This material was used by NASSCOM during an oral presentation; it is not a complete record of the discussion. No part of this document may be circulated, quoted, or reproduced for distribution without prior written approval from NASSCOM.
TM
ICT and Globalization– Developments and Perspectives from the Indian IT-ITES Experience
Presented to the OECD Working Party on the Information EconomyParis, June 2006
TMCopyright © NASSCOM 2006
Outline
• Snapshot of Indian IT-ITES Growth• Recent Trends and Outlook• Opportunities and Challenges
TMCopyright © NASSCOM 2006
$1.9 $2.6 $3.9$6.0$4.0
$7.7
$12.8
$23.6
FY00 FY02 FY04 FY06 FY10E
DOMESTIC MARKET* EXPORTS*
Indian IT-ITES continues to chart record growth; on track to reach the targeted $60bn in exports by 2010
Billion
Source: NASSCOM
$13-15
$60
34.6%
31.2%
21.1%
22.1%
31.0%FY00-06
28.9%FY00-10CAGR
10 YR TARGET
ACHIEVED* Includes IT Software and Services, ES and Products, as well as ITES-BPO
TOTALPERIOD
TMCopyright © NASSCOM 2006
Growth story built on strong fundamentals…
• Access to a large, growing pool of highly qualified talent• A high degree of quality orientation and demonstrated service
delivery expertise• Keen emphasis on information security reflected in the
comprehensive legal framework and elaborate security practices supplemented by enabling intervention
• World class telecommunication infrastructure• Enabling (and progressively improving) business environment
through strong government support; incentives, favorable regulations and policy
…delivered at a sustained and compelling cost-value proposition
TMCopyright © NASSCOM 2006
…that is also reflected in the rapid evolution of the Indian IT-ITES service portfolio
1980 1985 1990 1995 2000 2005 & beyond
Mutual Gains Re-invest Mutual Gains
Strategic ImpactStrategic Impact
Valu
eVa
lue
Full Process Outsourcing (F&A, HR)
Multiple Process Outsourcing
Rules-based ProcessingProblem Solving/Decision Making
Customer Contact
Transactional Data Entry
Data Entry
Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation
Out-Tasking
BPO
Transformational BPO
Application Support
Technical Support
Customer Contact / Hardware & Installation Support
Maintenance
R&D Services Product Development & TestingDesign & Integration
ITBPO
Source: neoIT
Research and AnalyticsEngineering Services
Note: Services listed are indicative not exhaustive
1980 1985 1990 1995 2000 2005 & beyond
Mutual Gains Re-invest Mutual Gains
Strategic ImpactStrategic Impact
Valu
eVa
lue
Full Process Outsourcing (F&A, HR)
Multiple Process Outsourcing
Rules-based ProcessingProblem Solving/Decision Making
Customer Contact
Transactional Data Entry
Data Entry
Transactional Data Entry
Data Entry
Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation
Out-Tasking
BPO
Transformational Outsourcing
Application Support
Technical Support
Customer Contact / Hardware & Installation Support
Maintenance
R&D Services Product Development & TestingDesign & Integration
ITBPO
Source: neoIT
Research and AnalyticsEngineering Services
Note: Services listed are indicative not exhaustive
1980 1985 1990 1995 2000 2005 & beyond
Mutual Gains Re-invest Mutual Gains
Strategic ImpactStrategic Impact
Valu
eVa
lue
Full Process Outsourcing (F&A, HR)
Multiple Process Outsourcing
Rules-based ProcessingProblem Solving/Decision Making
Customer Contact
Transactional Data Entry
Data Entry
Transactional Data Entry
Data Entry
Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation
Out-Tasking
BPO
Transformational BPO
Application Support
Technical Support
Customer Contact / Hardware & Installation Support
Maintenance
R&D Services Product Development & TestingDesign & Integration
ITBPO
Source: neoIT
Research and AnalyticsEngineering Services
Note: Services listed are indicative not exhaustive
1980 1985 1990 1995 2000 2005 & beyond
Mutual Gains Re-invest Mutual Gains
Strategic ImpactStrategic Impact
