group 10_it industry

8/2/2019 Group 10_it Industry

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A Report on Information Technology Industry

Submitted to: Dr. Joseph TJ

Prepared by:

Group 10

Rajiv Raghu

Ayon Dasgupta

Khushi

Manas Kar

Lasya Reddy A


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TABLE OF CONTENTS

EXECUTIVE SUMMARY ..3

INTRODUCTION 4

INDUSTRY ENVIRONMENT ..10

INDUSTRY STRUCTURE ... 14

INDUSTRY CONDUCTAND PRACTICES .. 16

INDUSTRY PERFORMANCE 25

COMPETITION ANALYSIS ... 33

FUTURE OF IT INDUSTRY 36

SUMMARY AND CONCLUSION .. 37


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EXECUTIVE SUMMARY

In the following report on Indian Information Technology industry, wehave broadly covered the overview of the industry and compared it with

the global industry.The market potential estimations and forecasts havealso been covered in the report. We have used various techniques to bringout the strengths and weaknesses of the industry. Few of the techniquesused are Porters Five Forces analysis in which the threat from the existingcompanies, new entrants, buyers, suppliers and the substitutes have beentaken into consideration. Porters 5 forces model used here isa frameworkfor industry analysis that determines the competitive intensity and thereforethe attractiveness of the industry. Using Herfindahl Index we have arrivedin knowing the relative competitiveness of the industry. In conduct and

practices, the various practices of the industry such as marketing intensity,export intensity, R&D intensity have been found out for the four majorcompanies in the Indian IT industry.

In performance analysis, i.e. Profitability, Return on Assets, Return

on Sales, Sales growth of the major players in the industry has been found

and interpreted on their outcome. Lastly, the future of the Indian IT

industry has been outlined.


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INFORMATION TECHNOLOGY

Definition:

We use the term information technology or IT to refer to an entire industry.In actuality, information technology is the use of computers and softwareto manage information. In some companies, this is referred to asManagement Information Services (or MIS) or simply as InformationServices (or IS). The information technology department of a largecompany would be responsible for storing information, protectinginformation, processing the information, transmitting the information asnecessary, and later retrieving information as necessary.

IT is the area of managing technology and spans wide variety of areas thatinclude but are not limited to things such as processes, computer software,information system, computer hardware, programming languages, and dataconstructs. In short, anything that renders data, information or perceivedknowledge in any visual format whatsoever, via any multimediadistribution mechanism, is considered part of the domain space known asInformation Technology (IT).

IT professionals perform a variety of functions (ITDisciplines/Competencies) that range from installing applications to

designing complex computer networks and information databases. A fewof the duties that IT professionals perform may include data management,networking, engineering computer hardware, database and software design,as well as management and administration of entire systems. Informationtechnology is starting to spread farther than the conventional personalcomputer and network technology, and more into integrations of othertechnologies such as the use of cell phones, televisions, automobiles, andmore, which is increasing the demand for such jobs.


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HISTORY OF INFORMATION TECHNOLOGY

A. The Premechanical Age: 3000 B.C. - 1450 A.D.First humans communicated only through speaking and picturedrawings. 3000 B.C., the Sumerians in Mesopotamia (what is todaysouthern Iraq) devised cuniform. Around 2000 B.C., Phoenicianscreated symbols.The Greeks later adopted the Phoenician alphabetand added vowels; the Romans gave the letters Latin names to createthe alphabet we use today. Sumerians' input technology was a stylusthat could scratch marks in wet clay.Around 100 A.D., the Chinesemade paper from rags, on which modern-day papermaking isbased.The first numbering systems similar to those in use today were

invented between 100 and 200 A.D. by Hindus in India who createda nine-digit numbering system.

B. The Mechanical Age: 1450A.D. - 1840 A.D.The First Information Explosion. Johann Gutenberg (Mainz,Germany) invented the movable metal-type printing process in1450.The development of book indexes and the widespread use ofpage numbers. The first general purpose "computers" Actuallypeople who held the job title "computer: one who works withnumbers." Slide Rules by William Oughtred, the Pascaline byBlaise Pascal, Leibniz's Machine by Gottfried Wilhelm vonLeibniz. Electromechanical Computing by Herman Hollerith andIBM.

C. The Electromechanical Age: 1840 - 1940.The discovery of ways to harness electricity was the key advance

made during this period. Knowledge and information could now be

converted into electrical impulses.

