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The Indian ITCurrent and Future

Background

In the last one and half decade, the Indian IT industry has evolved as one of the major

contributors in shaping the Brand Image of modern India. The IT and ITES sector whichcomes under the service sector has increased its contribution to India's GDP from 1.2% in

FY1998 to 7.1% in FY2011. The industry continues to be the net employment generator which is

expected to add 2.3 million jobs in FY2012. It provides direct employment to about 2.8 million,

and indirect employment to 8.9 million people. The industrys share of total Indian exports

increased from less than 4% in FY1998 to about 25% in FY2011. In terms of revenue generation

TCS, Infosys, HP, Wipro, and Cognizant form the top 5 companies in the industry.

The IT outsourcing which forms the bread and butter of the industry has transformed the lives of

millions besides transforming itself over the years. The pattern of outsourcing is changing with

more number of smaller projects replacing the larger ones. Currently application developmentand application maintenance are the most adopted services in the outsourcing space. Both in

terms of number of organizations and the amount of work outsourced, development and

maintenance make up the major chunk of the pie. Global enterprises shell out 5 times more for

maintenance versus the amount spent on new application development. Most of the times 73% of

the total IT budget of a large enterprise go into application maintenance. It is implicit that

application maintenance presents the most potential for cost savings in global enterprises.

Adopting to Change

Major Indian IT companies like Infosys, Wipro, and HCL have started to look at emerging

business areas such as cloud computing, big data, and analytics. These areas find their usage in

unstructured information collected from social networks. These technologies are expected to

bring in new areas of growth. However the skills required to frame and implement business

strategy in these emerging areas are in short supply. Currently there is an acute shortage of

analytics and big-data skills in the industry. Companies are spending time and money in training

their employees on these skills which are beginning to boom. Since analytics and big data are an

extension to the existing business intelligence category there is a temporary mismatch between

demand and supply.

If Indian IT industry wants to sustain its leadership position in outsourcing it should continue to

include emerging areas like cloud computing, mobility and big data into its artillery. Recent

estimates have shown that in 2012 alone, world-wide spending on cloud services will reach $60

billion, clocking a growth of 26%; mobile spending will overtake PC spending and is expected to

grow four times faster adding to the volume of digital content by 48% to form 2.7 Zettabyte.

Across the world, information collection or capturing has increased both in terms of volume and

the level of detail. Wipro Technologies which helps US retail giants monitor consumer choices

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and relative online sales, has deployed 1000 people to work on mobility solutions. Big data is

believed to have the capability to analyze petabytes of data which gets generated with every hour

of retail transaction.

Slow starter in Product space

One of the main distinctions between product and service is that, a generic software product

usually gets an uninterrupted stream of revenue over several years, whereas outsourced service

fetches only one time revenue. To start with, Indian IT companies did not pay much attention to

product development and kept their focus on services. There are many reasons for such an

approach out of which some of them have been listed below:

IT products required less development effort in comparison with the marketing effort;hence companies choose to be on the safer side of services.

Lack of collaboration between University and Industry, as most of the research works aretermed as unfit for commercial usage.

No respect for product failure - Too much of criticism kills future innovation.However, the trend is slowly changing as India is emerging as a software product hub with $ 2

billion revenues from 2,400 product firms. Indian software product business has managed to

clock a revenue growth of 22 per cent over the last five years. According to Nasscom more than

1100 software product start-ups have emerged in the last five years. The emerging cloud

computing and mobility, together have created opportunity in the Indian market to drive up the

product innovation. The category already has Makemytrip which is worth $1 billion followed by

companies like Zoho and Druva Software.

According to Nasscom even Tier 2 and Tier 3 cities have joined the league with 330 product

companies which is almost double the number when compared with 2008 figures. Many within

the industry are still skeptical about the success and feel that this might be another dotcom

bubble. As a counter to the skeptics argument the start-ups have been following multiple growth

strategies. Established product firms have started to expand the horizons, covering products in

new verticals and segments, and developing partnerships and alliances. Also the cost of setting

up a start-up has gone down significantly from millions of dollars to few thousand dollars.

The road ahead

The major challenge that is gripping the Indian IT industry is the issue of anti-outsourcing.Indian IT industry has thrived on the work outsourced to them particularly by the developed

nations. However, as the developed nations face the brunt of the economic crisis, they have

started raising their voices against outsourcing jobs to India. Indian IT industry is still dependent

on US and Western Europe where the major clients reside. The issue has gone to the extent of

becoming a political agenda between Democrats and Republicans in US. If there is any adverse

economic change in these regions, the industry is bound to take a hit, which was evident during

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the recession in 2008-2009. Currently Industry players are anxious with the recent economic

crisis in Greece and Spain who are expected to send shockwaves to the global economy. The

recovery in IT spending is not strong enough to accelerate spending on outsourcing services.

Major IT companies are maintaining status quo, hoping to see some economic recovery in both

US and Western Europe. Further they have slashed their revenue outlook for the near future.

Adding fuel to the fire, Governments of developed nations especially US has started to protect its

jobs against its biggest competitor, which is outsourcing. In recent times, due to stricter visa

norms and high processing fees especially in case of US, IT companies are struggling to send

their employees to onsite operations. It has been observed that over the past two years only one

in ten US visa applications get the approval. This has impacted the margins of companies in the

recent times. Indian IT industry is yet to realize the potential of African nations and it is high

time for companies to look at potential ones from that part of the world.

Major Indian IT companies are in the market from past 15 years and yet not even a single

company is a competitor to Microsoft, Google, or Apple. The companies still prefer to work forbig names rather than making themselves big. The current Indian education system which has

been blamed for lack of creative thinking has produced people who head the R&D centers of

most successful companies in the west. The question in front of us is that when the same people

can innovate outside India why is it not happening in India. We have the answer from Prof.

Nirmalya Kumar of London Business School who in his recent talk has disclosed that Indians are

innovating in the fields which are not visible. His disclosure is supported by the following facts:

Major global companies like Google, Microsoft, General Electric, and Philips have R&Dcenters in India which produce products for global customers.

Mission critical applications for Boeing aircraft were developed by HCL. Using analytical tools Call centers have developed predictive modeling. Global delivery model developed by the Indian offshore Industry.

Having realized the importance of innovation the government has setup National Innovation

Council under the chairmanship of Mr. Sam Pitroda, the father of Indian Telecom. However, a

nation having the largest young population in the world has to bring positive change to its current

education system to begin a new Chapter in the field of innovation. Education which forms the

root for nation growth should imbibe innovation in its system. IT companies who are cash rich

should spearhead this change to avoid its own tightrope walk.

References

www.computereconomics.com www.cio.com www.Nasscom.org www.rediff.com

http://www.computereconomics.com/http://www.cio.com/http://www.rediff.com/http://www.rediff.com/http://www.rediff.com/http://www.cio.com/http://www.computereconomics.com/

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http://emerge.nasscom.in/