indian IT industry, the Government of India has set up a National Task Force on IT and Software Development to examine the feasibility of strengthening the industry. The Task Force has already submitted its recommendations, which are under active consideration. Norms for the operations of venture capital funds have also been liberalized to boost the industry. The Government of India is also actively providing fiscal incentives and liberalizing norms for FDI and raising capital abroad. Recently, an IT committee was set up by the Ministry of Information Technology, Government of India, comprising Non Resident Indian (NRI) professionals from the United States to seek expertise and advice and also to step up U.S. invest ments in India's IT sector. The committee is chaired by Minister of Information Technology, Government of India, and the members include Secretary, Ministry of Information Technology and a large number of important Indian American IT entrepreneurs. 53 The group will: y Monitor global IT developments and refine Indian IT policy to meet global requirements. Specifically, this will help angel investors, venture creators and incubation; y Promote the growth of human resource development in the IT sector with the aim of creating quality-based education; y Promote R&D in the sector by identifying thrust areas and drawing up a blueprint for action. India¶s most prized resource in in today¶s knowledge economy is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the U.S. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. Government of India is stepping up the number and quality of training facilities in the country to capitalize on this extraordinary human resource. It is the knowledge industry that will help take the Indian economy to a sustained higher rate of growth and the policy makers are fully aware of this. 4.12 Global Sourcing Trends y y y y Worldwide technology products and related services spend is estimated to cross USD 1.6 trillion in 2008, a growth of 5.6 per cent over 2007. Worldwide BPO spending in 2008 grew by 12 per cent, which was the highest a mong all the segments. BPO today is an int egral part of the global delivery chain and is increasingly involved in mission critical applications. Global sourcing market size has increased threefold since 2004, to reach USD 89-93 billion in 2008. Offshore IT-BPO service providers continued to build their global delivery footprint, expanding service lines and also growing inorganically by acquiring firms in the US and Europe to build skills and ³nearshore´ delivery capabilities. Therefore, though the established players dominated the market, Indian heritage service providers gained ground and market share. 4.13 IT-BPO Sector: 54 y y y y y y Total IT-BPO industry to reach USD 71.7 billion accounting for 5.8% of India¶s GDP; software and services revenues aggregat ed to about USD 60 billion Software and Services export revenues estimated to grow over 16-17% to reach USD 47 billion Direct employment expected to reach nearly 2.23 million, an addition of 226,000 employees, while indirect job creation estimated at ~8 million India¶s fundamental advantages²abundant talent and cost²are sustainable over the long term. With a young demographic profile and over 3.5 million graduates and postgraduates that are added annually to the talent base, no other country offers a similar mix and scale of human resources Seven Indian cities account for 95 per cent of export revenues, focus on developing 43 new locations to emerge as IT-BPO hubs Higher growth in European/Asian market 4.14 IT Services, Engineering Services, R&D a nd Software Products 4.14.1 IT SERVICES: IT Services involves a full range of engagement types that include consulting, systems integration, IT outsourcing/managed services/hosting services, training and support/maintenance. y y IT services (excluding BPO, Engineering Services, R&D and Software products), contributing to 57 per cent of the total soft ware and service exports, remains the s dominant segment and is estimated at USD 26.9 billion, a growth of nearly 16.5 per cent in FY2009. Domestic IT services spends grew at over 43 per cent in FY2008, showing strong signs of increasing sophistication as building enterprise IT infrastructures and applications, networking and communication became key priorities for India Inc. 4.14.2 ENGINEERING SERVICES, R&D AND SOFTWARE PRODUCTS y y The engineering, R&D, and software products exports segment is expected to grow by 14.4 per cent in the current fiscal, to touch USD 7.3 billion, which highlights the strong impetus and renewed focus on improving IP driven service capabilities in India. Indian software product companies revenues are expect ed to account for 21 per cent of total software product revenues in FY2009, up from 20.6 per cent in FY2008. The market is expected to grow exponentially driven by an increasing number of start-up software product businesses as well as a rapid growth of existing businesses. 4.14.3 BPO MARKET 55 y y y y BPO services exports, up 18 per cent, was the fastest growing segment across software and services exports driven by scale as well as scope. BPO service portfolio was strengthened by vertical specialization and global delivery capabilities. Emergence of domestic BPO is the key highlight for FY2009 recording a growth of above 40 per cent in INR terms. The growth is led by the BFSI, Telecom and Airline industries and a greater vendor focus with specific service offering Horizontal BPO, accounting for more than 80 per cent of Indian BPO exports, represents the larger and relatively more established set of services being delivered from India Other aspects of Indian BPO, besides the growing breadth and depth of the service portfolio, that reflect its increasing maturity include the increasing global delivery footprint and continuous emphasis on enhancing service delivery efficiency and productivity. 4.14.4 HARDWARE MARKET y y Despite the declining trends in pricing observed across key categories, increasing volumes have ensured that the domestic hardware revenue aggregate continues t o grow. While hardware exports remained steady, domestic hardware segment remains the largest segment to grow at 17 per cent in INR terms during FY 2009. PC adoption is growing at more than 30 per cent incase of SMBs 4.14.5 INDIA¶S IT -BPO VALUE PROPOSITION Strong fundamentals, a robust enabling environment, and enhanced value delivery capabilit y are the hallmarks of the Indian IT-BPO industry. y y y y India enjoys a cost advantage of around 60-70 per cent as compared to source markets. Additional productivity improvements and the development of tier 2/3 cities as future delivery centres, is expected to enhance India¶s cost competitiveness. Timely government policies and increased public-private participation have played a key role in developing an enabling business environment for the Indian IT -BPO industry. The Government¶s focus on education has helped create the large talent base from where the industry draws its workforce. The Government¶s proactive approach towards the IT-BPO industry was further highlighted in 2008 through actions such as the IT Act Amendment, extension of tax incentives by a year, removal of the SEZ Act anomalies and the introduction of progressive telecom policies that focus on wo rk from home. Indian companies are now trying to adopt a culture that encourages innovation, embrace new trends such as Green IT, and deliver solutions that are focused on reengineering and transformation. India is emerging as a leading Innovation hub with increasing number of pat ents being filed and granted from India The silver lining of the economic downturn is the opportunity for the industry t o enhance its overall efficiency. Companies are increasingly looking inwards and 56 focusing on process benchmarking, enhanced utilization of infrastructure and talent, increasing productivity and great er customer engagement 4.15 FUTURE OUTLOOK y y y y y y y y y y Despite the unprecedent ed economic downturn the industry will witness sustainable growth The global technology related spending is expected to grow from 2010 onwards led by growth in outsourcing adoption. Greater focus on cost and operational efficiencies in the recessionary environment is expect ed to enhance global sourcing India Inc would remain focused on tactical measures to achieve cost savings and greater productivity Services and software segments are estimated to cross USD 1.2 trillion by 2012. This is more than the 5.2 per cent growth expected in the total IT spending The huge potential for global sourcing is further highlighted by an addressable market size of USD 500 billion in 2008, which is more than five times bigger than the current market The industry will continue to diversify in terms of geographies, verticals and service lines SMBs are expected to emerge as a significant opportunity due to lower IT adoption currently Lack of working age population in the developed economies and a significant long term cost arbitrage indicates India¶s sustained cost competitiveness Service providers are expected to enhance focus to domestic market to de-risk business and tap into the local growth opportunities 4.16 MAJOR PLAYERS IN INDIAN MARKET: 1. Tata Consultancy Services: Part of the TATA Group, which is well respected for high ethics and good performance, the Mumbai-based TCS is one of the oldest and a leading software company in India. This software giant with a turnover of over US$ 1.50 billion has been in operation since 1968 and has its facilities in 34 countries. Interestingly, TCS started operations by providing software support for a US Insurance firm, Sun Life; way before the word µoutsourcing¶ was coined! TCS offers IT services across sectors ± Financial services, to Insurance, to Manufacturing, to Healthcare and life sciences. The performance of its Engineering and Industrial Services division helped it win the Frost & Sullivan Company of the Year award in 2006. 57 2. Infosys Technologies: Incorporated in 1981, Infosys needs little introduction. The company, which is headquartered in Bangalore, takes pride in its timely and accurate delivery using what they call ³a low-risk Global Delivery Model (GDM)´ and touched a turnover of US$ 2.15 billion in the year ended March 2006. It employs over 58,000 and has been lauded for creating jobs back in the US, where many of its clients are based. It has over 40 development centers across the globe. In a survey conducted by BusinessWeek and Boston Consulting Group, of the World¶s Mos t Innovative Companies, Infosys was ranked #10 in the Asia-Pacific region. 3. Wipro: Based in Bangalore, Wipro is a top IT company of India. Its core area of business covers infrastructure solutions, consumer care and other professional and business solutions. Known as one of the largest independent R&D Services provider in the world, turnover from this area of operations alone was over US$ 1 billion in 2005-06. The company has developed the concept of µCenters of Excellence¶ and has over 40 such centers that create solutions around specific needs of industries 4. Tech Mahindra: Headquartered in Pune, India, Tech Mahindra was earlier known as Mahindra British Telecom. Incorporated in 1988, it is a joint venture between Mahindra & Mahindra and the British Telecommunication. Service to the telecom industry is its core area of strength. Presently it has development centers across 6 cities in India. 