The Beginnings of Telecommunication.

Voltaic Battery Late 18th Century.

Telegraph Early 1800s.

Morse Code Developed in1835 by Samuel Morse

Telephone and Radio Developed in 1876


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D. The Electronic Age: 1940 - Present.Here the generations of Computers came into existence.

The First High-Speed, General-Purpose Computer Using Vacuum

Tubes. Electronic NumericalIntegrator and Computer (ENIAC) Developers John Mauchly, a

physicist, and J. Prosper Eckert, an electrical engineer.

EDVAC - the Electronic Discreet Variable Computer. EDSAC

(Electronic Delay Storage Automatic Calculator). The First Generation

Computers 1951-1958 used Vacuum tubes, Punched Cards, Rotating

Magnetic Drums. The Second

Generation computers 1959-1963 used transistors, size of the machine

reduced. The Third Generation computers 1964-1979 used electronicpulses to process the information, speed of processing increased.

The Fourth Generation computers 1979-Present uses Artificial

Intelligence. Fourth generation language software products

E.g.: dBase, Microsoft Word.


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POPULAR INFORMATION TECHNOLOGY

SKILLS

Computer Networking A computer network is any set of computers or

devices connected to each other with the ability to exchange data.

Computer Networking is a focus within engineering that deals with

communication between computer systems or devices.

Information Security Information security refers to protecting

information and information systems from unauthorized access, use,

disclosure, disruption, modification, or destruction. The goals ofinformation security include protecting the confidentiality, integrity and

availability of information.

IT Governance IT Governance, or Information Technology Governance,

is a subset of Corporate Governance focused on information technology

(IT) systems performance and risk management.

ITIL The Information Technology Infrastructure Library (ITIL) is a set of

concepts and techniques for managing information technology (IT)infrastructure, development, and operations. ITIL is the most widely

accepted approach to IT service management in the world.

Business Intelligence Business Intelligence (BI) is the ways in which we

store and use business information. It encompasses the technologies,

applications, and means for collecting, integrating, analysing, and

presenting business data.

UNIX it is a computer Operating System (or OS) used most commonly inservers and workstations.

LINUX it is a Unix-like computer Operating System (or OS) that uses the

Linux kernel. Linux started out as a personal computer system used by

individuals, and has since gained the support of several large corporations,

such as Sun Microsystems, HP and IBM.


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CERTIFICATIONS

Information Security Certifications The profession of information

security has seen an increased demand for professionals who are

experienced in network security auditing, penetration testing, and digitalforensics investigation.

Oracle DBA Certification The Oracle certified professional is a mid level

designation of skill level in Oracle's certification programs.

Microsoft Certifications The Microsoft Certified IT Professional

(MCITP) credential shows that you have current skills and proven job-role

capabilities to work effectively with a comprehensive set of Microsoft

technologies.

Cisco Certifications The expert-level certification is the Cisco Certified

Internetwork Expert (CCIE). It is the highest level of professional

certification that Cisco provides.


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IT INDUSTRY IN INDIA

The Indian Information Technology industry accounts for a 5.19% ofthe country's GDP and export earnings as of 2009, while providing

employment to a significant number of its tertiary sector workforce. More

than 2.5 million people are employed in the sector either directly or

indirectly, making it one of the biggest job creators in India and a mainstay

of the national economy. In 2010-11, annual revenues from IT-BPO sector

is estimated to have grown over US$76 billion compared to China with

$35.76 billion and Philippines with $8.85 billion. India's outsourcing

industry is expected to increase to US$225 billion by 2020. The mostprominent IT hub is IT capital Bangalore. The other emerging destinations

are Chennai, Hyderabad, Kolkata, Pune, Mumbai, NCR and Kochi.

Technically proficient immigrants from India sought jobs in the western

world from the 1950s onwards as India's education system produced more

engineers than its industry could absorb. India's growing stature in the

information age enabled it to form close ties with both the United States of

America and the European Union. However, the recent global financial

crisis has deeply impacted the Indian IT companies as well as globalcompanies. As a result hiring has dropped sharply and employees are

looking at different sectors like the financial service, telecommunications,

and manufacturing industries, which have been growing phenomenally

over the last few years.


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PEST ANALYSIS

Political

1.

Indian political structure is considered stable enough expect the factthat there is a fear of hung parliament.

2. U.S. government has declared that U.S companies that outsource ITwork to other locations other than U.S. will not get tax benefit.

