The Indian IT Sector

Anirudh RangarajanVani SaksenaShardool Rastogi

2

Agenda

IntroductionIndian

Advantage

Evolution of IT

Segments

Market Players

Current Trends & Growth Drivers

Industry Analysis

Strategies

Adopted

3

Basic Stuff…

• India’s technology and BPM sector is estimated to have generated USD 146 Billion in revenue during FY15 compared to USD 118 Billion in FY14

• Growth rate of 23.72%

• Contribution to GDP: 9.5% in FY15

• Market Leader: TCS – 10.1% of India’s total IT & ITeS sector revenue

• Fairly competitive market

• Top 6 firms contribute around 36%

4

The ‘Indian’ AdvantageGrowing Demand•Strong growth in demand for exports from new verticals

•Rapidly growing urban infrastructure leading to several IT centers

•IT-BPM sector in India: CAGR of 15% over 2010-15

Global footprints•Delivery systems all over the world: 640 centers in >78 countries

•12.3% of global market, largely due to exports

•Well diversified across verticals

Competitive Advantage•Lower cost of Offshore Outsourcing - savings of 60-70%

•Preferred destination; leader in global sourcing industry with 55% market share out of the USD 146 Billion market

•USP: 3-4 times cheaper than the US

Most lucrative sector for investments•4th in India’s total FDI share

•Accounts for approx. 37% of total private equity and venture investments

Policy Support •Tax holidays extended to the IT sector

•More liberal system for raising Global Capital, etc. have been addressed

•USD 0.17 Billion have been allocated for raising global capital, start ups

•Income tax cut on royalty fee on tech services – 10%

5

Evolution Of India’s IT sector

• Began outsource work on low cost and skilled talent pool in India

Pre-1995

• Started to mature• Increased investment in

R&D and Infrastructure• Product development

destination

1995-2000 • Number of firms grew

and started offering complex services

• Western firms set up a number of captives in India

2000-2005

•Firms in India became Multinational companies

•Indian firms make global acquisitions

•IT sector is expected to employ about 3.5 million people directly and around 10 million indirectly as of FY15

•Moved from enterprise servicing to enterprise solutions

•Start ups launched; over 25000 entrepreneurs

2005-2015

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Segments Of India’s IT Sector

IT & ITeS Sector

IT Services

Market Size: USD 75.83

Billion during FY15E

Over 67% of revenue comes

from export market

BFSI continues to be the major

vertical of the IT sector

Business Process

Management(BPM)

Market Size: USD 28.15 Billion during FY15E

Around 85% of revenue comes

from export market

Largest segment with 3.1 million

jobs

Software products

& Engineering services

Market Size: USD 24.11 Billion during FY15E

Around 79% of revenue comes

from export market

Hardware

Market Size: USD 17.91 Billion during FY15E

Domestic market accounts for a

significant share

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Market Players

Size of Players

Number of

Players

% of Total Export

Revenue

% of Total Employee

sWork Focus

Large 11 47-50% 35-38%

• Fully integrated players offering complete range of services

• Large scale operations and infrastructure

• Presence in over 60 countries

Medium 120 - 150 32-35% 28-30%

• Mid tier Indian and MNC firms offering services in multiple verticals

• Dedicated captive centres • Near shore and off shore presence in

more than 30-35 countries

Emerging~ 1000 -

12009-10% 15-20%

• Players offering niche IT-BPM services • Dedicated captives offering niche

service• Expanding focus towards Fortune 500

Firms

Small ~ 150009-10%

15-18%

• Small players focusing on specific niches in either services or verticals

• Includes Indian providers and small niche captives

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Current Trends & Growth Drivers in the Indian IT Sector

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Current TrendsGlob

al Delivery

Model

• Industry is expected to reach the mark of USD100 billion by 2025. The number of global delivery centers of IT firms in India reached 580, spreading out across 75 countries, as of 2014

• New business models, technologies and addition of new markets

Global

Sourcing Hub

• India maintains a leading position in the global sourcing market. Its market share increased to 55 per cent in 2015 .

• India’s IT industry amounts to 7 per cent of the global market

Engineerin

g offshoring

• In 2014, India was the most preferred location for Engineering offshoring*, as per acustomer poll Companies are now offshoring complete product responsibility• The sector includes 640 Offshore Development Centres (ODCs) of 78 countries

Most Lucrative

Sector for Investmen

ts

• Increased focus on R&D by Indian IT firms resulting in rising number of patents filed

• In 2015, Indian IT-BPM sector expected to grow 13% since last year; valued at $146 billion

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Current TrendsChanging Business

Dynamics

• India’s IT market is experiencing a significant shift from a few large-size deals to multiple small-size ones

• The number of start-ups in technology is expected to reach 50,000, adding to around 2% of GDP.