5. Oracle Corporation: Oracle is a multinational computer technology corporation that specializes in developing and marketing enterprise software products ² particularly database management systems. Headquartered in Redwood City, California. It has enlarged its share of the software market through organic growth and through a number of high-profil e acquisitions.The corporation has arguably become best-known due to association with its flagship product, the Oracle Database. The company also builds tools for database development and systems of middle-tier software, enterprise resource planning software (ERP), customer relationship management software (CRM) and supply chain management (SCM) software. As of 2010, Larry Ellison, the founder of Oracle Corporation, has served as Oracle's CEO throughout its history. Ellison also served as the Chairman of the Board until his replacement by Jeffrey O. Henley in 2004. Ellison retains his role as CEO. 5. INDUSTRY ANALYSIS 58 5.1 SWOT ANALYSIS: FIG 5.1 SWOT ANALYSIS STRENGTHS HIGH QUALITY AND PRICE PERFORMANCE LARGE KNOWLEDGE POOL STATE OF ART TECHNOLOGY FLEXIBILITY AND ADAPTABILITY RELIABILITY HIGH GROWTH MANAGEMENT EXPERIENCE GOVERNMENT ENCOURAGEMENT INFRASTRUCTURE GLOBAL R&D WEAKNESS LACK OF INTERNET PENETRATION BUREAUCRACY VENTURE CAPITAL INADEQUACY LOCALIZATION PROJECT MANAGEMENT SKILLS SECURITY CONCERNS OPPORTUNITIES IMPROVEMENT IN TELECOM SECTOR IMPROVEMENT IN VALUE CHAIN GROWTH IN DOMESTIC MARKET OVERSEAS LISTING INTERNET SERVICE PROVIDER POLICY THREATS NEW PLAYERS ANTI OUTSOURCING AGENDA RUPEE DEPRECIATION AND RECESSION GOVERNMENT INTERFACE LACK OF SPEED COST 59 5.1.1 STRENGTHS: a. High Quality & Price Perfor mance: Quality is the hallmark of Indian I.T. software and, services. ISO 9000 certification and SEI Level 5 are the order of the day. High quality knowledge workers and attractive price performance have been and will continue to be a key component of India's value proposition. b. Large Pool of Knowledge Workers: The basic raw material for any software development activity or a dot com start up is the availability of quality knowledge workers. India¶s main competitive advantage is its abundant, high-quality and cost effective human resources. India has one of the largest pools of technically qualified people with low wages. A large proportion of Indian graduates are proficient in English, ideally suited to the growth of ITES industry. c. State-of-the-art Technologies: A majority of Indian software companies use state-of-the-art technologies, including the latest in client-networking, E-commerce, Int ernet, ASP, CASE tools, communication software, ATM, protocols, GUI etc. d. Flexibility and Adaptability: Indian software professionals easily adapt themselves to new t echnologies. In the software industry, where technological obsolescence is the order of the day, flexibility to adapt to new technologies a major strength e. Reliability: Software programmers from India are able to provide expertise for all or large projects with dollar savings. The motto is ultimate adherence delivery schedules and customer satisfaction f. High Growth: Software exports as well as the domestic demand in the last few years have been consistently growing at a very high growth rate. g. Engineering Base: A strong base of national institutes, engineering college and universities has laid a strong foundation of education in engineering skills amongst Indian software professionals. h. Management experience: 60 India is experienced in software development and has been in the industry since late 1980s. India possesses good management and process skills and has a strong business school network. i. Government Encouragement: Quality telecom infrastructure has been put in place over past few years. Intellectual Propert y Right laws have been implement ed to improve compliance with intellectual property rights. The Government of India has accorded thrust area status to the software sector. j. High Aspirations: The Indian IT software and services industry has set itself higher aspirations and goals. The recent aspiration is to reach annual revenues of U.S.$ 87 billion by 2008 (from a level of U.S.$3.9 billion during 1998-99), achieve 100 percent literacy, more, employment and entrepreneurship opportunities. k. Infrastructure: A growing number of State Governments and cities are building hi -t ech buildings and habitats to accommodate the ever increasing numbers of software companies and ent erprises. This is assisting companies to quickly set up their software operations in India. l. Global Research & Development: More and more multinationals are setting up their global R&D units in India, recognizing the immense power of local talent. 61 5.1.2 WEAKNESSES: a. Project Management Skills: As the Indian software industry has been growing at a fast rate, most of the project managers are becoming entrepreneurs, thus creating a gap in demand and supply of project management skills. b. Bureaucracy: The legal system is complicated and resolution of issues takes a long time. Corruption is still widespread. c. Security concerns: India does not share cordial relations with its neighbor Pakistan, a nuclear stat e. Political relations with China have yet to be complet ely normalized. d. Lack of Internet Penetration: With low penetration of PC¶s, it is obvious that Int ernet penetration is also poor. e. Venture Capital Inadequacy: India still faces few constraints with regard to obtaining capital. To build a abundant venture community, India needs to focus on boosting all stages of venture creation process and have simplified procedures so that the domestic Venture Capital movement can flourish and overseas Venture Capital funds can be attracted. 62 5.1.3 OPPORTUNITIES: a. Continuous improvement in the telecom infrastructure : There has been a huge improvement in the telecom infrastructure within the country. As such it has improved the communication process which is vital for the growth of an economy. b. I mprovements in the value chain: The Indian BPOs (ITES) are moving up the value chain, handling high end data for airline information, insurance, banking sector and mortgage companies, enterprise resource planning, among others. Some of the companies have already moved into significantly higher value added segments such as mission- critical applications, development and support, product design, HR Management, knowledge process outsourcing for pharmaceutical companies and large complex projects. c. Growth in Domestic marketThere has been an increase in demand in IT services within the country as well which has fueled the growth of the domestic IT sector. It is estimated that about $18 billion worth of business was given to the IT industry from t he domestic market in 2008. d. Overseas Listings: India today commands a very high respect among investors in India and overseas. Almost all major overseas stock exchanges are keen for Indian software companies to list themselves on their respective exchanges. This is a major opportunity for the Indian software industry to attract the requisite invest ments. e. Internet Service Provider (ISP) Policy: The recent permission to allow private ISP's operate in India and set up their own gateways will unprecedent ed Internet proliferation throughout India. 63 5.1.4 THREATS: a. New Players: The major threat that Indian software players face is from other outsourcing nations, the major competitor countries being China, Ireland, Poland, etc. These countries were lagging behind because Indians were able to communicate in English. But that advantage is no more as the people in such countries are learning the language as well. b. Anti-outsourcing agenda: Many countries in North America and West ern Europe are creating prot ective and non-tariff trade barriers, especially with regard to the movement of skilled manpower. Visa issues and non-tariff trade barrier may prove to be a threat. India should insist for removal of non-trade tariff barriers at WTO. c. Rupee Depreciation and Recession: The Indian IT-ITES industry is currently in doldrums with the rupee appreciation impact coupled with the fears of US recession. Though the rupee is depreciating against the US dollar against the tide thanks to RBI int ervention, in the long t erm the rupee would appreciat e meaning pressure on revenues and margins. The sub-prime mortgage crisis has also hurt the IT Companies badly impacting its highest contributor to revenues the BFSI vertical and the agony does not seem to have subsided. Lastly, the STPI benefit is about to end on March 31, 2009 leading to 600-700-bps jump in the effective tax rate putting pressure on the bottom-line of IT Companies. d. Government Interference: In the past decade, the Government and industry have worked very well together in India for the success of the I.T. software and services industry Now the Government's role needs to be increasingly directed towards providing suitable infrastructure and continuing its role in the simplification of policies. Any further plans for Government control, restrictions or undue interference could well pose a threat to the industry. e. Lack of Speed: The world is moving at the speed of Internet. The decision- making and time taken for implementation in India needs to be at a much faster pace so that the India I.T. software and services industry does not lose any opportunities. f. Cost: Rising cost of infrastructure, basic amenities and salaries can pose a threat if not adequat ely balanced with value addition. 64 5.2 PORTER¶S FIVE FORCES: FIG PORTER¶S FIVE FORCES 5.2.1 Force #1: Substitute products or services Within any competing arena, all participants are under pressure, in some sense of the world, from substitute products, and the software industry is no exception. With t echnological advances being developed at an incredible pace, the soft ware developer is well advised to remain as informed as possible about products and services being offered in the software and hardware industries. This will allow the developer to be in a position to respond to new technologies and therefore, remain competitive. One example is the rise of video game industry in the mi d 90¶s. After enjoying a wave of success which seemingly produced one hit video game console and title after another in the early part of the decade, the explosion of the PC immediately creat ed the exist ence of a whole new genre capitalized on the superior game industry responded by pouring heavy resources into R&D and product development towards creating the next generation of home gaming platforms which could compete with the PC. In mostly the same way that the incumbent video game console manufacturers responded, so have proprietary software vendors, albeit on a different plane. When examining concepts like 65 Unbreakable Linux or Microsoft¶s shared source initiative, it is evident that hugely successful proprietary competitors are responding by offering substitut e products and services to count er the exponential growth of open source software. These moves, instead of undermining the growth of open source, have boosted its composition and validity. The main reason for this is that the products and services offered by the open source industry are only an offshoot of the larger movement towards more open approached everywhere. Accordingly, duplication, even by entrenched market leaders, renders itself futile. The ascendancy of open source is being propelled by an even larger evolution which is taking place across both industry and continent. This is not to say that substitute products and serviced can¶t and won¶t serve a purpose, only that their efficiency is bound to stoke the very fires which their progenitors are attempting to quell. Fires which are bigger than all parties involved. One more example is that the substitutions for the traditional packaged software are occurring with Application Service Providers (ASPs). ASPs provide a service to deploy, host, manage and rent access to software from a centrally managed facility. This market is expected to grow dramatically in the next few years. 