3. Government owned companies and PSUs have decided to give moreIT projects to Indian IT companies.

4. Terrorist attack or war will make a huge hazard to this sector.Economic

1. Global IT spending has increased immensely.2. Domestic IT Spending: Domestic market to grow by 20% and reach

approx. USD 20 billion in 2008-09.3. Decline in real estate prices has resulted in reduced rental

expenditures.4. Due to recession, the layoffs and job-cuts have resulted in low

attrition rate.

5.

Economic attractiveness due to cost advantage and other factors.

Social

1. Language spoken: English is widely spoken language in India,English medium being the most accepted medium of education.

2. A number of technical institutes and universities over the countryoffer IT education.

Technological

1. India has the lowest call rate.2. India has second largest telephone network after China3. Teledensity19.86%


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Break up of Total Global IT Spending

From the above graph, we can infer that the total global IT spending isincreasing at a constant rate since 2006. This shows that the market for IT

industry is opening up and shows a good sign.


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Indian IT industry Revenue Break-up by company

The above pie chart shows the revenue break up of different IT / ITES

companies. The top four companies are:

TCS11%

Wipro10%

Infosys8%

HCL and Satyam4% each


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HERFINDAHL INDEX

The Herfindahl index (HI) is a measure of industry concentration equal tothe sum of the squared market shares of the firms in the industry.

The Herfindahl index is defined as the sum of the squares of the marketshares of each individual firm. As such, the index can range from 0 to10,000, moving from a very large amount of very small firms to a singlemonopolistic producer. Decrease in the Herfindahl index generally indicatea loss of pricing power and an increase in competition, whereas increasesimply the opposite.

The US uses the Herfindahl index to determine whether mergers are

justifiable; increases of over 100 points generally provoke scrutiny,although this varies from case to case. The Department of Justice considersHerfindahl indices between 1000 and 1800 to be moderately concentratedand indices above 1800 to be highly concentrated.

The Herfindahl Index for the IT companies when computed (taken fromthe Capitaline database) returns a value of1272.978606.This indicates that the value lies between 1000 and 1800. So this showsthat the companies in this industry are to be moderately concentrated (50%to 80%).
http://www.bizterms.net/term/Shares.htmlhttp://www.bizterms.net/term/Shares.htmlhttp://www.bizterms.net/term/Range.htmlhttp://www.bizterms.net/term/Competition.htmlhttp://www.bizterms.net/term/Competition.htmlhttp://www.bizterms.net/term/Range.htmlhttp://www.bizterms.net/term/Shares.htmlhttp://www.bizterms.net/term/Shares.html


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INDUSTRY STRUCTURE

Number of players in the IT industry are 72 (Source: Capitaline). For ouranalysis, we have considered the four major players based on theHerfindahl Index. The companies are:

1. Infosys Technologies Ltd2. TCS3. Wipro Ltd4. HCL.

Since the Herfindahl index for this industry is 1272.9, it falls in themedium concentration level, i.e., 50% to 80%. With this, we can say thatthe competition for this industry is OLIGOPOLY. In this market, there arevery sellers and many buyers. As there are few sellers, each oligopolistshould be aware of competitors actions. Here, Strategic planning byoligopolists needs to take into account the likely responses of the othermarket participants.

Differentiation Practices Followed:

1) Pricing Pricing schemes range from simple to high managementcosts. These ranges depend on the company that provides service.The cost would be quite high if it is an established brand.

2) Product Differentiation Product differentiation is high in thisindustry.
http://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Strategic_planning


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SPECTRUM OF INDUSTRY STRUCTURE

Oligopoly Market:

The concentration here is for the new firms because of few sellers. The entry and exit barriers are high here. That is, entry into the

industry as well as the exit from the industry is difficult.

Product Differentiation is high in this industry. There is imperfect information flow


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INDUSTRY CONDUCT

We deal with four aspects under the industry conduct. They are:A.Industry and firm level practicesB.Marketing / Advertising IntensityC.Technology IntensityD.Foreign / International Exposure


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A.INDUSTRY AND FIRM LEVEL PRACTICES

One of the most important industry and firm level practices is the Pricingstrategy.

