Harnessing the power of India's IT services, April 2008
India is recognised as the global leader in offshored IT (Information Technology) services and a principal player in BPO (Business Process Outsourcing) services. As organisations continue to strive for streamlined business processes, reduced costs and faster turnaround times, outsourcing the IT function is becoming increasingly essential with recognised cost and labour savings. If you are considering such a move then you need to understand the significant of the Indian market and the opportunities and challenges it presents.
Background
India has been deemed the IT engine of the world, which is evident from the fact that exports of Indian IT Services and BPO services grew by 28 percent over the past year to reach $34 billion. The industry directly employs about 2 million people and is expected to sustain an export growth rate of 18 to 20% annually for the next five years.
While the United States and United Kingdom remain the largest export markets (61 per cent and 18 per cent respectively), India’s IT services industry is steadily increasing its presence in other geographies. Continental Europe now accounts for 12.3 % and Asia-Pacific 6.4% of industry exports.
India’s Competitive Proposition
The foremost competitive advantage of India’s IT/BPO services industry is a highly skilled workforce that offers a 3:1 cost differential compared to service providers in the United States and Western Europe. India’s higher education system annually produces nearly 2.8 million graduates (of whom 495,000 possess technical degrees) and over 300,000 post-graduates. This large, technically proficient, linguistically capable labor pool enables Indian IT service companies to deliver a compelling economic proposition to clients worldwide.
Business Challenges
In addition to huge growth opportunities, India’s IT/BPO industry faces a number of challenges:
- The U.S Economic Slowdown
- Talent Retention, Attrition & Cost of Retention
- Rupee Exchange Rate
- Expiration of Tax Holiday
To meet these challenges, key industry players are seeking ways to convert each customer into a value-adding, revenue-generating resource that promotes continual productivity improvement and technology adaptation. Consequently the Indian IT/BPO industry continues to enjoy significant growth potential.
Opportunities for Global Businesses
The value proposition presented by the Indian IT/BPO services industry represents a huge opportunity for global businesses. This is evident from the fact that Citibank has over 10,000 employees in business process outsourcing operations and Accenture employs over 35,000 people in India’s IT/BPO segment. Accenture’s Indian operations are currently ranked second to the U.S. in terms of headcount. Deloitte is estimated to employ 5,000 personnel in India, and is expected to increase its Indian workforce to 15,000 employees over the next 5 years.
Another example is the $ 1.2-billion deal that Tata Consultancy Services (India’s largest IT services company) has struck with AC Nielsen for IT and operations support over a ten-year contract. AC Nielson’s finance and HR business processes are also included in the contract, which will be executed on a new business platform designed by TCS. TCS has also taken over the responsibility for a new development centre as part of the deal.
The following segments of India’s IT services industry offer the greatest offshoring potential:
- Sofware application development and support
- Information systems outsourcing and systems integration
- Customer interaction and support
- Finance and accounting services
- Human resources support services
- Vertical-specific BPO services and knowledge based services
By leveraging the capabilities of Indian IT service companies in these segments, global businesses stand to reap substantial improvements in operational performance and shareholder value.
If you are interested in knowing more about the Indian IT Market you should contact the author of this article, Dr. Suresh Surana, a Chartered Accountant and founder of RSM Astute, the Indian member of RSM International.