5.2.2 Force #2 Potential new entrants: New entrants are arriving, pursuing attractive software opportunities. A variety of players ± including media content houses, advertisers, cable/satellite companies, and consumer electronics companies ± are aligning to create integrated digital media experiences. Telcos are increasingly involved through smart phones and rich wireless applications. Many hardware companies are becoming major players in software, initially the focus was on infrastructure software but now they are looking beyond to applications and other software capabilities that transform business performance. Software players of all sizes will need t o actively pursue a new wave of alliances and partnerships, often with strongly entrenched incumbents, to capture value across a wide range of new end-customer experiences. Due to the new entrants a battle is being forced to feverishly concentrate on creating product differentiation, as very few brands in the open source world can claim an overwhelming brand identification/loyalty. Even names like Red Hat, with its history of success, are far from synonymous with their product l ine (in Red Hat¶s case, Linux). Furthermore, since the Internet serves as the strongest distribution channel of the day, newcomers don¶t have to fight tooth and nail to secure platforms over which to serve their products. One barrier to entry that exists in some industries, that is capital requirement, is not present in the software industry. A start-up company in the software industry can be established with very little capital invest ment. Because of this low barrier to entry and the potential for quick success, competition tends to be intense and therefore success generally comes only to those who work very hard and have a certain amount of luck. While it seems logical that reduced barriers to entry would pressurize incumbents in the space, the increased ease which accompanies entry actually helps those already present in several ways. First of all, it adds t o the perceived credibility of the open source model while also ensuring the pool of potentially shareable soft ware assets. For example, while assembling their JEMS platform, JBoss 66 actively leveraged the work of closely related projects, going as far as extending membership to the JBoss family to several notables (Drools, jBPM, Hibernat e). Each of those inclusions played a significant role in strengthening JEMS such that JBoss could be warrant a $300+ million price tag in its Red Hat acquisition. More entrants also results in larger pool of qualified open source developers. This is important because hands-on experience with open source tends to breed cross project participation. Plus, a stronger pool of participants coupled with high quality software deliverables serves to validate the movement towards open source. Lastly, a greater number of flourishing projects and companies help the industry reach a critical mass where there is enough diversity and depth to support sustained expansion. 5.2.3 Force #3: Rivalry a mong industry firms Another important basic competitive force in the software industry is the rivalry among existing firms. For example, in mature markets such as business applications, several major players already dominate the market and attempts to compete against them would be difficult. Most industry experts agree that a heavy investment in research and development (R&D) is crucial to the success of software companies. Typically, they believe that 15 percent of a company¶s revenue should be spent on R&D of new products. About 85 percent of the products sold by U.S. software companies are developed in-house. Many small, start-up companies develop highly innovative products, but if they don¶t have enough capital t o support new products, they are often open to being acquired as a means to introduce their product to the marketplace. Soft ware¶s ability to interface with the Internet is becoming an increasingly important characteristic of successful products.Offering competitive benefits and compensation can be a critical factor in recruiting and retaining the type of labor necessary to develop new products. With the explosive growth of the industry comes the need for more technical talent. Today¶s low unemployment rate makes the task of finding this talent even more difficult. To demonstrate how certain forms of direct rivalry works as a rising tide of open source, it is apt to consider the case of J2EE application servers. Currently there are four main open source application servers, listed in no particular order : GlassFish, JBoss, Websphere CE, and JOnAS. JBoss has established itself as the leader with the other three competing closely for the second spot with different value propositions. All, except JOnAS, have the backing of a commercial organization (Sun for GlassFish, IBM for Websphere CE, and RedHat for JBoss) and are closely tied to the business models of each. It can be taken as a given t hat each sponsoring organization would prefer to attain as much traction as is possible. However, because their products are available in the open source domain their success is intricately linked. GlassFish as open source, and the first and only standing reference implementation of JEE 5, actually helped compress the life-cycle for certifying the other three as JEE 5 compliant. So even as Sun positions GlassFish¶s relative exclusivity, competing parties were/are benefiting from it. Likewise, the GlassFish community profits in 67 the form of a pick up in use scenarios. All of which flows right back to its parent, Sun, who is still the sole source for the JEE 5 compatibility kit, in a symmetrical fashion. Three pot entially successful general strategic approaches could be adopted by companies for competing in any industry. Those strategies are as follows ‡ Overall Cost Leadership ± This strategy involves offering the lowest price in the industry. ‡ Differentiation ± This strategy involves developing a product that is perceived to be unique. This approach may require a trade-off with cost leadership in the software industry because it can be more expensive to maintain the differentiation by spending more on research and development or customer service. ‡ Focus ± This strategy involves serving a particular target market very well. The idea is that by focusing on a particular market, a firm is able to serve this market better than other firms who are competing on a larger scale or who are serving other target markets. This strategy works well in the software industry where specific markets are growing faster than others and sales are forecast to increase over the next several years. As mentioned earlier, in mature markets such as business applications, several ma jor players already control the market and aggressively compete against each other for market share. It is extremely difficult for the start up company to compete against these forces. With the growing popularity of the home PC however, start-ups do have the opportunity to do well in the following emerging markets: entertainment, education, financial management, personal information management, data access and information retrieval. Success in these areas also depends on the vendor¶s abilit y to develop relationships with consumer-oriented distribution channels such as mailorder catalogs, traditional retail stores and warehouse-like superstores. 5.2.4 Force #4: E mpowered buyers The software industryµs customer segment comprises of the business segment and home segment. Conventionally various groups of buyers exert their influence on an industry by leveraging their ability to pull prices down, bargain for better quality offerings and pit competing entities against each other in their struggle to win customers. Often the net result is that industry profitability suffers. However, when the structure of the open source ecosystem is closely examined, it becomes evident that the empowered buyer actually boosts its overall potency. This is because, in the realm of open source there are fewer concret e separations between customer, user and contributor. Mostly these three happen to be one in the same. As is now more lucid than ever, customers tend t o be users first and foremost, who can turn into contributors as they grasp how giving back to the community benefits the quality of the product they use and/or have purchased support for. So, the potential customer of an open source vendor, who is empowered by the transparent 68 nature of the development and distribution model, becomes more inclined to take an active, contributory role in the relationship as opposed to an antagonistic one (haggling over price increases, demanding product features, etc.). Additionally, with a reduced threat of vendor lock-in, users are more willing to participate in a shortened procurement cycle which means a shorter sales cycle for the product vendor. It makes sense that when the product can be tried in full before it¶s bought, there¶s obviously going to be less reluctance to pull the trigger for a purchase. 5.2.5 Force #5: E mpowered suppliers The software industry is majority driven by human capital. So the industry requires large pool of software professionals for its existence in this competitive market. So the employees in the software industry itself become one type of the suppliers. So these qualified software professionals influence the price at which the industry hires them. The software developers enjoy an edge over the company and have a greater bargaining power because of their high quality software deliverables that helps the company to sustain the expansion in the market. Moreover there is a great er demand than the supply of software professionals because of which these professionals enjoy a high bargaining power. Other type of suppliers could be the companies that supply the hardware and networking components to the software companies, or the companies like Microsoft that provide the platform to many other software industries for building up their applications. Such suppliers have greater bargaining power and influence the prices to a greater extent as these companies are highly established and are now leading the market. Moreover the software industry cannot sustain without the supplies of such companies. 69 6. COMPANY ANALYSIS 6.1 INTER-COMPANY ANALYSIS 6.1.1 CURRENT RATIO: Year/Company Infosys TCS Wipro HCL Oracle 2009 3.85 1.98 2.15 1.22 3.85 2008 3.75 2.08 1.57 1.22 3.22 2007 2.77 1.96 1.46 .93 3.29 2006 2.19 1.15 1.32 .77 3.69 2005 2.35 0.02 1.6 1.04 4.88 Avg. 2.982 1.438 1.62 1.036 3.786 Table 6: Intercompany analysis: Current ratio 6 5 4 Infosys TC S 3 Wipr o HCL 2 O racle 1 0 2009 2008 2007 2006 2005 Graph 6: Int ercompany analysis: Current ratio InterpretationOracle is the most liquid among all the other companies shown in our inter-company analysis. Though Infosys shows a decline in its current ratio in 2006 but has risen thereafter. The ideal current ratio being 2:1 HCL seems to have a bit of problem since its current ratio is just above 1 which seems to be a problem since it could face a liquidity crunch. Wipro¶s 70 current ratio has st eadily moved over the years and was almost equal to the ideal ratio last year. This indicates the company is in a far better position to face its current liabilities as compared to 2005. Though oracle¶s liquidity is the highest it is almost double than the idea l value which could also indicate that either the current assets in the company are underutilized. 6.1.2 DEBTORS¶ TURNOVER RATIO: Year/Company 2009 2008 2007 2006 2005 Avg. Infosys 5.81 6.9 6.52 7.28 8.32 6.966 TCS 5.66 5.83 5.92 10.97 5.676 Wipro 5.7 6.1 6.12 5.95 5.6 5.89 HCL 5.45 5.55 6.37 6.09 5.68 5.82 Oracle 1.84 1.74 1.69 1.78 2.12 1.834 Table 7: Intercompany analysis: Debtors¶ turnover ratio 12 10 8 ¡ I f sys TC S 6 Wipro ¢ 4 CL O racle 2 0 2009 2008 2007 2006 2005 Graph 7: Int ercompany analysis: Debtors turnover ratio InterpretationThe debtors¶ turnover ratio indicates number of times payment is made by debtors in a year. The number of days of payment decreases with increase in this ratio. In the industry Infosys has the highest ratio on the other hand Oracle has the lowest ratio at 1.834. This indicates 71 there is a delay in payment to this company by the debtors which the company should t o improve upon. The ratio for other companies is very good and more or less similar. 6.1.3 INTEREST COVERAGE RATIO: Year/Company 2009 2008 2007 2006 2005 Avg. Infosys 5118 4153 2737 2230 1961 3239.8 TCS 1464.12 1216.94 685.71 204.09 16.8 717.352 Wipro 30.71 442.14 748.5 316.29 308.37 362.02 HCL 41.35 91.8 46.33 61.3 51.24 58.04 Table 8: Intercompany analysis: Interest coverage ratio 6 000 5000 4000 Infosys 3000 TCS i ro ¤£ 2000 HCL 1000 0 2 00 9 2 00 8 2 00 7 2006 2 00 5 Graph 7: Intercompany analysis: Interest Coverage Ratio InterpretationInterest coverage ratio is unusually high for IT firms since the capital structure consists majorly of equity and very less debt. As we can see Infosys has the highest ratio among all the companies since it is a 100% equity company i.e. it does not take any debt. One striking factor is this ratio is very less for TCS in the year 05 since it took unsecured loans worth 375 crores that year. HCL has the lowest ratio in the sector which is very less as compared to 72 other companies. This is because of the fact that HC not only takes debt but also has lower operating profit as compared to other players like Infosys. 