The positive statistics logged by the Indian software and services sector during 2003-04 have given considerable cause for cheer. Despite the significant challenges of a difficult global economic situation, static IT budgets and a “backlash” against offshoring, India’s software and services industry has emerged unscathed, and delivered better-than-expected results. Software and Business Process Outsourcing (BPO) exports, the mainstay of the industry, grossed US$ 12.5 billion, up from US$ 9.6 billion in 2002-03, indicating growth of 30.5 percent for the year, higher than the 26-28 percent projections and significantly more than the 25 percent growth (in terms of USD) in 2002-03. Incidentally, this was the highest growth in the software and services sector since 2001, indicating the resilience and adaptability of the Indian IT industry in the context of a changing global scenario. It is also indicative of the coming-of-age of both, the offshoring model and the Indian IT industry.
The Indian domestic software market has moved beyond single digit growth to enter the double-digit phase over the past two years. The domestic market, which has traditionally lagged behind the exports segment, has shown promising growth in the recent years, emphasizing need for the software industry to re-look at this market and the potential business opportunities it offers. The market has grown to a size of US$ 3.4 billion, up from US$ 2.8 billion in 2002-03. The domestic market growth was stimulated by a drop in prices, resulting in larger volume growth compare to last year.
The ITES-BPO segment continued its searching rate of growth sector during 2003.04, indicating the convincing case for offshore outsourcing. Offshore BPO, in fact, is now recognized to be mainstream, with over 80 percent of Fortune 500 organizations evaluating this, as reported by Gartner. While export revenues of the ITES-BPO segment rose by a huge 46 percent in 2003-04 (from US$ 2.5 billion in 2002-03 to US$ 3.6 billion) this was lower than the 68 percent rate of the previous year, due to the larger base.
The Indian ITES-BPO industry has began to mature in a very short period of time. The sector has witnessed expansion in service lines to encompass technical help desks, finance and accounting, engineering services, HR, equity research, etc.
Increased focus on outsourcing of IT and other services has brought the issue of data security to the fore. Indian companies have raised their quality standards in recent years to become the international benchmark for quality. Similarly, NASSCOM aims to make
The year gone by also saw stabilization in pricing trends, which are likely to continue in the future. This is due to the fact that the pricing gap between the various tiers of players has narrowed significantly, suggesting better pricing discipline and greater competition in industry worldwide.
Another important trend that was witnessed last year was the expansion of ITES-BPO sector beyond metros to cities like Vizag, Pune, Jaipur,
Following a somewhat lean year in 2000-02, the software services segment witnessed substantial acceleration, with growth rates jumping from 15 percent in 2002-03 to 25 percent in 2003-04. In revenue terms, the software services segment expanded from US$ 7.1 billion to US$ 8.9 billion in 2003-04. The growth in the software services included trends like an increase in addressable markets. The new markets included not just the Fortune 500, but Global 2000 companies. There was strong traction in
The revenue figures for the SME segment within the software and services sector once again demonstrated that there exist opportunities for innovative and niche SMEs. 414 of NASSCOM’s 660 small and medium-sized members grew at over 20 percent. The year also saw the number of new start-ups grow to 112 from 47 in 2002-03. Most SMEs reported strong utilization rates and stable pricing and year-end surveys revealed an optimistic future.
As customers begin to outsource most non-strategic processes, BPO will gain a share in new contracts. The market will also see a substantial bundling of IT services and BPO. While the key standards will be controlled by the 3-4 large vendors, IT software and service project execution will take place through a global delivery model, with most companies offering three-tier delivery and a network of global centers. The overall IT software and services industry size is expected to double from US$ 10 billion in 2002 to US$ 20 billion in 2005.
We are beginning to see the emergence of another segment with strong growth prospects: R&D. Apart from the Indian companies, MNCs are doing an increasing amount of their software development and design work at their captive centres in
A huge opportunity beckons us in the area of R&D. We have the chance to become not just a service or manufacturing hub, but a true thought-leader. Government, industry and academia need to work closely together on this so that
Software product companies need to continuously upgrade their products in order to remain competitive. Companies such as Microsoft, Oracle and Adobe have setup captive back-end development centers in
The Indian software products industry, still in infancy, is primarily dominated by a few companies. These companies have developed products for niche markets and have succeeded in selling them to those markets.
In little over a decade, the Indian software industry has astounded its skeptics and emerged as an important force on the global software scene. To be truly beneficial, we need to use the capability of the Indian IT industry as a lever to solve the more fundamental problems. Though there is no dearth of fascinating stories about IT-enabled changes, we need to aggressively pursue IT applications in manufacturing and agriculture-based industries, and to build a robust industrial economy that is made more efficient through IT. Likewise, e-governance is a major and important area for IT applications.
At the broader level, the Indian software and service industry has emerged as a key growth driver for the Indian economy, creating multiplier effects through employment generation, reducing trade deficit and boosting forex reserves. It has also been the largest contributor towards creating a new and positive image of the country. The government should treat this sector as a “lighthouse industry” and devise a concerted strategy with actionable initiatives to ensure that we become a dominant player in the global IT industry.
While the government has taken significant steps in removing regulatory hurdles and in facilitating development of the telecom infrastructure, going forward it now needs to play a pivotal role in accelerating growth in the industry. De-regulation of key sectors to encourage adoption of IT in the domestic market, strengthening the supply base of knowledge workers and negotiating work permit and totalisation agreements with countries to promote trade internationally should be amongst the focus areas for the government.
The software sector can continue on its robust growth path, provided it can successfully stave off some of the human resource challenges it will face as it moves forward. The industry will have to address both internal and external challenges like the need to attract highest quality programming talent in
from : kiran karnik (NASSCOM)
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