sr 2012 executive summary

7/31/2019 SR 2012 Executive Summary

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Nasscom strtegi Review 2012 1

The IT-BPo

setr in Indi

strtegi Review 2012



5N A S S C O M S T R A T E G I C R E V I E W 2 0 1 2

Global sourcing trends

In the ace o the volatility in economic environment and currency, 2011 recorded steady growth or the

technology and related services sector, with worldwide spending exceeding USD 1.7 trillion, a growth o

5.4 per cent over 2010. Sotware products, IT and BPO services continued to lead, accounting or over

USD 1 trillion – 63 per cent o the total spend. IT-hardware spend, at USD 645 billion, accounted or the

balance 38 per cent o the worldwide technology spend in 2011. The year saw renewed demand or overall

global sourcing, which grew by 12 per cent over 2010, nearly twice the global technology spend growth.

The global outsourcing market recorded a healthy growth driven by record contracting activity in small

size deals, as clients aim to conserve cash flows and at the same time try out new models and service

oerings. This decisive shit towards smaller contract deals is coupled with strong growth rom the

EMEA region. Service providers continued expanding to oshore locations; however, this year saw an

increased preerence or onshore locations, specifically Tier II cities in their quest to tap into the local

resources available.

A change in the overall structure in global sourcing is expected as organisations embark on a journey

with enhanced ocus on the customer. With customers demanding more immediate value rom IT and

orward-looking strategies that support growth and innovation, service providers are adopting agile

methods ocusing on operational excellence through ongoing innovation, diversification, renewed

partnerships/alliances and new business models.

Indian IT-BPO performance

FY2012 is a landmark year – while the Indian IT-BPO industry weathered uncertainties in the global

business environment, this is also the year when the industry is set to reach a significant milestone –

aggregate revenue or FY2012 is expected to cross USD 100 billion. Aggregate IT sotware and services

revenue (excluding hardware) is estimated at USD 88 billion.

During this year, direct employment is expected to reach nearly 2.8 million, an addition o 230,000

employees, while indirect job creation is estimated at 8.9 million. As a proportion o national GDP, the

sector revenues have grown rom 1.2 per cent in FY1998 to an estimated 7.5 per cent in FY2012. Its share

o total Indian exports (merchandise plus services) increased rom less than 4 per cent in FY1998 to

about 25 per cent in FY2012.

Exports market: Export revenue (excluding hardware) during FY2012 is likely to reach USD 69 billion,

accounted or by about a 2.2 million workorce. This represents a growth o 16.3 per cent; these exports

also account or over 68.5 per cent share in aggregate IT-BPO revenue.

• Servicelines: Within exports, IT services segment is the astest growing at 19 per cent over FY2011

with export revenue o USD 40 billion, accounting or 58 per cent o total exports. This sector has

seen the emergence o ull service players oering traditional services like application development

and maintenance to testing, inrastructure, consulting and system integration, as also niche

providers oering end-to-end services in particular verticals or customer segments. This sector is now

ocusing on moving urther up the value chain by positively impacting business outcomes and

customer revenues.




The BPO segment is expected to grow by 12 per cent to reach USD 16 billion in FY2012. In the last ew

years, the BPO segment has been ocusing on re-engineering itsel in order to deliver transormational

impact to customers. A ‘Verticalised’ approach has been a key marketing strategy – developing in-

depth capabilities across the entire value chain in specific verticals. BPO firms are also increasing

their onshore and nearshore ootprint to enable customer entry into local markets; firms have alsobeen actively implementing non-linear growth initiatives that ensure higher realisations or service

providers, while controlling costs, acilitating aster time-to-market and improving satisaction at

the clients’ end.

The ER&D, OSPD and sotware products segments are expected to generate exports o USD 13 billion,

a growth o nearly 14 per cent over FY2011. ER&D firms are increasingly developing capabilities that

are enabling them to participate across all stages o ER&D, thereby delivering high-end services to

customers. Disruptive technologies – cloud, mobility, social media and big data/analytics – are playing

a significant role in driving growth o OSPD and sotware products

• Geographic focus: US continues to drive IT-BPO exports growth. Export revenue rom the US is likelyto grow by over 17 per cent in FY2012, driven by higher demand or IT services and support. Europe has

gone through a tough period in the last couple o years, however, growth is returning gradually and

this region is expected to show good perormance in FY2013. APAC region exhibited astest growth

at nearly 18 per cent as customers in that region showcase increased adoption to IT as they aim to

compete on a more even scale in the global market

• Vertical markets: The BFSI vertical is set to increase its share in IT-BPO exports to 41.2 per cent;

however, share o telecom is to decline rom 20 per cent in FY2011 to 19 per cent, largely due to

slowdown in telecom investments in the US and UK. Emerging verticals – retail, healthcare, media

and utilities – continue to record ast growth

Domestic market: Domestic IT-BPO revenue (excluding hardware) is expected to grow at almost

