ITs a 100 billion dollar baby

Written by Debojyoti Ghosh | Debojyoti Ghosh | Updated: Mar 2 2012, 23:40pm hrs
Be it a slowdown in the US economy, sovereign debt crisis in

Europe or the wild currency movements, the Indian IT/ITeS industry has weathered it all ably over the last few years. Not only that, from $100 million two decades ago, the sector is all set to cross the $100 billion mark in the current fiscal.

Despite the ongoing macro concerns, Nasscom is optimistic about the future of the IT-ITeS sector and has set a target of $225 billion by 2020, for which the industry needs to achieve a CAGR of 13% for the next 8 years. The IT trade body estimates that of the $101 billion revenue, $69 billion will be from exports and $32 billion from domestic market.

Over the years, the IT industry has had an unparalleled impact on the Indian economy showing a growth of 11 times over the previous decade, up from $8 billion in 2000 to $88 billion in 2011. Very few industries globally have shown such a growth in a period marked by global concerns.

What has led to this impressive growth, in an era of uncertainty and economic downturns For some it is the booster dose the

industry got during Y2K, while others feel the supportive business environment in the US and Europe, bold moves by the Indian IT firms and a push from the government helped set the tone for the industry.

In the last two decades, the countrys IT services landscape has undergone several

inflection points. The Y2K in the late 1990s was one such game changer for the sector when US banking majors like Citibank, American Express, Goldman Sachs and others outsourced work to India as they needed armies of software professionals to fix glitches in computer systems. While the initial driving force that time was the need to cut costs and availability of large talent pool at low wages, customers today have realised that with the changing business dynamics, outsourcing is much more than just a cost

advantage. This led to the evolution of a more holistic view on global sourcing.

Post Y2K, the industry saw firms like TCS, Infosys and Wipro becoming larger organisations, expanding their reach globally and investing heavily into improving the process and training quality. The Y2K led to a lot of opportunities for Indian companies. That time, IT firms invested about 3-4% of sales in improving their processes. The managerial ability to handle scale improved big time. And once the sector reached a certain scale, some of the large players started developing strategic deal capabilities and creating more delivery centres, says Hari

Rajagopalachari, executive-director, PwC India, adding that the long-tax holiday from the government, with liberal STPI tax policy fuel the sectors growth further. Companies that time had enough surpluses to reinvest in their growth, he notes.

At the same time, a new wave of mid-size companies like Mahindra Satyam (formerly Satyam Computer), MindTree and Patni Computer (which was acquired by rival iGate last year), occupied niches within the IT landscape. All these factors, combined with Indias inherent advantages in cost, an abundant pool of skilled talent, location and a stable economic and political climate led to the rise of the Indian IT industry, says Pradeep Udhas, headIT and ITeS, KPMG.

Going forward, top tier IT companies indicate that, even though the global economy is volatile, enterprises and their balance sheets are much healthier than it was in 2008-09. It is unlikely there would be budget cuts in FY13, as most of them have not seen a slowdown in IT budgets. On the ground, we see more stability in deal closures. We see a healthy deal pipeline and there is no delay on decision making and closure of budget, said N Chandrasekaran, CEO & MD, TCS, recently at a press conference, adding that the discretionary spending budget is also getting decided. There was a slow start early January, but it should pick up early next fiscal, he said.

Similarly Cognizant is also confident of beating the industry average and achieving its growth target of 23% this year. However, Nasscom predicted a slower growth rate for the IT sector next fiscal as global concerns

remain. For FY13, the industry is expected to grow between 11% and 14%. Som Mittal, president of Nasscom feels that the

industry is still very resilient and can cope with any difficulties. Our fundamentals are strong and we will overcome this uncertain environment, he says.

Experts feel that while India continues to be a dominant player in the global sourcing market, its ability to garner an increasing share of the outsourcing market will depend on the extent to which stakeholders are able to mitigate the challenges that the industry is facing. Industry needs to address challenges like wage inflation, infrastructure development costs, both physical and data-related security issues, supply of qualified talent pool, and global issues like rising protectionist sentiments across the globe, and currency fluctuations, can become an issue and can dent

Indias competitiveness, says Mittal.

So what will drive the next phase of growth for the sector The answer to that can be innovation. It can be a tool to drive growth, improve business efficiency, enhance business value and drive customer satisfaction. Companies need to adopt non-linear growth models. Indian companies are looking at both organic and inorganic growth strategies in order to increase their capabilities. Companies have also started moving from service-line expertise to vertical expertise. As per industry estimates, focused initiatives towards innovation can help companies unlock additional revenue potential of $150 billion by 2020, says Udhas of KPMG.

In terms of tapping new markets, companies do not have to look far. Nasscom estimates that this year, the domestic IT market is expected to grow a little over 9% to reach $32 billion, offering immense potential to more vendors. Today the Indian IT-BPO

industry stands at another inflection point. Despite having a commanding 50% offshore market share, it holds merely 5% of global outsourcing market.

Experts points out that India should

learn the lessons from the US and Japan on how they became global hubs for manufacturing in electronics, auto, aerospace, consumer goods and managed customer

requirements, quality, performance, risk management and capital deployment, while creating spokes in China, Taiwan and rest of the world.

Indian IT-BPO industry can become the custodian and brand holder, utilising appropriate world destinations if they follow this path. India can then command two to three times of its current share of the global outsourcing market over the next decade.