6.1.4 PBIT (%) ¦ Infos s 32.71 31.58 3 0 .3 2 32.51 30.9 31.64 § ¦ Year/Co pan 2009 2008 2007 2006 2005 A TC 27.01 27.94 27.4 26.36 0 21.74 Wipro 20.31 23.14 22.83 24.21 20.92 22.82 HCL 17.09 31.59 19.46 23.81 24.89 2 3 .3 6 Oracle 2 4 .0 7 24.55 24.75 27.37 32.93 26.7 ¥  ©¨ Table 9: Intercompany analysis: PBIT (%) 35 30 25 Inf sys  20 TCS Wipro 15 HCL 10 Orac e  5 0 2009 2008 2007 2006 2005 Graph 9: Intercompany analysis: PBIT (%) InterpretationPBIT indicates earning of the company before interest and taxes. The higher the ratio better is the operating margin of the company. Again Infosys has the highest ratio among all the companies while TCS has the lowest. Generally low PBITM may be due to high co of st goods or high operating margin which the company should look to curtail. Only Infosys and Oracle have this ratio above the industry average. 73 6.1.5 P/E ratio (%) Year/Company 2009 2008 2007 2006 2005 Avg. Infosys 19.73 31.28 36.62 32.66 29.51 29.96 TCS 18.56 33.58 35.69 39.15 25.39 Wipro 21.33 30 41.47 32.66 38.19 32.73 HCL 24.6 22.38 28.69 47.54 30.71 30.78 Oracle 19.23 48.91 42.84 22.96 24.84 31.75 Table 10: Intercompany analysis: P/E ratio (%) 60 50 40 Infosys TS  30 Wipr o HL  20 r acle  10 0 2009 2008 2007 2006 2005 Graph 10: Int ercompany analysis: P/E ratio (%) InterpretationOracle has the highest P/E ratio in this sector. Most of the companies had a very less P/E ratio in 09 since market prices of their shares fell due to global meltdown. From an investor point of view a higher P/E ratio is a good prospect since it indicates higher earnings growth in the future as compared to companies with lower P/E. 74 6.2 INTRA -COMPANY ANALYSIS 6.2.1 INFOSYS: Year 2009 2008 2007 2006 2005 Current Ratio Debt Equity Ratio Debtors Turnover Ratio Interest Cover Ratio PBIT (%) P/E Ratio (%) 3.85 0 3.75 0 2.77 0 2.19 0 2.35 0 5.81 6.9 6.52 7.28 8.32 5,118.00 4,153.00 2,737.00 2,230.00 1,961.63 32.71 19.73 31.58 31.28 30.32 36.62 32.51 32.66 30.9 29.51 Table 1: Intra company analysis: Infosys 40 35 30 Current Ratio 25 Debt-Equity 20 Debtors turnover 15 PBITM (%) 10 P/E Ratio 5 0 2009 2008 2007 2006 2005 Graph 1: Intra company analysis: Infosys CURRENT RATIO: As said earlier the ratio of 2:1 is the ideal ratio for the company and for Infosys the ratio is nearly the same so we can say that company is in healthy state for the investors and lenders. As we can infer from the table that the current ratio for Infosys in year 2009 is 3.85 which means that they have more current assets as compared to current liabilities. They have shown steady improvement from the year 2005 and has brought the current ratio to 3.85. 75 DEBTORS TURNOVER RATIO: This ratio shows how effectively a company is recovering from its debtors. For Infosys this ratio was 8.32 in 2005 and came down to 5.81 in 2009 which shows that the recovery time cycle has decreased and now they are able to recover their money from the debtors very effectively. Aft er 2007 this ratio has shown a slight downward trend. INTEREST COVER RATIO: This ratio is mainly used by lenders to check whether the borrowers will be able to pay the interest or not. For Infosys the ratio is showing an increment for the past five years and for the year 2009 the ratio was 5,118.00 which shows that the company will be able to repay its loan and interest to the borrower. PROFIT BEFORE INTEREST AND TAX: This is the percentage of net profit earned by a company in one financial year. For Infosys this percentage is showing a steady increase and then decrease which suggests that due to certain problems i.e. recession the net profit of the company has declined in year 2009. PRICE TO EARNING RATIO: This ratio is also used by the investors to know whether the shares of the company are undervalued or overvalued. Based on this fact they would decide to purchase the shares at the particular price or not. For Infosys the ratio was good in year 2006 - 2007 but has shown a drastic decline of around 37% in the year 2009 which will hamper the image of the company in eyes of the investor. 76 6.2.2 TCS: Year 2009 2008 2007 2006 2005 Current Ratio Debt-Equity Ratio Debtors turnover ratio Interest Cover ratio 1.98 0 2.08 0.01 1.96 0.02 1.15 0.15 0.02 4.47 5.66 5.83 5.92 10.97 0 1,464.12 1,216.94 685.71 204.09 16.8 PBITM (%) P/E Ratio (%) 27.01 18.56 27.94 33.58 27.4 35.69 26.36 39.15 0 0 Table 2: Intra company analysis: TCS 45 40 35 30 rre t atio   25 De t -E 20 De tors t r ov er ity ratio !  IT () % $ #" 15 P/E atio & 10 5 0 2009 2008 2007 2006 2005 Graph 2: Intra company analysis: TCS CURRENT RATIO: As said earlier the ratio of 2:1 is the ideal ratio for the company and for TCS the ratio is nearly same so we can say that company is in healthy state for the investors and lenders. As we can infer from the table that the current ratio for TCS in year 2005 is 0.02 which means that they have more current liabilities as compared to current assets but they have shown good improvement in the year 2006 and brought the current ratio to 1.15 and was steadily increasing in onwards year. 77 DEBTORS TURNOVER RATIO: This ratio shows how effectively a company is recovering from its debtors for TCS this ratio 10.97 in 2006 and came down to 5.92 in 2007 which shows t hat the recovery time cycle has decreased and now they are able to recover their money from the debtors very effectively. After 2007 this ratio shows an slight downward trend. INTEREST COVER RATIO: This ratio is mainly used by lenders to check whether the borrowers will be able to pay the interest or not. For TCS, the ratio is showing an increment for the past five years and for the year 2009 the ratio was 1464.12 which shows that the company will be able to repay its loan and int erest to the borrower. PROFIT BEFORE INTEREST AND TAX: This is the percentage of net profit earned by a company in one financial year. For TCS this percentage is showing an steady increase and then decrease which suggest that due to certain problems i.e recession the net profit of the company has declined in year 2009. PRICE TO EARNING RATIO: This ratio is also used by the investors to know whether the shares of the company are undervalued or overvalued. Based on this fact they would decide to purchase the shares at the particular price or not. For TCS the ratio was good in year 2006 - 2007 but has shown a drastic decline of around 90% which will hamper the image of the company in eyes of the investor. 78 6.2.3 WIPRO: Year 2009 2008 2007 2006 2005 Current Ratio Debt Equity Ratio Debtors Turnover Ratio Interest Cover Ratio PBITM (%) P/E Ratio (%) 2.15 0.19 1.57 0.02 1.46 0.01 1.32 0.02 1.6 0.02 5.7 6.1 6.12 5.95 5.6 30.71 442.14 748.5 316.29 308.37 20.31 21.33 23.14 30 22.83 41.47 24.21 32.66 20.92 38.19 Table 3: Intra company analysis: Wipro 45 40 35 30 rre t atio 0) (' 25 De t -E 20 De tors t r over ity 32 1 43 1 () 65 PBIT 15 P/E atio 0 10 5 0 2009 2008 2007 2 00 6 2 00 5 Graph 2: Intra company analysis: Wipro CURRENT RATIO : The ratio of 2:1 is the ideal ratio for the company and for Wipro this ratio is increasing. So we can say that company is in a healthy state for the investors and lenders. In the year 2009, the ratio has increased to 2.15 from 1.57 which means that there is an increase in current assets. 79 DEBT-EQUITY RATIO: This ratio shows in what form the company is generating its capital. The ideal ratio is 2:1. For Wipro this ratio has increased from 0.02 to 0.19 but still there is a huge gap between the ideal ratio and the company ratio¶s. Debt is the cheapes t source of capital, so the company can use debt as a major source to raise capital for its future plans. DEBTORS TURNOVER RATIO: This ratio shows that how much efficiently we are recovering from our debtors. For Wipro the ratio was increasing up till the year 2008 but in year 2009 it decreased due to the change in policy of the company which is a good sign for the company. INTEREST COVER RATIO This ratio shows the interest paying capability of the company. For Wipro, this ratio increased in 2007 but afterward it steadily declined which is an alarming stage for the lenders. The company should work on it and try to improve it. PROFIT BEFORE INTEREST AND TAX: This is the percentage of net profit earned by a company in one financial year. For Wipro this percentage is showing decline because of high expenditure in the R& D. PRICE TO EARNING RATIO: This ratio is also used by the investors to know whether the shares of the company are undervalued or overvalued. Based on this fact they can decide to purchase the shares at the particular price or not. For Wipro this ratio is showing a decline year after year which is an alarming sign for the investors. 80 6.2.4 HCL: Year 2009 2008 2007 2006 2005 Current Ratio Debt-Equity Ratio Debtors turnover ratio Interest Cover ratio 1.22 0.01 1.22 0.01 0.93 0.02 0.77 0.04 1.04 0.02 5.45 5.55 6.37 6.09 5.68 41.35 91.8 46.33 61.3 51.24 PBITM (%) P/E Ratio (%) 17.09 24.6 31.59 22.38 19.46 28.69 23.81 47.54 24.89 30.71 Table 4: Intra company analysis: HCL 50 45 40 35 Current Ratio 30 De t -E uity ratio 8 7 25 De tors turnov er 7 20 PBITM (%) 15 P/E Ratio 10 5 0 2009 2008 2007 2006 2005 Graph 4: Graph 2: Intra company analysis: HCL CURRENT RATIO: As said earlier the ratio of 2:1 is the ideal ratio for the company and for HCL this ratio has not shown variation if we compare it from the year 2009 which can be due to the same increment in the current liabilities and current assets. 81 DEBTORS TURNOVER RATIO: This ratio shows that in how much efficiently we are recovering from our debtors. For HCL the ratio was increasing up till the year 2007 but afterward it has decreased due to the change in the policy of the company which is a good sign for the company. INTEREST COVER RATIO: This ratio shows the interest paying capability of the company. For HCL this ratio is shows an increasing and decreasing trend and in the year 2009 this ratio has decreased almost 90% which is alarming. PROFIT BEFORE INTEREST AND TAX : This is the percentage of net profit earned by a company in one financial year. For HC ,this percentage is showing decline year by year because of increase in there expenditure. PRICE TO EARNING RATIO: This ratio is also used by the investors to know whether the shares of the company are undervalued or overvalued. Based on this fact they would decide to purchase the shares at the particular price or not. For HCL this ratio is showing an increase which is good for investors. 82 6.2.5 ORACLE: Year 2009 2008 2007 2006 2005 Current Ratio Debt-Equity Ratio Debtors turnover ratio PBITM (%) P/E Ratio (%) 3.85 0 3.22 0 3.29 0 3.69 0 4.88 0 1.84 1.74 1.69 1.78 2.12 24.07 19.23 24.55 48.91 24.75 42.84 27.37 22.96 32.93 24.84 Table 5: Intra company analysis: Oracle 60 50 40 Current Ratio 30 De tors turnover 9 PBITM (%) 20 P/E Ratio 10 0 2009 2008 2007 2006 2005 Graph 5: Intra company analysis: Oracle CURRENT RATIO: As said earlier the ratio of 2:1 is the ideal ratio for the company and for Oracle this ratio is increasing so we can say that company is not efficiently utilizing its current asset. As we can infer from the table that the current ratio for TCS in year 2005 is 4.88 and thereby decreasing which means the company is trying to utilize the assets it is holding so as to derive maximum benefit from it. 83 DEBTORS TURNOVER RATIO: This ratio shows how effectively a company is recovering from its debtors. For Oracle this ratio was 2.12 in 2005 and came down to 1.84 in 2009 which shows that the recovery time cycle has decreased and now they are able to recover their money from the debtors very effectively. PROFIT BEFORE INTEREST AND TAX : This is the percentage of net profit earned by a company in one financial year. For Oracle this percentage is showing a steady increase and then decrease which suggest that due to certain problem i.e Recession the net profit of the company has declined in year 2009. PRICE TO EARNING RATIO: This ratio is also used by the investors to know whether the shares of the company are undervalued or overvalued. Based on this fact they would decide to purchase the shares at the particular price or not. For Oracle the ratio was good in year 2006 - 2008 but has shown a drastic decline of around 50% which will hamper the image of the company in eyes of its investor. 84 7. IT RELATED INDUSTRIES 7. 