17 per cent to reach ` 918 billion in FY2012. Strong economic growth, rapid advancement in technology

inrastructure, increasingly competitive Indian organisations, enhanced ocus by the government and

emergence o business models that help provide IT to new customer segments are key drivers or

increased technology adoption in India

• IT services is the astest growing segment in the Indian domestic market, growing by 18 per cent

to reach ` 589 billion, driven by increasing adoption rom all customer segments – government,

enterprise, consumers and SMBs

• Domestic BPO segment is expected to grow by 17 per cent in FY2012, to reach` 149 billion, driven by

demand rom voice-based (incl. local language) services and increasing adoption by both traditional

and emerging verticals, including the government

• The domestic sotware products segment is set to grow to ` 180 billion in FY2012, a growth o

~13 per cent over FY2011. This segment is being driven by the need to replace legacy systems and

technology advancements around cloud, mobility, etc.




• India’s customer base – government, large enterprises, micro, small & medium enterprises and

household consumers, represent unique set o requirements. Government IT spend is led largely by

hardware and IT services; large enterprises have mature IT inrastructure and are driven by need or

applications that improve productivity and ef ciencies. SMBs are ocusing on solutions that enable

greater customer reach and better marketing. Household investments are largely or hardware –laptops, netbooks, etc. and consumer applications around mobility and social media

Indian IT-BPO value proposition

Even in the ace o sti competition rom other locations, India retains its position as the world’s leading

global sourcing destination or IT-BPO services with a share o 58 per cent in 2011. India’s value proposition

rests on its five pillars o strength:

• Continued ocus on optimal cost ef ciency: India continues to be the most cost-competitive

provider o IT-BPO services. Cost ef ciencies urther maintained through various internal process

and productivity improvement initiatives including stable entry level salaries, widening the pyramid,

tightening non-employee cost structures, ast career growth, movement into Tier II/III cities, and a

non-linearity ocus through platorm and cloud products

• Unparalleled human capital: India churned out an estimated 4.4 million graduates in FY2012, retaining

its position as the largest source o employable talent in the world. Service providers are eectively

utilising India’s talent pool by designing large scale talent re-engineering initiatives and employee

engagement activities. This is enabling the industry to provide both end-to-end and high-end

value-added services across sectors

• Unique customer centricity: Leading industry players have been able to deliver continuous value

to customers. This unique customer-centric approach is best demonstrated by re-engineering their

business/organisational structures, engage in strategic advisory relationships, ocus on delivery

innovation and manage high-end complex engagements

• Scalable and secure environment: The sheer size o the Indian market provides a high level o stability

in terms o managing concentricity risk as compared to other sourcing markets. With political/

economic stability, major service providers in India have managed to urther de-risk their delivery

approach by expanding their global delivery network, in addition to adopting robust disaster recovery/

business continuity models

• Supportive ecosystem: India’s inrastructure development landscape is expected to transorm to

the next level in the coming years, driven by the government’s massive thrust on over USD 1 trillion

in investments (2013-17) on inrastructure development. Besides, with urther simplification o laws

and regulations, large scale investments in e-Governance projects and ocus on establishing the

national cyber security policy, the IT-BPO industry is well-poised to maintain its growth trajectory in

the domestic market




Future outlook

Despite 2011 ending in a dif cult economic environment, some geographic regions and services are

expected to circumvent the situation in 2012. Global GDP, ater growing by 2.7 per cent in 2011, is expected

to grow 2.5 per cent in 2012, with developing economies growing thrice as ast as the developed economies.

Better economic conditions in the second hal o the year signiying return o consumer confidence and

renewal o business growth, is expected to drive IT spending going orward.

While the growth in IT-BPO spend is expected to be gradual over the next two-three years, global sourcing

spend is seen to outpace this growth. IT outsourcing market is set to grow at a CAGR o about 8 per cent

over 2011 to 2013, while BPO oshoring is expected to grow at a little over 7 per cent during the same

period. While cost and talent still remain essential considerations or global sourcing, industry expertise

and innovation is expected to drive uture sourcing requirement.