• Delivery models are being altered, as the business is moving to CapEx based models from OpEx

Consumerization of IT

• Global outsourcing is being used to drive fundamental re-engineering of end-to-end processes• Increased emphasis on beyond cost benefits. • IT firms in the current phase have moved up the value chain, providing innovation-led growth

to clients from SLA satisfaction and ROI calculations

Emerging New Technolog

ies

• Disruptive technologies, such as cloud computing, social media and data analytics, areoffering new avenues of growth across verticals for IT companies

• The SMAC (social, mobility, analytics, cloud) market is expected to grow to USD225 billionby 2020 and is leading to digitization of the entire business model

Growth in Non-linea

r models

• India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear one

• In line with this, IT companies in India are focusing on new models such as platform-based BPM services and creation of intellectual property

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Emergence of Tier IIcities

• Tier II and III cities are increasingly gaining traction• Cheap labor, affordable real estate, favorable government regulations, tax breaks

and SEZ schemes facilitating their emergence as a new IT destination• Domestic hub and spoke model - Tier I as hubs and Tier II, III and IV as network of

spokes

Rural Develop

ment

• The National Optical Fibre Network (NOFN) is being laid down in phases to connect all the250,000 gram panchayats in the country

Current Trends

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Growth Drivers

Robust IT infrastructure across various cities in India such as Bengaluru.

Global BPM spending to rise by 4.4% and reach USD 2.7 billion in 2015

Tax holiday for STPI’s and SEZs. More liberal system for raising capital, seed money and ease of doing business. A fund of around 16.5 million to promote new technology start-ups in the 2015-16 Budget.

5.8 million graduates are estimated to have been added to India’s talent pool in FY15. 1.5 million form ready to hire pool.

Computer penetration expected to increaseIncreasing adoption of technology and telecom by consumers and focused government initiatives.

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Industry Analysis

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Porter’s Five ForcesBargaining Power of Customers• High Power –

Many IT firms fight for similar project

• Mostly dependent on same geography – increases customer power

Competitive Rivalry• Intense competitive rivalry

exists due to low switching costs

• Little product differentiation

Threat of New Entrants• Easy entry as the

capital required is low

• Large players toughen prospects of small and medium players to win large deals

Bargaining Power of Supplies• Less power as most

of their businesses are from same geographies

• Price taker rather than price maker

Threat of substitution• Medium threat

as new centres are fast gaining ground among investors due to low cost

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SWOT Analysis

•The anti-outsourcing legislation in the US state of New Jersey; 3 more states planning on the same

•Other IT destinations such as China, Philippines and South Africa could have an edge on the cost factor

• India can be branded as a quality IT destination rather than a low-cost destination.

•To capitalize on the already established image of India being portrayed as the most favored IT destination in the world

•The cost of telecom and network infrastructure is much higher in India than in the US

•Recent spurge in attrition rates due to people opting for higher studies. Of late people’s desire to pursue a long term career in this field has declined

•Highly skilled, English speaking manpower

•Cheap workforce than their Western counterparts.

•Lower attrition rates than the West

•Dedicated workforce aiming at a long term career in this area

•Lower response time with efficient and effective service

Strength Weakness

ThreatsOpportunities

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Current Strategies Adopted

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Strategies Adopted

Expanding in Tier II & III cities and

externally

• Companies are expanding their business to Tier II & III cities to have low cost advantage

• Infosys expanded to Indore and Mohali in FY14 to increase its penetration across India.

• Companies are expanding their business towards emerging economies of East Europeand Latin American countries

Movement to SMAC & digital space

• Social Computing, Mobility, Analytics and Cloud (SMAC) is taking significant leaps

• Companies are getting into this field by offering big data services, which provides clientsbetter insights for future cases

Product and Pricing differentiation

• Most of the IT companies have been offering similar products and services to their clients

• The companies are working towards product differentiation through various other servicesby branding themselves, e.g. Building Tomorrow's Enterprise by Infosys

• Indian IT firms have started to adopt pricing strategies to compete with Global firms like IBM and Accenture

Promotion of R&D

• Companies are now investing a lot in R&D and training employees to create an efficient workforce, enhancing productivity and quality

• R&D forms a significant portion of companies’ expenses, which is critical when marginsare in pressure, to promote innovations in the changing landscape

Fast-growing sectors within the

BPM domain

• Knowledge services, data analytics, legal services, Business Process as a Service(BPaaS), cloud-based services

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Strategies Adopted

INFOSYS

• Innovation fund: Infosys has set up a USD100 million fund to invest in start-ups, besides funding internal innovation

• Focus areas of Innovation: digital consumers, emerging economies, sustainable tomorrow, smarter organizations, new commerce, pervasive computing, and healthcare economy

• Infosys 3.0: Products, Platforms and Solutions was set up to focus on innovation-led business growth for its clients

• Modular Global Sourcing framework: Infosys assists clients in segmenting internal business processes and applications and outsourcing these segments selectively on a modular basis to reduce risk and cost and to increase operational flexibility

• Infosys Labs: focuses on developing significant new Intellectual Property to enable new and differentiated products, platforms, solutions, and services by Infosys business groups

TATA CONSULTANCY SERVICES• Company Strategy: TCS’s strategy of strengthening the current

business and investing in the future revolves around

• Customer centricity

• full services portfolio,

• global network delivery model

• non-linear business models and

• strategic acquisitions.

• Focus on Co-innovation: formed Innovation Labs and CoInnovation Network (COIN) to bring together academic institutions, startups, venture funds, and clients to create new ideas, concepts, and intellectual property

• Investment in digital technologies: mobile, cloud, big data, analytics, and social media

• Geographic diversity: strategically invests in AsiaPacific, Latin America, and Middle East & Africa markets in order to derisk geographical concentration

• Strategic partnerships for sustainable business: strategic partnerships with major global technology players including Cisco, EMC, Google, IBM, Microsoft, etc. for dealing with ever-changing markets, technologies, and customers

THANK YOU!!