• The global IT spending increased exponentially for years before KEY POINTS
the onset of global recession. Riding the wave, Indian IT
industry grew at impressive rates of above 30% during that Supply: Abundant supply across segments, mainly lower-
time to the tune of over US $ 60 by FY09. The global meltdown end, such as ADM. Lower in higher-end areas like IT/
dented the scene, with businesses across the globe, cutting business consulting, but competition is very tough.
on discretionary IT budgets. However Indian IT industry Demand: Due to downturn, the global IT spending is
managed to weather the storm on back of superior quality and expected to decline by around 6% this year, but it is expected
execution efficiency. to recoup to around 9% by 2010 onwards. Growth is buoyant
• India's IT industry can be divided into five main components, in fast-growing economies such as India and China. Europe
viz. software products, IT services, engineering and R&D and Middle-East also look promising
services, ITES (IT-enabled services) and hardware. Export Barriers to entry: Low, particularly in the ADM segment this
revenues primarily on project based services continue to drive is prone to relatively easy commoditisation. High, mainly in
growth. high-end services like IT/business consulting where-in
• Cost leadership has been the competitive edge of the Indian domain expertise creates a barrier. The size of a particular
software sector over the last few years. However, this seems company/scalability and brand-image also creates barriers to
to be threatened by MNCs who are replicating the Indian entry, as these firms have built up long-term relationships
outsourcing model and setting up bases in low cost countries. with major clients.
Going forward, the advantage of low employee costs could Bargaining power of suppliers: Low, due to intense
peter out. competition (oversupply), particularly in the lower-end ADM
• Increasing competition, pressure on billing rates and increasing space. Low differentiating power is also another reason.
commoditisation of lower-end application development and Bargaining power is high, at the higher end of the value
maintenance (ADM) services are among the key reasons chain.
forcing the Indian software industry to make a fast move up Bargaining power of customers: High, mainly due to
the software value chain. IT companies are now aiming at intense competition among suppliers/vendors. However, it is
providing higher value-added services as consulting, product lower in higher-end services like consulting and package
development, R&D and end-to-end turnkey solutions. implementation.
• The software services segment of the industry continues to Competition: Competition is global in nature and stretches
grow by leaps and bounds. With the government emphasizing across boundaries and geographies. It is expected to
on better technology enabled delivery mechanisms for multitude intensify due to the attempted replication of the Indian
of government projects like e-passport, Unique Identification offshoring model by MNC IT majors and as well as small
Scheme etc, the domestic market looks equally more promising. startups.
FY09 CURRENT SCENARIO AND PROSPECTS
• As per NASSCOM 'Strategic Review 2009' report, despite global • Though the prospects for the current fiscal do not look great,
downturn, the Indian IT industry is estimated to have grown the total global spending on IT is expected to grow at a CAGR
by 16% to 17% in FY09 and generated revenues of US$ 60 of 9% 2010 onwards. Despite the phenomenal growth India
bn. During FY09, Indian IT services exports grew by a decent has seen in Global IT services market, it is still a very small
17% to about US $47 bn. The Indian domestic market for proportion (~2%) of global IT spend. This suggests of the sea
technology is growing at a CAGR of 14%. It accounted for of opportunity that lies ahead.
21% of the total IT revenues in FY09.
• The NASSCOM-McKinsey 2009 study shows that the total
• The ITES-BPO industry generated revenues worth $14.7 bn in addressable market for IT services will expand three-fold,
FY09. India continues to retain its market leadership position from the current US$ 500 bn to approx. US$ 1,500-1,600 bn
in this space. The movement up the value chain continues in by 2020.
this space as well, as companies move from voice-based
• With the government planning to invest Rs 400 bn on better
services to non-voice services. According to a Nasscom-
technology enabled delivery mechanisms the addressable
McKinsey study, the total addressable market for the BPO
market for technology and business outsourcing services in
industry is US$ 630 bn.
India is expected to expand five-fold by 2020 to US$ 90-100
• FY09 saw an increased pressure on pricing for IT companies bn.
as customers cut down their IT spending. This also resulted in
• The integration of IT-BPO contracts is expected to become
deal sizes getting smaller. Moreover, as the customers pruned
more common, as clients look out for end-to-end service
down cost, they preferred working with fewer but best-in-
providers. Companies like Infosys, TCS, Wipro, Mahindra
the-breed IT service providers.
Satyam, HCL Technologies and Mphasis, all of which are also
• Indian IT firms (especially the top notch Indian firms like TCS, into BPO, will benefit from this trend.
Infosys and Wipro) are increasingly competing against top
• Billing rates will remain stressed in short term; companies are
global players such as IBM, Accenture and EDS for large deals.
expected to preserve their margins through effective cost
Moreover, global IT biggies like Accenture who used to deal
containment. Lessons learnt during the crisis can benefit in
mostly in premium-priced high-end IT services have entered
the long run.
the space of low-end IT services at a competitive price. This
has added to the competition. • Rupee's volatility against the US dollar and other major
currencies is expected to remain a major concern for Indian IT
• The IT space remained replete with major mergers and
acquisitions. IT majors (like Tech Mahindra acquired Satyam,
TCS and Wipro acquired back-office arms of Citi) went for
inorganic growth to attain scales and domain expertise.