In addition, rate o introduction o new technology is much aster now and it will continue to be even

aster going orward. There is a strong correlation between technology adoption rate and investment

rate. The year 2011 was the year o mobile adoption, where tablets and smartphones sales growth, by

volume and by percentage, outpaced the shipment o desktop and laptop market. This mobile revolution

witnessed, spending by organisations in developing both consumer apps and enterprise apps. From

IT industry perspective – the market or enterprise mobility solutions alone is expected to grow to

USD 17 billion by 2015, presenting a huge opportunity to increase revenue rom this segment at a pace

o triple-digit growth.

Clearly, the uture o technology services industry is beyond services – it will be a combination o services,

solutions and platorms. Indian IT organisations are investing in building platorms to drive uture growth

opportunities. These domain solutions and technology platorms will oer improved revenue leverage

versus talent employed in the industry and will also significantly increase the intellectual property baseo the Indian IT industry. The industry can take clue rom the act that public cloud services spending is

expected to outpace growth o the overall IT spend by about our times between 2012 and 2015.

The Indian supply base with its two decade-long experience, mature service capabilities, presence

in almost all verticals, global ootprint and an abundant talent pool has ventured head-on into new

and emerging services and verticals while at the same time maintaining their strong-hold over core

services. Diversification and transormation, the key themes or the industry or the last two years, and

the untapped opportunities in the new services is expected to drive the next phase o growth or the

IT-BPO sector.

Availability o domain-specific talent in emerging geographies and Tier II locations oer huge untapped

opportunity or global sourcing. Apart rom talent, national governments strong inward investment

push is also driving growth o global sourcing locations in Asia Pacific, Latin America, Eastern Europe,

the Middle East and Arica.

IT-BPO services will be instrumental in the economic and social rise o India in the coming decade.

As a result, the domestic IT-BPO market is expected to grow in parallel with the growth o the Indian

economy. The upbeat domestic IT-BPO (excluding hardware) spending trend will continue in FY2013 as

the industry is expected to grow at 13-16 per cent(in ` terms). IT-BPO exports is expected to grow 11-14




per cent in FY2013, driven by prolieration o as-a-service model around enterprise mobility, cloud and

platorm solutions, analytics oerings and social media.

Suitably exploiting these emerging opportunities both in the global and domestic markets can help

India reach USD 100 billion in IT-BPO (excluding hardware) revenues by FY2013, an overall growth o

12-15 per cent. One o the key growth drivers will be consumerisation o IT, which will lead IT buyers to

increasingly looking at newer delivery models and solutions to support employee-driven initiatives while

still protecting the business.

Despite the turbulent economic scenario, business confidence is likely to improve as the year progresses

and the industry is expected to regain its growth momentum. Focus o buyers’ to dierentiate through

business innovation is likely to drive domain/micro-vertical expertise, which will in turn drive investments

in creation o new products and solution accelerator. Providers o global services will be better positioned

than ever to deliver business value as they engage with customers to make a strategic dierence. More

than anything else the uture o the industry will be driven by the ‘consumer o IT’

Key global megatrends around macroeconomics, demographics, social, environmental, technologyand business will shape the uture o the IT-BPO industry. These megatrends will present a new set

o opportunities in the orm o largely untapped markets and customer segments, which can propel

industry revenues to USD 225 billion by 2020. However, these opportunities will also bring along with it

added set o risks in terms o increased protectionism and regulatory control rom sourcing markets and

increased competition rom new and emerging countries. In order to realise the emerging opportunity,

all stakeholders will have to put in a concerted eort and address the various challenges in a systematic

and prudent way thus driving transormation, innovation and inclusivity in business and India.

To sum up, the key action themes or the IT-BPO industry to remain competitive and profitable in the

uture are:

• To increase operational ef ciencies, reinvent and embrace new business models which will oer

customers a transormed business proposition. For example, based on the customer requirement

shit to transaction-based pricing which acilitates revenue-generating projects

• Drive concerted initiatives to strengthen the innovation capacity and research capabilities through

specific domain ocus and by encouraging R&D collaborations and public-private partnerships. Pursue

continued eorts to urther build a high-calibre R&D pool, not only rom an educational perspective,

but also by instilling the relevant research aptitudes and capabilities

• Continue to strengthen the long-term entrepreneurial environment

• Enhance the skilled talent pool in the country and ocus on specialisation

• Continue the use o ICT or inclusive growth. Ensure that the basic necessities like education or

masses, quality healthcare and employment and skill generation is benefited by ICT



N A S S C O M S T R A T E G I C R E V I E W 2 0 1 2269

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Teen Murti Marg, Chanakyapuri

New Delhi 110 021, India

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www.nasscom.in

sr 2012 executive summary

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