1 Business Process Outsourcing (BPO) 7.1.1 Background In a world where information technology has become the backbone of businesses worldwide, 'outsourcing' is the process through which one company hands over part of its work to another company, making it responsible for the design and implementation of certain business process under the requirements and specifications of the outsourcing company. Since the onset of globalization in India during the early 1990s, successive Indian governments have pursued programs of economic reform committed to liberalization and privatization. Until the year 1994, the Indian telecom sector was under the control of the governmental. The state owned units in India enjoyed a monopoly in the market. In the year 1994, the government announced a policy under which the sector was liberalized and private participation was encouraged. The µNew Telecom Policy¶ of 1999 brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling facilities. This brought about a drastic reduction heralded the golden era for the ITES/BPO industry. This in turn ushered in a slew of inbound call center/telemarketing services and data processing centers. The ITES or BPO industry is a sector in India that has been in existence for a little more than ten years. Despite its recent arrival on the Indian scene, the industry has grown phenomenally and has now become a very important part of the export-oriented IT software and services environment. It initially began as an activity confined to multinational companies, but today it has developed into a broad based business platform backed by leading Indian IT software and services organizations and other third party service providers. 7.1.2 Factors as the major reasons behind India's success in this industry y y y y y y Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such as Singapore and Ireland High-end telecom and infrastructure which is at par with global standards Strong quality orientation among players and their focus on measuring and monitoring quality targets Fast turnaround times and the ability to offer 24x7 services based on the country's unique geographic location that allows for leveraging time zone differences Proactive and positive policy environment which encourages ITES/BPO invest ments and simplifies rules and procedures A friendly tax structure, which places the ITES/BPO industry on par with IT services companies. 85 7.1.3 Current Scenario Out of the U.S. $35-37 billion offshore BPO market in 2008, India remained the leading offshore destination with 35% market share. The Indian ITES-BPO sector continues to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. Further the vendors moved up the value-chain to offer higher end research and analytics services to their clients. The export revenue from ITES-BPO sector is estimated to grow from US $ 10.9 billion in year 2007-08 to US $ 12.8 billion in year 2008-09, a year-on-year growth of over 17.5 per cent. High offshore component of delivery and superior execution in multi-location delivery continue to be key differentiators. Broad-based industry structure; IT led by large Indian firms, BPO by a mix of Indian and MNC third-party providers and captives, reflects the depth of the supply-base. While the larger players continue to lead growth, gradually increasing their share in the industry aggregat e; several high-performing SMEs also stand out. Figure-1: Indian software and services exports including ITES -BPO(excluding hardware) (where on X axis: numbers 1 to 5 represents FY 2004-05 to FY 2008-09E respectively) FY= Financial Year (data source NASSCOM). The rapid expansion of ITES-BPO services, and the IT industry as a whole, has had a profound impact on the socio-economic dynamics of the country. The sector has grown to become the biggest employment generator and has catalysed the growth of a number of 86 ancillary businesses such as transportation, real estate and catering, and has created a rising class of young consumers with high disposable incomes. Figure 1: Direct E mploy ment in Software and Service sectors (excluding Hardware sector) (where on X axis: numbers 1 to 5 represents FY 2004-05 to FY 2008-09E respectively) FY= Financial Year (data source NASSCOM). 87 7.1.4 Top Ten Indian BPO Companies 1. GENPACT: Founded in 1997, Genpact ²the erstwhile-outsourcing wing of GE Capital²leads the pack. Having formed an independent entity in 2005, Genpact has a network in 13 countries of more than 30 operations centers, including leading enterprises such as Nissan, Wachovia, Hyatt and GE. It offers a wide range of services including finance, IT infrastructure, supply chain management and analytics and hence is guarant eed to stay at the top of the list for years to come. With a workforce of more than 37,000 employees, Genpact¶s revenue for the year 2009 stood at $1040 million. 2. WNS Services: Principally distinguished by its deep domain expertise and end-to-end service offerings, WNS Global Services occupies the second place in this list. Based in Mumbai, Warburg Pincus is i ts main investor firm. WNS boasts of 215 plus global clients. Established in 1996, this Nasdaq-listed company has been serving numerous industries such as healthcare, manufacturing, retail, distribution, insurance and travel. At present, WNS has more than 21,000 persons working for it and has clocked revenues of about $539 million as of 2009. 3. IBM DAKSH: IBM Daksh grew from a relatively small enterprise to a global hub that employs more than 30,000 people today. Celebrated for its excellent leadership and empowering vision, IBM Daksh has been effortlessly managing business processes for its international clientele over the past 5 years. As a result, it has won accolades for its outstanding performance, including the ³Most Respected BPO Company in India´ by Business World. The company has 25 service delivery centers in India and the Philippines. While IBM Daksh is primarily a solutions provider for various industries such as financial services, communication and distribution, it also offers its expertise to the hospitality and travel sectors. 4. WIPRO BPO: Spectramind was acquired by Wipro in 2002 and renamed as Wipro BPO Solutions, which has since then carved a niche for itself in the outsourcing industry. The company has been rated one of the ³Best Employers in India´ by the Best Employers Hewitt Survey in 2007. The HQ of Wipro BPO is based in Bangalore, with over 19,000 employees committed to providing high quality services to its customers. As of 2009, the company generated revenue of approximately $395 million, thus giving it recognition as one of the top 10 BPOs in India. Wipro BPO offers financial and accounting services, HR services and knowledge services to industries including insurance, healthcare, telecom, travel and hospitality, among others. 5. TCS BPO: TCS BPO offers various services in the realm of healthcare, telecom, travel, media, KPO and banking, among others. TCS BPO has won accolades for its services and performances as a result of which it was named one of the world¶s top BPO providers by the International Association of Outsourcing Professionals, in 2006. Although its headquarters is based in Bangalore, it is spread across the heart of 88 the country with branches in Goa, Pune, Mumbai, Lucknow, Gurgaon and Hyderabad. TCS BPO Its clientele includes 13 2 entities that span over 32 countries. At the end of fiscal year 2009, the BPO contributed around Rs 1,900 crores to the company¶s revenues. 6. FIRSTSOURCE SOLUTIONS: Firstsource was established in 2001 and was formerly known as ICICI Onesource. It is commendable to note that Firstsource is the first pure play BPO company in the world to secure ISO 20000 and ISO 27001 certifications. It has numerous leading global clients to whom it offers BPO services spanning customer care, billing and collections, business research and analytics and customer acquisition. Among several notable clients, Firstsource boasts of a client el e subsuming FTSE 100 media companies, 3 of the 5 largest US banks, top 5 UK banks and 2 of the world¶s largest telecom companies. 7. ADITYA BIRLA MINACS: A global IT business solutions company and subsidiary of Aditya Birla Nuvo, Aditya Birla Minacs has over 26 years of experience in offering BPO solutions to over 15 Fortune 500 companies. With a primary focus on three areas, namely contact centre solutions, integrated marketing services, and knowledge process outsourcing, Aditya Birla Minacs has employed over 13,000 employees across its facilities in the world. 8. AEGIS: A leading player in customer care and acquisition for over thirty years, Aegis has numerable Fortune 500 clients to whom it provides immeasurable support by way of customer interaction, back office and other routine business processes. Aegis has been recognized as eighth among the top 15 BPO exporters for 2008-09 by Nasscom. It operates out of 40 locations spread across the globe with complete support from a 39,000-strong staff strength. Its headquarters are based in Mumbai. Essar Global Limited, its parent company, is an $18 billion group well established in 130 countries. 9. INFOSYS TECHNOLOGIES: Infosys Technologies set up Infosys BPO in April 2002 as its business process outsourcing subsidiary. With a focus on integrated endto-end outsourcing through lesser costs, Infosys BPO holds high ranking among the top BPO companies of India. It clocked revenues of $250 million for fiscal year 200809 and has its operation centres in Mexico, Bangkok, India, Poland, China, the Philippines, among others. Backed by over 16,295 employees, Infosys BPO Ltd. is bound to stay put in the slot for top 10 BPOs in India for many years to come. 10. HCL BPO: Founded in 2001, HCL BPO is a subsidiary of HCL Technologies Ltd. It offers services in various realms of operations such as customer relationship management, finance and accounting services, supply chain management, knowledge and legal services to diverse industries including retail, telecom, media, insurance, publishing and ent ertainment sectors. Even before the IT industry had recognized the potential and opportunity in the BPO sector, HCL was one of the first IT companies to penetrate into this area. Financial year 2009 witnessed a revenue generation of about $232.15 million by this fast emerging BPO. 89 7.1.5 Future Scenario Indian vendors in the BPO sector would experience growth, owing to factors like dependable service delivery, sustained acquisitions of Europe and North America-based shared service centers, as well as revenue growth from continental Europe by way of partnerships. The 2009 revenue figures are expected to double by 2010 - last year, the foremost 20 Indiacentric BPO service providers managed $4 billion revenue, which was 5 percent of the $80billion revenue figures of the leading 150 BPO companies of the world. According to some estimat es, the market share of India's cost-effective BPO industry would rise to 10 percent by the end of 2010. Along with having the cost advantage, the Indian BPO industry also attracts corporates because of the fairly simple regulatory norms. 7.1.6 Challenges to Indian BPO Industry Out of the U.S. $35-37 billion offshore BPO market in 2009, India remained the leading offshore destination with 35% market share. The Philippines, which is barely 1/10th of India's size, represented 15% of the offshore BPO market. The Philippines has emerged as a key destination for English-based work especially for the North American market. The ITeS/BPO industry is facing the problem of talent crunch. Contrary to last year¶s major concern of wage inflation, shortage of skilled manpower turned out to be the major concerns for the industry as per this year¶s findings. However, it is further noticed that the category I expressed competition from emerging and cost competitive market as their second major hurdle, whereas category II and category III companies feel labour attrition is hounding their growth. The study revealed that a majority of the companies feel that the attrition rate is in range of 20-35%. 