Pricing strategies are one of the most important challenges and decisionsfor today's IT service providers. Pricing strategies for IT services havetraditionally focused on covering costs, achieving desired margins andmeeting the competition. These pricing schemes range from simpleapproaches, easily copied by competitors, to complex models with highmanagement costs. It depends on the brand of the company. If the companyis a well known and reputed company then the pricing would be set at a

high level. Likewise, if a company is not a known brand, then it wouldprovide services at a lower cost. So a company which is a new entrant canpick up its market by providing services to its client at a relatively lowerprice.


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B.MARKETING / ADVERTISING INTENSITYIt is computed in the following manner:

Marketing/Advertising Intensity = Total Marketing Expenses / Net Sales

Total Marketing Expenses: Rs.4117.39

Net Sales: Rs. 2302.89

So, Marketing Expenses / Advertising Intensity = 1.787923(Source: as per 15th Feb 2011, Capitaline)


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C.TECHNOLOGY INTENSITY

The comparative research is done to the following four major players:Infosys

TCS

Wipro

HCL

Technology Intensity is split into two parts: R&D focus and TechnologyImports.

R&D Focus (%) = R&D Expense / Net Sales

Since the year 2009, when recession ended, almost all the companiesstarted investing more in R&D to pull up their market. Among the

0

0.005

0.01

0.015

0.02

0.025

2006 2007 2008 2009 2010

R&D Focus - Infy

R&D Focus - Wipro

R&D Focus - TCS

R&D Focus - HCL


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companies Infosys has spent more in R&D when compared to that of theother companies. Cloud computing and platform based offerings startedgaining popularity and companies started spending on these technologies.

Technology Imports (%) = Forex Spending on Tech Imports / Net sales

Since recession IT companies started importing less technology from othercountries. Hence, this is the reason for dipping graph of the abovecompanies since 2007.

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008

2006 2007 2008 2009 2010

Tech Imports - Infy

Tech Imports - Wipro

Tech Imports - TCS

Tech Imports - HCL


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D.FOREIGN / INTERNATIONAL EXPOSURE

It involves two parts. They are: Export Intensity and Import Intensity

Export Intensity (%) = Total Forex Earnings / Net Sales

During the recession period, most of the companies could not earn much in

Forex as the market was very low. As and when the recession period came

to an end, huge opportunities started pouring in from other countries and

the market picked up gradually. Due to this many companies started

earning in Forex after 2008.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2006 2007 2008 2009 2010

Export Intensity - Infy

Export Intensity - Wipro

Export Intensity - TCS

Export Intensity - HCL


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Import Intensity (%) = Total Forex Spending / Net Sales

Most of the companies are cautious about their spending in the Forex as the

foreign markets are still suffering from recession, especially the European

market. So, they are reluctant to spend more in the Forex as aprecautionary factor. On the other hand, their net sales is increasing as the

markets in India have already opened up.

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

2006 2007 2008 2009 2010

Import Intensity - Infy

Import Intensity - WiproImport Intensity - TCS

Import Intensity - HCL


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LEVERAGE

Leverage is a general term for any technique to multiply gains and losses.

The leverage values of the taken four companies are:

The graph for HCL started increasing at a very high rate since 2008

because it had bagged a huge offer from a Finland based financial giant O

P Pohjola. Due to these it acquired lots of assets to provide service due towhich its debts started increasing. For all the remaining companies, debt

ratio is at a minimum level and they are still recovering from the global

recession.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2006 2007 2008 2009 2010

Leverage - Infy

Leverage - Wipro

Leverage -TCS

Leverage - HCL


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WORKING CAPITAL RATIO

Working capital is the liquid capital available with the company to carry on

with its day-to-day activities.

It is given as:

Current Assets / Current Liabilities

The working capital ratio of the four companies is:

Companies today are involved in acquiring more assets as new

opportunities are coming their way. Many companies especially in India

are receiving offers from other countries to provide them services. So the

graph of most of the companies is increasing since 2009 when recession

came to an end.

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2006 2007 2008 2009 2010

WRC - Infy

WRC - Wipro

WRC - TCS

WRC - HCL


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INDUSTRY PERFORMANCE

In 2008-09, emerging market countries were not the cause of recession, butthey were amongst its worst affected victims. Recession hit the exportperformance of developing countries and resulted in choking of credit,combined with elevated risk perception, had lead to lower capital flows andreduced levels of foreign direct investment. The combined effect hadslowed down economic growth in developing countries. The global impactof the current crisis may be outlined as under:

-Massive job cuts in USA, UK, Japan by major companies.

-Adverse impact on exports and deferred capital expenditure.- Slowing down of industrial output and corporate profits, finally resultinginto lower GDP.