Valu
eVa
lue
Full Process Outsourcing (F&A, HR)
Multiple Process Outsourcing
Rules-based ProcessingProblem Solving/Decision Making
Customer Contact
Transactional Data Entry
Data Entry
Transactional Data Entry
Data Entry
Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation
Out-Tasking
BPO
Transformational Outsourcing
Application Support
Technical Support
Customer Contact / Hardware & Installation Support
Maintenance
R&D Services Product Development & TestingDesign & Integration
ITBPO
Source: neoIT
Research and AnalyticsEngineering Services
Note: Services listed are indicative not exhaustive
TMCopyright © NASSCOM 2006
IT services exports lead, growing at 32-33%; range of services offered has expanded significantly
13.3
10.0
7.3
215
398
297
FY 2004 FY 2005 FY 2006E
Revenues (USD Billion)Employees ('000)
IS Outsourcing6%
Support and Training
11%
Custom Application
Development49%
Systems Integration
2%
Network Consulting and
Integration2%
IT Consulting3%
Application Management
27%
FY 2005
Source: NASSCOM
TMCopyright © NASSCOM 2006
ITES-BPO exports grew by 37% last year, to reach USD 6.3bn; growth driven by scale and scope expansion
216
316
415
3.1
4.6
6.3
FY 2004 FY 2005 FY 2006E
Revenues (USD Billion)Employees ('000)
Human Resource Adminsitration
3%
Finance and Accounting
40%
Others11%
Customer Interaction Services
46%
FY 2005
Source: NASSCOM
TMCopyright © NASSCOM 2006
Growth in ES and software products reinforces the industry’s move up services value chain
4.0
3.1
2.5
115
93
81
FY 2004 FY 2005 FY 2006E
Revenues (USD Billion)Employees ('000)
Made-in-India Products10-15%
Offshore Product Development
20-25%
Engg and R&D Services60-70%
FY 2005
Source: NASSCOM
TMCopyright © NASSCOM 2006
Recent trends and market indicators indicate a positive outlook for the sector
• Large unaddressed market potential in offshore IT-BPO sustaining demand led growth– Evolution of global delivery expanding adoption of new services
delivered from offshore
• Unbundling of IT outsourcing mega-deals with increasing share of India based delivery– $100bn in contract value up for renewal over next two years– Increased participation of Indian vendors in these bids – MNCs also looking at significant ramp-up in India based delivery
• Strength in client wins, cross-border M&A trends, stable pricing with marginal upward bias, and a gradual (favorable) shift in the outsourcing debate
TMCopyright © NASSCOM 2006
Significant headroom for growth, less than 10% of the global addressable market captured till date
Addressable markets of at leastUS$300 billion
* Financial year, April 1 to March 31** Includes addressable markets in currently offshoring industries
*** Includes Philippines China Russia Eastern Europe Ireland Mexico
Key drivers• Offshoring of
– Large ‘white spaces’ in major industries
– More complex and high-risk services
– Fragmented and high-interaction processes thanks to advances in telecom and workflow management technologies
Addressable market
Current size
Global offshore IT industry, FY* 2005
9x~150-180
18.4
6.4
12.0
Others*
India
US$ billionGlobal BPO industry**, FY 2005
12x~120-150
11.4
Addressable market
Current size
6.2
5.2
Others*
India
US$ billion
ESTIMATES
Source: NASSCOM McKinsey Report 2005
TMCopyright © NASSCOM 2006
ICT can also play a significant role in socio-economic development
TMCopyright © NASSCOM 2006
‘Managing growth’ is the key challenge
• Strengthening the global delivery model and addressing impediments to greater globalization of services
• Building on India’s core value proposition– Enhancing the skill pool advantage
– Strengthening business infrastructure
– Reaffirming the philosophy of operational excellence
• Effecting equitable distribution of gains from ICT– Catalyzing domestic market development
– Decentralizing industry growth
– Ensuring that ICT benefits reach the ‘bottom-of-the-pyramid’