90 7.2 Knowledge Process Outsourcing (KPO) After BPO, Knowledge Process Outsourcing (KPO) is gradually unfolding as the next big opportunity for India. India, with its abundant skilled resources and competitive cost advantage is all set to bank on this next big thing. KPO is defined as high end knowledge work which includes equity & finance, int ellectual property rights, analytics, business research, market research, invest ment analysis, data management etc. 7.2.1 Current Scenario It's the sector that holds most promise in the outsourcing pie. And now a report predicts it's poised for big times ahead. The report says the knowledge process outsourcing industry (KPO) will be worth $16.7 billion by 2010-11. With an annual growth rate of 39% for the next four years, it will grow even faster than the BPO sector globally. What's more, while in 2006-07 KPOs employed 106,000 professionals worldwide, their numbers are expected to grow and touch 350,000 by 2010-11. India will be the future hub of KPO sector and competitors ² China, Philippines, Russia ² will be spokes of the industry. These predictions are made by Alok Aggarwal, chairman Evalueserve in his yet to be released report, 'India's Knowledge Process Outsourcing Sector: Origin, Current State, and Future Direction'. Its earnings went up from $1.2 billion in 2003-04 to $4.4 billion in 2006-07 ² that is an annual growth of 54% worldwide. Similarly, the number of employees too grew from 34,000 in 2003 -4 to 106,000 in 2006-07. In comparison, BPO revenues moved from $7.7 billion in 2003 -04 to $15.8 billion in 200607, that is an annual growth rate of 27%. In the next four years, it's expect ed to grow at 26% annually and generate $39.8 billion. In India, KPOs employed around 9,000 professionals in 2000-01. By 2006-07 their numbers had scaled up to 75,400 generating $3.05 billion. According to Evalueserve, the global KPO market was around USD 1.29 bn in FY04, which touched USD 4.4 bn in FY07, growing at an annual rate of 54%. The KPO industry is expect ed to grow at an annual rate of 39% over the next couple of years to touch USD 16.7 bn by FY11. India had a market share of close to 70% of the global KPO market in FY07, with employee strength of 75,000 catering to this growing segment. 91 7.2.2 The Future of the Indian KPO Industry Surveys have shown that the global KPO industry is expected to reach nearly 17 billion dollars by the end of 2010, of which approximately 12 billion dollars worth of business will be outsourced to India. What¶s more, the Indian KPO industry is expect ed to employ an added figure of roughly 250,000 KPO professionals by the end of 2010, as compared to the current estimat ed figure of 25,000 employees. Predictions have been made that India will acquire nearly 70 percent of the KPO outsourcing sector. Apart from India, other countries like China, Russia, Ireland, Israel and the Czech Republic are also expected to join the KPO industry. 92 7.3 ITES (IT Enabled Services) 7.3.1 Engineering Process Service (EPS) Engineering Process Services (EPS) is another emerging segment of the global outsourcing business. EPS encompasses product design, R&D and other technical services across various sectors such as automotive, aerospace, hi-tech/telecom, utilities and construction/industrial machinery. India has comparative advantage in terms of cost and a highly competitive pool of human resources. Companies have developed required skills, capabilities and the invest ments made in technology development open immense opportunities in this segment. According t o a study conduct ed by NASSCOM in association with the global consulting firm Booz Allen Hamilton, it is estimated that global spending on engineering services would reach USD 1.1 trillion by 2020 from USD 750 bn in 2004. Currently, around USD 10 -15 bn is offshored and there is a huge potential for the offshore segment, which is anticipated to be around USD 150-225 bn by 2020. A study done by NASSCOM ±BAH predicts that by 2010, India¶s share in the high tech/telecom engineering space would be close to USD 11 bn, followed by the automotive engineering space at around USD 1.8 bn, aerospace with USD 600 mn and utilities at USD 200 mn. However, there are various challenges associat ed with it. China has already emerged as leading destination for offshore work. For instance, as per a recent survey of top 10 outsourcing destinations conducted by AT Kearney, China was just behind India in terms of most preferred location for outsourcing and is likely to catch up with India in the near future. 7.3.2 Legal Process Outsourcing (LPO) Legal Process Outsourcing (LPO) is another emerging sector which Indian companies have recently started leveraging. Currently, US accounts for more than two thirds of the global spending on legal s ervices. Considering India¶s competitive advantage, a large number of organisations have already started outsourcing their legal services to India. For instance Oracle, Sun and Cisco have been outsourcing their patent research and other documentation work to Indian BPO firms or to their own captive units. In fact, there are around 100 small and big size law firms in the country which are exclusively servicing their clients in the US, UK and other European countries. According to NASSCOM, the market potential for LPO from the US alone is estimated to be around USD 3-4 bn. Moreover, as per the study conducted by Forrester Research, 79,000 legal jobs are anticipated to be outsourced to low cost countries like India by 2015, since the cost of legal services in India is much lower as compared to the US. For example, India offers just around 30% of the fee charged by a paralegals and assistants in the US, similarly in case of an Attorney, India offers only 20% of the fee charged in the US. 93 7.3.3 Insurance Global insurance companies are facing various challenges caused by growing claims disbursements, underwriting losses, rising agent attrition, growing competition from brokerages and banks amongst others. As a result, insurance companies have realised outsourcing is the best option to combat these issues and hence reduce administrative and labour costs. Notably, the US and Europe constitutes more than 80% of the total insurance outsourcing revenue. 7.3.4 Procurement Outsourcing (PO) The procurement outsourcing is another new growth segment of Indian outsourcing industry. According to a study conduct ed by IDC, global procurement outsourcing (PO) market was recorded to be around USD 886 mn in 2007 and will grow at a CAGR of over 21% to reach USD 2 bn by 2011. Indian BPO companies are gearing up for PO boom to tap the pot ential of the segment due to its competitive advantage. 7.3.5 Healthcare The Healthcare outsourcing industry is making waves in the Indian outsourcing scenario with a growing trend of healthcare outsourcing by global organisations. Healthcare BPO offers services across wide range of business processes such as medical coding, medical billing, forms processing, medical transcription and claims processing. Significantly, as per the Centre for Medicare and Medicaid Services, the US healthcare spending in 2005 was USD 2 trillion (16% of the US GDP), which is expected to reach USD 4.14 trillion by 2016. Importantly, with increasing pressure from regulators and rising cost, global players are increasingly outsourcing their healthcare services. As per a joint study conducted by FICCI and Ernst & Young, the healthcare outsourcing industry in India is likely to grow from USD 3.7 bn in 2006 to around USD 7.4 bn in 2012. 94 8. VISION AND GROWTH FORECAST OF THE INDIAN IT INDUSTRY 8.1 VISION AND MISSION 8.1.1 Vision The vision of the IT industry is the E-Development of India as the engine for transition into a developed nation and an empowered society. 8.1.2 Mission E-Development of India through multi-pronged strategy of e-Infrastructure creation to facilitate and promot e e-governance, promotion of Electronics IT and Information Technology Enabled Services (IT-ITeS) Industry, providing support for creation of Innovation /Research & Development (R&D), building Knowledge network and securing India¶s cyber space. y e-Government: Providing e-infrastructure for delivery of e-services y e-Industry: Promotion of electronics hardware manufacturing and IT-ITeS industry y e-Innovation / R & D: Providing Support for creation of Innovation Infrastructure in emerging areas of technology y e-Education: Providing support for development of e-Skills and Knowledge network y e-Security: Securing India¶s cyber space 8.2 SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI): STPI is an autonomous society under Minis try of Communication and Information Technology, Dept. of Information Technology, Govt. of India which has been set up with distinct focus for promotion of Software export from the country. STPI is constantly working with an objective to implement STP scheme formulated by Govt. of India, set up and manage infrastructural facilities and provide other services like: Technology Assessment and Professional Training. STPI acts as front end on behalf of the Govt. of India to take care of all the statutory needs like project approval, import approvals, bonding, and export certification etc. for the member unit registering under STP¶s 100% EOU scheme formulated by Govt. of India. STPI also supports start-up companies by providing incubation infrastructure, with all facilities like Internet, Telephone, Fax, Backup and captive power. These facilities have contributed significantly to the growth of Software Export from the country. Today there are 49 STPI centres all over the country helping over 5000 STP units who are fulfilling the National dream of global leadership in software exports. STPI has shown stupendous growth in turnover of units from the STP centres, from Rs. 52 crores in 95 1992-93, to a staggering Rs. 51,458 crores in 2003-2004, which represents more than 80% share of National Software Exports. STPI acts as a resource centre for the member software exporting units by offering general infrastructural facilities like ready to use built up space, centralized computing facility and High Speed Data Communication (HSDC). Currently there are 43 structural units of Software Technology Parks (STPs) united in a single autonomous formation by the IT Ministry. 8.2.1 Basic Characteristics of India¶s Software Technology Parks (STP), Export Processing Zones (EPZ) and Export Oriented Units (EOU) y Simpler export -import procedures, zero customs duties y A quick ³single window´ for all bureaucratic dealings y Lower sales taxes and excise rates y 10-year corporate tax exemption for STPs and 5-year corporate tax exemption for EPZs and EOUs y Simpler access to hard currency y Well-developed telecommunications infrastructure, access to international communications channels, in particular, to satellit e communications y More vacant production premises and preferential terms to build new production facilities y Cash compensatory support and reduced rents of facilities, apart ments, and lower prices for water and power supplies; Currently the STPI share of software and services exports is 80%. STPs have 15 international outlets due to land-based sat ellite communication stations F3 IBS (which provide for high speed channels whose channel capacity equals that of several T1 lines). (For example, at present in the STPs of the city of Noida the aggregate capacity of international channels of the satellite communications station is 13.824 Gbit/sec.) 8.3 INFRASTRUCTURE SERVICES PROVIDED BY STPI: One of the objectives of Software Technology Parks of India is to provide effective Data Communication Facilities to the esteemed Software Exporters. In persuasion of this objective the STPI established its own gateways at its nodal centres located in different parts of the country. STPI Mohali provides High Speed Data Communication Link, access to Int ernet Services through a public TCP/IP Networks World Wide. The customer premises in India are connect ed to their client abroad by gateway which is located at Mohali through a radio link using point to point connection. This will facilitate any company operating in India or abroad connect ed to Internet, and to access our Data Communication Network. The services provided are: 96 y Soft POINT (International Leased Line): Soft POINT offers point to point International Leased High Speed Data Communication links of 64 Kbps up to 2 Mbps. The service are available round the clock and charges are fixed irrespective of the time and volume of data transferred by the user. Source: Department of IT, Ministry of communication and IT, Govt. of India y Soft LINK (Shared Internet Connection): Soft LINK is the TCP/IP based shared Internet s ervice which uses its own International Gateway for the upstream connectivity. Source: Department of IT, Ministry of communication and IT, Govt. of India 97 8.4 GROWTH FORECAST OF IT AND RELATED INDUSTRIES IN INDIA The second half of 2009 saw a modest recovery in spending on computers after a contraction in the prior phase since the country was buffeted by strong economic headwinds. Stronger growth in ent erprise spending is expected in 2010, after the 2009 recovery was driven mainl y by consumer notebook purchases. The total size of the IT market is now projected to increase from US$14.7bn in 2010 to US$26.6bn by 2014. IT spending growth slowed significantly in the last year which brought a double-digit shipment decline in PC sales, but a recovery was expected to begin in the second half of the year, with a strong festive season. 