Global Financial Crisis leads to massive job losses as the slowdown has cutthe demand for consumer products that result in the closing of factoriesalso in some of the countries. Unemployment rate in Japan rose from 3.80in 2008 to 4.10 in 2009, in USA it raised from 4.90 in 2008 to 7.60 in2009. Indias domestic IT market over the years has become one of the

major driving forces of the industry. The domestic IT infrastructure isdeveloping in contexts of technology and intensity of penetration. In FY2008-09, the domestic IT sector attained revenues worth $24.3 billioncompared to $23.1 billion in FY 2007-08, registering a growth of 5.4 percent. Moreover, the increasing demand for IT services and goods by IndiaInc has strengthened the expansion of the domestic market withagreements worth rising up extraordinarily to $100 million. By FY 2012,the domestic sector is estimated to expand to $1.7 billion from the existing$1billion.Since 2003, sales has been continuously increasing in terms of

IT industry. Though it slowed down in 2008 due to global recessionbecause of sub-prime crisis but again it started strengthening at end of2009.


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GROWTH ANALYSIS

Growth / Profit Trends in IT industry since 2005:

Since 2005, economies of world were running smoothly until greatrecession of 2007 impacted the world economies, hindering theirongoing economic process, which as a result affected growth of ITindustry.

This is the worst recession we had in the last sixty years andglobally the worst financial crisis we had since the Great Depressionof 1930s the software industry--as represented by public software

companies--went through a consolidation and a mild recovery. In the charts that follow, we first take a look at the trends for the

entire category of software companies.

The global impact of the current crisis may be outlined as under:

Slowing down of industrial output and corporate profits, finallyresulting into lower GDP rate. Global Financial Crisis leads to

massive job losses as the slowdown has cut the demand forconsumer products that result in the closing of factories also in someof the countries.

Recession had shown very severe impact on the export sector in US.It had fallen from $98753 million in Jan 2008 to $77869 million inJan 2009.

GDP rate in China fell from 10.73 in Jan 2006 to 8.2 in Jan 2009, inJapan it fell from 2.03 to 0.50 in 2009 and this downfall continued inUSA also and it fell from 2.78 to 1.28 in 2009.

Interest rates are also showing downfall in all the three countries i.e.in China it fell from 5.58 in Jan 2006 to 5.31 in Jan 2009, in Japan itis 0.10 in Jan 2009, in USA it fell from 4.25 in 2006 to 0.25 in 2009.

Stock Markets of China, Japan and USA had slumped due to therecession.

Growth Trend in India

On carefully investigating the behavior of IT companies, during andafter the past three global recessions, it was found that the companies


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that were growth leaders coming into recession often cannot retaintheir momentum; about 85 % are toppled during bad times.

The Indian IT industry has survived the global financial slowdowndespite initial negative impact in terms of steep fall in overseas orderfor Indian IT products. Operating margins of IT companies likeInfosys, Wipro, HCL etc increased by 5 to 7 percent in 2009-10 overthe previous year in terms of growth rate in revenue after fall from25-30 percent during 2005-07 to 10-15 percent during 2007-09, it isexpected to rise by 15-18 percent during 2010-11.

Profitability Ratios:

A class of financial metrics that are used to assess a business's ability togenerate earnings as compared to its expenses and other relevant costsincurred during a specific period of time. Profitability can be calculated by:

The following graphs show the performance of the 4 major IT companies:

Profitability (%) = Profit after Tax (PAT) / Net Sales

0

0.2

0.4

0.6

0.8

1

1.2

2005-06 2006-07 2007-08 2008-09 2009-10

cognizant

wipro

tcs

infosys


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For most of these ratios, having a higher value relative to a competitor'sratio or the same ratio from a previous period is indicative that thecompany is doing well.

Since 2005, the profitability was increasing until great recession of 2007impacted the world economies, hindering their ongoing economic processbecause of which profitability of companies in IT industry came down in2007-08, again increased after that also and due to global recession itslowed down after mid of 2008. This is the worst recession we had in thelast sixty years and globally the worst financial crisis.

PAT

0

20004000

6000

8000

10000

12000

14000

16000

1800020000

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys


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PAT(%)

During greater depression in 2007 and sub-prime crisis in 2008-09, PAT ofcompanies still were increasing and not affected as it was dependent ontotal assets of companies which were increasing from 2005.