8.4.1 2010 Outlook Sales of PCs grew sequentially in first quarter of 2009 but were still down by low single-digit factor y-o-y compared with the equivalent period of 2008. BMI expected the Indian IT market to improve in the last quarter of 2009. Government procurement should also grow robustly in 2010, after some disruption due to the national elections in the previous year. Major IT services vendors reported a reduction in project cancellations, as clients began t o anticipate a recovery in the global and US economies. However, price-sensitive clients often demanded reductions in standard billing rates, placing under pressure margins that are generally lower than in more mature markets. In 2010, business demand could receive a lift from tenders deferred from last year. The release of Microsoft¶s new Windows 7 operating system could also help to trigger a new cycle of hardware upgrades. However, much will depend on business and consumer confidence. In 2009, the Indian authorities announced a series of measures to stimulat e the domestic market as well as assist domestic IT companies. Service tax and excise duty taxes were lowered, while the R eserve Bank of India took various steps to try and free up credit. 8.4.2 Indian IT-BPO Performance-2010 estimates: The industry is estimat ed to aggregat e 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 estimat ed 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. 8.4.3 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 98 8.4.4 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 eGovernance initiatives, enhanced connectivity and increased levels of IT spending are key factors, which make the domestic market lucrative today. Domestic IT services is expected to grow by 12 per cent in FY2010. Hardware spend is largely expect ed to remain flat in FY2010. The domestic BPO segment Is expect ed to continue its strong performances shown over the past few years 8.4.5 Market Drivers The long-term potential of India¶s IT market is plain: less than 3% of people in India own a computer (About one-fifth of the level in China), meaning particular potential in the lowerend product range. Significantly, 45% of India¶s population is under 25, which should boost PC and IT usage. Mindful of increasing global vendor interest, a number of federal and local government initiatives have been designed to attract invest ment. Therefore, despite the current demand slowdown, India should confirm its potential as a key emerging market over the forecast period. However, realisation of this long-t erm growth potential depends on fundamental drivers such as raising India¶s low comput er penetration, rising incomes, falling computer prices and the government¶s ambitions to connect the vast rural areas to the outside world. Currently, broadband penetration is projected to reach around 7.3% by 2013, far below government targets. The popularity of the new wave of low-cost PCs and netbooks has largely been restricted to urban and semi-urban areas. There are a number of barriers including regional imbalances, low incomes and a flawed legal regime for patent protection. Measures to encourage the domestic hardware sector have thus far had mixed results and the important BPO sector faces a strong challenge from other markets including China. The current global economic crisis has exacerbat ed some of these challenges. However, the government is expect ed to continue its focus on developing internet connectivity in rural areas 8.4.6 Segments: The potential certainly exists for India to outdo China over the next couple of years in growth of PC adoption and usage. The average price of a PC has nearly halved over the past few years to less than US$250, and rising incomes and greater credit availability will continue to bring computers within the reach of lower-income demographics. The new breed of netbooks, with their lower price points, is likely to provide a hot growth segment. However, the rate of growth will depend on other government policies, such as its level of spending on computers for schools. However the IT-enabled service sector remains critical. According to government figures, India¶s BPO industry is growing at a rate of around 40% per annum and is likely to capture more than half of the US$110bn global offshoring market by 2010, generating continued 99 opportunities for vendors of IT products and services. The fastest-growing soft ware and services areas are therefore expected to be call centres and BPO operations, with 80% of domestic industry revenues coming from exports. However, a recent Nasscom report identified a strong challenge to India¶s BPO dominance from other countries, including China. On the other hand, spending on IT services is also growing rapidly in domestic sectors such as banks and financial services, telecoms, government and education. Growth over the forecast period is also expected to be provided by India¶s long secondary hardware sector. However, while the government has been unveiling a new series of tax incentives and subsidies to encourage the fast-growing hardware sector, a number of restraints remain, including high tariffs. Most recently, the government has unveiled plans for a new series of electronic hardware manufacturing units within new IT Invest ment Regions. At the same time, the big discrepancy in tax rates for India¶s hardware sector (in excess of 20-30%, compared with around 17% in China) creates obvious possibilities for further reform and yet faster growth. 8.4.7 Inference: The share of hardware in total IT spending is expected by BMI to remain above 50% during the 2010- 2014 forecast period. Overall, the hardware market is predicted to grow from an estimat ed US$7.6bn in 2010 to US$13.3bn in 2014, with computer sales including accessories projected to rise from an estimated US$6.2bn to US$11.0bn over the same period. Combined software and services spending is forecast to increase from an estimated US$7.1bn to US$13.3bn. 8.5 FUTURE OF THE INDIAN IT INDUSTRY: The current scenario in the IT industry of India and the tremendous growth regist ered in recent years has generated much optimism about the future of the Indian Information technology industry. Analysts are upbeat about the huge potential of growth in the Information Technology industry in India. Raja M Mitra, Senior consultant in The World Bank Group has conducted a study, IT Industry in Transformation: Opportunities and Challenges for India which is based on the ongoing research by the author on economic growth and high technology industry developments globally and India in particular. This study identifies three major growth scenarios for the IT products and services industry and the BPO sector in India for the 2010-2020 period. A. The low growth scenario: IT-BPO industry revenue reaches US$ 185 billion level by 2020 out of which exports accounts for 140 billion while the domestic market accounts for 45 billion. This implies an especially substantive deceleration of IT-BPO industry growth compared to the 2000s. 100 B. The medium growth scenario: IT-BPO industry revenue reaches the US$ 255 billion level by 2020 out of which exports accounts for 200 billion while the domestic market accounts for 55 billion. This implies that IT-BPO industry growth reaches a CAGR 14 per cent in the 2010-2020 period ± a comparatively moderate deceleration compared to the 2000¶s. C. The high growth scenario: IT-BPO industry revenue reaches the US$ 350 billion level by 2020 out of which exports accounts for 270 billion while the domestic market accounts for 80 billion. This implies that overall IT-BPO industry growth will grow at comparativel y higher rates but the CAGR will still not reach the 2000s level. However, the medium growth scenario appears to be most likely and hence it is viewed as the base line by the author The study, done with World Bank grants and published by the London School of Economics, says that much of the dynamism in IT-BPO industry development in India will continue to be driven by the offshoring-export business. However, unlike the 1990s the rat e of growth in the domestic market may well be at par with or higher than in exports. 8.5.1 The major areas of benefit that the future growth in the IT industry can generate for the Indian econo my are y y y Exports - The IT industry accounts for a major share in the exports from India. This is expected to grow further in coming years. The information technology industry is one of the major sources of foreign currency or India. E mployment - The biggest benefit of the IT industry is the huge employment it generates. For a developing country like India, with a huge population, the high rat e of employment in the IT sector is a big advantage. The IT industry is expected t o generate employment of 2.2 million by the end of 2008 which is expected to increase significantly in coming years. FDI (Foreign Direct Investment) - High inflow of FDI in the IT sector is expected to continue in coming years. The inflow of huge volumes of FDI in the IT industry of India has not only boosted the industry but the entire Indian economy in recent years. Software exports from India are expect ed to grow in coming years. New markets for software exports from India have opened up in the Middle East, South and Southeast Asia, Africa, and Eastern Europe. The reputation that India has earned as a major destination for IT outsourcing has opened further possibilities. Many developing countries are now using the Indian model for growth in the IT sector. Another important area of future growth for the IT industry of India is the domestic market. While exports dominat e the IT industry at present, there is huge scope of growth in the 101 domestic market which can be tapped in the future. The focus for the future is to ensure that the benefits of the IT industry percolate to the grass root levels. 8.5.2 Inference: IT will continue to gain momentum; telecom and wireless will follow the trend. The immense expansion in networking technologies is expected to continue into the next decade also. Technologies that are emerging are Data Warehousing and Data Mining. Software services that are being used in outsourcing will go a long way. However in addition to the exports and outsourcing activities the rate of domestic exports is also expect ed to be at par with exports. 8.6 CHALLENGES IN INDIAN IT INDUSTRY The IT software and services industry has grown rapidly over the last decade. However this growth has also be accompanied by number of challenges which are being faced by the information technology industry of India. y y y One of the major challenges for the Indian information technology industry was to keep maintaining its excellent performance standards. The first step that needs to be taken is to create an environment for innovation that could be carried for a long time. The innovation needs to be done in three areas that are connected to the information technology industry of India such as business models, ecosystems and knowledge. The improvement however, also needs to be qualitative rather than just being quantitative. The Indian information technology industry also needs to co-ordinate with the academic circles as well as other industries in India for better performance and improved productivity. The experts are of the opinion that the business process outsourcing service providers in India need to change their operations to a way that is more orient ed to the knowledge process outsourcing. I.e. greater emphasis has to be put more on KPO¶s. One of the most important crises facing the Indian information technology industry concerns the human resources aspect. These challenges may be in different areas like : 1. The Challenge of Numbers: Available estimates indicate that about 200,000 engineering graduates and diploma-holders are produced in India every year. Of these, according to NASSCOM analysis, about 90,000 are IT professionals, and 70,000 enter the workforce. Another 60,000 non-IT professionals too join the industry, making for a total of about 130,000 fresh entrants. This number is clearly inadequate to meet the needs, as projected over the next five years. 102 Fortunat ely, over the last few years, a great deal of additional capacity has been created in technical education. Apart from the expansion in existing institutions, many private colleges have been set up in the recent years. A recent government estimate indicates that the intake capacity for technical education has increased from 134,000 to 386,000 in the last few years. As a result of this three-fold increase in admissions, there should be a nearly-equivalent rise in output over the next few years. 2. Ensuring and Upgrading Quality: While numbers will not be a serious impediment, the same cannot be said about quality. It is true that some Indian institutions (the IITs and IIMs, in particular) have established an enviable world-wide reputation for turning out top-quality professionals. However, the average engineering graduat e is hardly of world-class, and the average non-technical graduate is of distinctly inferior quality. The curriculum in most universities is obsolete, as are the texts. The quality of faculty and of infrastructure (laboratories, equipment, etc.) is poor, and the pedagogic methods and materials are complet ely inadequate. As the IT industry moves beyond tapping the talent in the best campuses, to recruiting large numbers from second and third rung institutes, the challenge of quality is going to be a major one. Urgent steps are needed to upgrade the physical and intellectual infrastructure of colleges, and also the syllabi and teaching mat erials/methods. The government has began upgrading 17 National Institutes of Technology (formerly Regional Engineering Colleges). These initiatives should be of some help in upgrading quality. 3. Improving Employability: Despite the large number of students graduating, it is not uncommon to hear companies complain about not finding suitable candidates. The updating of syllabi and ensuring relevant content would be useful. In addition, it would be worthwhile to include some basic IT courses for the Science and Mathematics students. In fact, such courses could be introduced even for Commerce and Economics students. This would enable graduates in these streams to be considered for employment in a number of IT-enabled services (ITES) and backoffice/business process outsourcing (BPO) jobs. Good language skills (particularly English, but potentially also in Spanish, French, German and Japanese) is one of the requirements of the booming ITES/BPO sector, and one of the opportunities for the education system, including privat e training institutions. So far, this industry has been concentrated in just 4 or 5 of the metros. Its long-term growth, however, 103 depends upon moving large parts of its operations to smaller cities. One of the major challenges is to find enough people with good language skill s in these cities. This is potentially a major problem for the whole ITES/BPO industry. 4. Developing "Soft" Skills : One of the comments often heard about Indian IT professionals is that their skills in their core function are excellent, but that they lack other capabilities. As the industry grows, it is essential that IT professionals be more rounded personalities. In particular, it is important that they improve articulation - both oral and written and develop social skills. As the focus of the work moves from mere code-writing to consulting, problem-definition, system integration and project management, there is need for adding other capabilities to the repertoire of technical skills. The development of such soft skills (amongst at least a core of top performers) must become a priority for IT companies. 5. Attracting and Retaining Talent: The IT industry has, during the last decade, been probably the most attractive sector to work in. It has, therefore, been able to get the best talent. The challenge now is to safeguard and build on this prime position. Attractive compensation, challenging assignments, good working conditions and growth opportunities are amongst the main det erminants of where talent gravitates, along with the indefinable "glamour value" of an industry or a specific company. Taking care of these paramet ers is a necessary task for the IT industry. Retaining talent is a major challenge for companies, especially in a growth boom, when a lot of "seduction" of employees between one company and another is commonplace. The IT industry has provided an excellent physical work-environment. It needs to continue to be a leader in providing these facilities, including food, fitness and sports facilities. Providing these is critical, and is of particular importance in the ITES/BPO sector, where attrition rates tend to be high for just these reasons. Compensation is probably the single most important paramet er in most cases. The challenge here is to provide on attractive package in the context of rising expectations, and yet minimise overall cost escalation. 104 6. Generating Motivation and Increasing Efficiency : Motivating individuals is amongst the most vital tasks of a leader. While this is easier in some circumstances, it is far more difficult in situations where the job is repetitive and routine, as is the case in many ITES/BPO operations. This is where there is a real challenge to managers. This is particularly important because a key part of India's value proposition as the outsourcing destination is based on productivity and quality - factors that depend critically on motivation. 7. Building Global Organisations : As Indian IT companies grow, and enter new geographies, they will need to become truly international. Their delivery models too will need this, as customers push for multi-country disaster recovery sites. Also, they will need to increasingly tap the best talent from whichever country it is available. These factors, and the possibility of inorganic growth by acquiring foreign companies, will all dictate the increasing globalisation of Indian IT companies. A basic change in mind-set is needed for this to happen successfully, and this is a major challenge for home-grown, very "Indian" companies: how to transform into global corporations without losing the pos itive values and culture that they have developed. 8. Developing Leaders: A major challenge for the Indian IT industry is developing true leaders. The industry has evolved and grown rapidly through the vision and leadership skills of a few key individuals. In many companies, a change of guard is now taking place or due, as a new generation begins to take the reins. How to ensure that strong leadership continues and is available down the organisational hierarchy? This is going to be a key issue, as the industry grows and needs not a few dozens, but hundreds of leaders. 9. Attrition and Retention: IT companies are having high degree of attrition. The challenge for these companies is to keep this attrition rate as low as possible. Various companies adopt different techniques to retain their employees like high pay packets, ESOP, other benefits. So the challenge is t o keep this attrition rate as low as possible to retain super achievers. 105 8.6.1 Inference The biggest challenge, then, is to bring about a change in the mind-set of the IT industry so that it recognizes the crucial role of HR as an investment for future growth. Since IT is an industry which unlike other industries is knowledge based, people are the primary assets and efficient utilization of skilled labour forces can help the IT industry achieve rapid pace of economic growth 8.7 CONCLUSION ABOUT THE CHAPTER: After a modest growth in the second half of 2009 the Indian IT sector showed renewed growth in the first quarter of 2010. IT services along with related industries like Hardware and BPO¶s are expected to show increase close to 50% in the next five years till 2014 even though the BPO sector is expected to face increased competition from countries like China. The growth of Indian IT sector is expected to be driven by number of other factors too like tax incentives by the government, Govt. trying to reduce international communication costs, decrease in costs of PC¶s etc. However increasing growth also comes with number of challenges. The IT sector is today faced with challenges especially of HR concerns like the challenge of numbers, high attrition and turnover, developing soft skills of IT professionals and many such. Therefore in order to achieve this expected growth and contribute to the rapidly growing Indian economy the IT sector will have to recognize these concerns and overcome them at the earliest. 106 9. CONCLUSION: The IT sector in India will be showing a tremendous growth in future, as it is one of the fastest growing sectors in India. Government policies also play an important role for the growth of IT industry. After seeing the downfall, including the Satyam case the industry has bounce back again. IT sector is also responsible for getting more employment opportunities in India as India is also known for its manpower and especially IT professionals. IT sector also constitutes for major portion of the GDP and the industries exports are likely to increase in future. One of the biggest competitors of India in IT sector is China, especially in the BPO sector. Looking at India¶s growth in IT industry too many Int ernational Companies are investing in Indian market. India's IT and business process outsourcing (BPO) services industry could be bringing in US$60 billion by the year 2010, growing a t over 25 percent a year. However, the industry could face a shortage of half a million workers unless remedial measures in public education and corporate training are taken quickly, according to the report. India's software and services exports were $17.2 billion in the fiscal year ended March 31 this year, up by 34.5 percent from the previous year, according to the National Association of Software and Service Companies (NASSCOM) of Delhi. NASSCOM and management consulting firm McKinsey & Co. released the findings jointly. A large number of multinational technology and user companies are steppi ng up outsourcing to India. For example, Microsoft Corp. announced last week that it was increasing staff in India from 4,000 to 7,000 over the next three to four years, while Dell Inc. said in April that it was increasing staff in the country to 10,000 by the end of this year. Aviva PLC, a British insurance company, said Monday that its suppliers were increasing staff doing work for Aviva from 4,300 to 7,800 over the next two years in India and Sri Lanka. The total addressable market for global offshoring is approximately $300 billion, of which $110 billion will be offshored by 2010, according to the NASSCOM -McKinsey report. By 2010 the Indian IT and BPO services industry could directly employ approximately 2.3 million people, besides providing indirect employment to another 6.5 million workers, according to the report. The industry employed about 1 million staff and provided indirect employment to 2.5 million people in the fiscal year to March 31 this year, according to data released by NASSCOM earlier this year. However staff shortage could be a major bottleneck for the industry, according to the report. The skills and quality of the workforce needs to be improved as only 25 percent of technical graduates are suitable for employment in the offshore IT industry in India, while only 10 107 percent to 15 percent of general college graduates are suitable for employment by the BPO industry, according to Jayant Sinha, partner at McKinsey & Co. Urban infrastructure in India also needs to be improved as offshoring companies deal with various bottlenecks, Sinha said. Further growth of the industry will have to come from entirely new business districts outside the first- and second-tier cities, he added. The report proposes setting 10 or 12 integrated townships in India with associated infrastructure like roads and int ernational airports. According to a report prepared by McKinsey for NASSCOM, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. 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