PBDIT

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys

0

5000

10000

15000

20000

25000

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys


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PBDIT(%)

During greater depression in 2007 and sub-prime crisis in 2008-09 PBDITof companies still were increasing and not adversely affected.

Return on Assets (ROA)

0

500000

1000000

1500000

2000000

2500000

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys

0

0.5

1

1.5

2

2.5

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys


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ROA(%)

ROA gives an idea as to how efficient management is at using its assets to

generate earnings. Calculated by dividing a company's annual earnings by

its total assets, ROA is displayed as a percentage. Sometimes this is

referred to as "return on investment".

The formula for return on assets is: Net Income / Total Assets

Although the total assets of companies of this industry were increasing butdue to great depression in 2007 and ,economic breakdown in 2008-09 due

to recession again affected the ROA of almost all software companies

down during these period but the PBDIT during these period were also

increasing.

Return On Sales (ROS )

0

50

100

150

200

250

2005-06 2006-07 2007-08 2008-09 2009-10

cognizant

wipro

tcs

infosys

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2005-06 2007-06 2008-07 2009-2008 2010-09

cognizant

wipro

tcs

infosys


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ROS (%)

A ratio widely used to evaluate a company's operational efficiency. ROS isalso known as a firm's "operating profit margin". It is calculated using thisformula:

This measure is helpful to management, providing insight into how muchprofit is being produced per dollar of sales. As with many ratios, it is bestto compare a company's ROS over time to look for trends, and compare itto other companies in the industry. An increasing ROSindicates the company is growing more efficient, while a decreasing ROS

could signal looming financial troubles. When considering ROS ofcompanies like Infosys were more or less stable, while companies like CTSwere affected due to greater depression in 2007.Thus recession in ITindustry affected most of companies only few companies like Infosysshielded from its adverse affect due to strict policies and measures theyadopted.

0

20

40

60

80

100

120

140

2005-06 2006-07 2007-08 2008-09 2009-10

cognizant

wipro

tcs

infosys


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PORTERS FIVE FORCES MODEL

1) Threats for substitutes

2) Bargaining of supplier power

3) Bargaining power of customer

4) Barriers for entry

5) Rivalry among firms

Threats for substitutes:

Threats for substitutes are medium in the IT sector. Other offshorelocations such as Eastern Europe, the Philippines and China, are emerging


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and are posing threat to Indian IT industry because of their cost-advantage.

However, this should have an impact only in the medium to long term and

not in the short term. Price quoted for projects is a major differentiator, the

quality of products being same.

Bargaining of supplier power:

Bargaining power of supplier is shifted from high to low. This is due to theslowdown, the job-cuts, the layoffs and bleak IT outlook. Demand andsupply of IT professionals is no longer that favourable to employees.Availability of vast talent pool of freshers and experienced employee isanother factor pertaining to the shift.

Bargaining power of customer:

Bargaining power of customer is very high in this sector. This is becausethat large number of IT companies vying for IT projects resulting in highcompetition for projects. Indian IT sector is dependent on USA and BFSI inparticular for majority of its revenues, and with the recent financial crisis,the new spending from these has reduced tremendously. However, for theexisting products and services, the clients continue the old companies.

Barriers for entry:

Entry barriers are very low in this IT sector. This is because of low capital

requirements, large value chain, and space for small enterprises. MNCs are

ramping up capacity and employee strength.

Rivalry among firms:

Since there are only four major players in Indian IT sector the rivalryamong firms is relatively high. Commoditized offerings, low-cost, little-differentiation, positioning are the major differentiating factors. Highindustry growth strong competitors few numbers of large companies.


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CHALLENGES BEFORE IT

At present there are a number of challenges that information technologyindustry faces currently in India. One of the major challenges for the Indian

information technology industry is to keep maintaining its excellentperformance standards. However there are certain things that need to bedone in order to make sure that India can maintain its status as one of theleading information technology destinations of the world. The first stepthat needs to be taken is to create an environment for innovation that couldbe carried for a long time. The innovation needs to be done in three areasthat are connected to the information technology industry of India such asbusiness models, ecosystems and knowledge. The information technologysector of India also has to spread the range of its activities and also look at

the opportunities in other countries. The improvement however, also needsto be qualitative rather than just being quantitative. The skill level of theinformation technology professionals is one area that needs improvementand presents a considerable amount of challenge before the Indianinformation technology industry.

THE EXPORT POTENTIAL

The export potential of India's IT industry has been recognized by all

developed nations across the world. As per the NASSCOM-McKinsey

report, IT export from India in the year 2009 is projected to be 40% of total

Indian exports. According to this report, the products and services of IT

sector will account for more than 7.5% of the total growth of GDP in India

in the 2009 fiscal. The IT and IT enabled sectors, the online businesses,

and the software products of India are renowned all over the world for their

quality and cost efficiency. With its huge growth potential, the information

technology sector of India has emerged as a preferred investment area for

the IT biggies across the world.

As per the NASSCOM- McKinsey report, the IT sector of India will

provide 3.2 million job opportunities for the skilled Indian workforce by

the end of 2009. The market capitalization of the IT sector is expected to

be about 225 billion US dollars by 2009. The Government of India with the

help of the IT ministry has taken all the necessary initiatives and policy

measures to facilitate software exports from India. Efforts are also on to

reach the full potential of the India's IT industry. There is no doubt that

growth of Indian software exports crucially depends on the US demand for

the same.
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FUTURE OF INFORMATION TECHNOLOGY

IT industry 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. IT will bring about a drastic

improvement in the quality of life as it impacts application domains and

global competitiveness. Technologies that are emerging are Data

Warehousing and Data Mining. They involve collecting data to find

patterns and testing hypothesis in normal research. Software services that

are being used in outsourcing will go a long way.

By the year 2019, thanks to information technology (IT), humans will have

largely overcome the limits of our humanity. We will have found cures forthe major diseases that kill 95% of us in the developed world. By 2029, wewill become godliketiny computer chips embedded into our bodies willstop disease and reverse aging, ever expanding our lifespan. The currentscenario in the IT industry of India and the tremendous growth registeredin recent years has generated much optimism about the future of the IndianInformation technology industry.The major areas of benefit that the futuregrowth in the IT industry can generate for the Indian economy are

1. EXPORTS: The IT industry accounts for a major share in theexports from India. This is expected to grow further in coming years.The information technology industry is one of the major sources offoreign currency or India.

2. EMPLOYEMENT: The biggest benefit of the IT industry is thehuge employment it generates. For a developing country like India,with a huge population, the high rate of employment in the IT sectoris a big advantage. The IT industry is expected to generateemployment of 3.2 million by the end of 2010 which is expected toincrease significantly in coming years.

3. FDI (Foreign Direct Investment): High inflow of FDI in the ITsector 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.


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SUMMARY AND CONCLUSION

Information Technology has made possible information access at gigabitespeeds. It has created a level playing field among nations and has made

positive impact on the lives of millions who are poor, marginalized andliving in rural and far flung topographies. Internet has made revolutionarychanges with possibilities of e-filing Income Tax returns or applying forpassports online or railway e-ticketing.

Today a countrys IT potential is paramount for its march towards globalcompetitiveness, healthy GDP, improving defence capabilities and meetingup the energy and environmental challenges.

The Indian Information Technology- Information Technology-EnabledServices (IT-ITES) industry has continued to perform its role as the mostconsistent growth driver for the economy. Service, software exports andBPO remain the mainstay of the sector. Over the last five years, the IT &ITES industry has grown at a remarkable pace. Consider some of thesignificant indicators for these remarkable achievements. The IT/ITESexports have grown to a staggering US$ 46.3 billion in 2008-09, the ITsector currently employing 2.2 million professionals directly and another 8million people indirectly accounts for over 5% of GDP, a majority of theFortune 500 and Global 2000 corporations are sourcing IT/ITES from Indiaand it is the premier destination for the global sourcing of IT/ITESaccounting for 55% of the global market in offshore IT services andgarnering 35% of the ITES/BPO market.

The Indian IT-BPO sector including the domestic and exports segmentscontinue to grow from strength to strength, witnessing high levels ofactivity both onshore as well as offshore. The companies continue to moveup the value-chain to offer higher end research and analytics services totheir clients. India's leadership position in the global IT and BPO industries

are based primarily on the following advantages.

India accounts for around 28 per cent of IT and BPO talent among 28 low-cost countries. It has a rapidly growing urban infrastructure fosteringseveral IT centres in the country. Offshore service centres are spawning inthe country due to operational excellence with low delivery cost, qualityleadership and a conducive business environment. Favourable policyinterventions, enabling infrastructure and augmenting a wide skill basefrom the government has further enhanced Indias brand image.

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