INDEX Overview I.T industry market characteristics Domestic I.T market General features of major players Industry attractiveness I.

T penetration sector wise deep down Regulations and government initiatives Challenges faced by the industry Trends in I.T industry Projected trends for the industry

OVERVIEW The I.T industry in India has today become a growth engine for the economy, contributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a ―young and resilient‖ Indian technology sector will play an important role in meeting the evolving needs of the Indian consumers. It is imperative that end user industries re–align their business models and continuously invest in new technologies to provide innovative value propositions to their customers. IT will also be a significant driver in the economic growth of our country due to its effect on increasing productivity and enabling innovation. With its growing influence on the economy, the Indian IT industry is expected to witness about 12 percent growth over the next four years, to reach a market size of about INR1.8 lakh crores by 2016. IT services and software products will lead this growth, due to an increase in IT adoption by companies, shift towards outsourcing and emergence of new technologies. IT adoption across end user industries is not the same—some sectors like banking, telecom and insurance have leveraged IT across their business functions, including the back–end organizational processes, customer facing activities and revenue generating initiatives, and are at an advanced stage in IT adoption. Sectors like education, healthcare, media and retail are relatively low IT spenders currently, but are expected to significantly increase their expenditure on this front in the future. The role of IT in organizations is expected to evolve from simply being ―order takers‖ to transformative ―business partners‖. Several domestic IT companies have built strong IT capabilities in the last decade and today boast of a marquee global client base. While traditional pricing advantage that IT providers enjoy in global markets may not be relevant for the domestic market, they now have the opportunity to play in value–added areas by serving as optimization agents and transformation partners and deliver value through process improvements and technology–led transformations. IT providers are attempting to understand the unique and evolving needs of Indian end user industries aiming to employ India–specific strategies for the domestic market. IT providers are developing the required partner network, applying multiple cost levers and adapting innovative commercial models to fully tap the Indian opportunity. The Government plays an important role in the IT market, both as a buyer and as a facilitator. In its role as a buyer, the Indian Government needs to catch up with the rest of the world on IT spending—it‘s IT spends as a percentage of GDP have been significantly lower than Governments for developed economies. In recent years, Government has taken the right steps in some areas for example, UID, education. Going forward, Government needs to focus on providing more IT–enabled citizen services, improving efficiencies in the public sector, investing in disruptive technologies, standardizing data, and promoting shared services. These initiatives will need to be supported by a strong execution and governance model to effectively leverage IT.

The diagram below quantifies some parameters of why India is a preferred location for investors. .T INDUSTRY MARKET CHARACTERSTICS The structure of the Indian I.T industry can be depicted as follows: In the current scenario ―advantage India‖ is what the I.T industry leverages to lure clients across the globe.I.

US has traditionally been the biggest importer of Indian IT exports.T industry serves numerous industries and verticals pan India and the major revenue is derived from the following sectors: BFSI is the key vertical that contributes the most to the I. Demand from emerging countries is expected to show strong growth going forward.T industry.Currently I. Non US-UK countries only accounted for 22. resulting in a share of just over 40 per cent of the total IT-BPO exports from India. over 60 per cent of Indian IT-BPO exports during FY12 were absorbed by US.0 per cent of the total Indian IT-BPO exports during FY12. . It accounted for export revenues of around USD28 billion during FY12.

DOMESTIC I. offers diverse products and services for both its domestic and international customers.The market structure of the industry in India is fragmented between various national.T MARKET A comparison of India‘s IT spends with more developed economies shows that the India‘s overall IT spend as a percentage of GDP is less than 1 percent—significantly lower than the global average of 2. India being the outsourcing destination of the world today.5 percent. . multinational and small sized players. This industry however is dominated by large sized players catering 36% share of the total industry revenue.

driven by convergence of IT systems and solutions with business objectives and growing IT adoption to handle business complexities. rapidly evolving technology landscape in the corporate sector and curiosity of companies to test attractiveness of emerging technologies and implement them in business processes. Hardware The total hardware market for the year is estimated to be around INR32. which is expected to grow positively as a result of increasing IT adoption. Greater IT spends lead to productivity improvement through process automation. IT spending is likely to increase significantly. incremental business on electronic medium and real time access to information.More developed economies typically spend more on IT and as Indian economy grows. reducing software license fees and acceptance of pay–per–use model of software licensing. This segment is expected to grow at a healthy rate as companies will outsource the setting up and maintenance of IT infrastructure to third–party providers.500 crores. Infrastructure and Network Integration Services: Demand for infrastructure & network integration services would primarily be driven by a need for synergies in IT systems across the global operations of organizations. accounting for almost 32 percent of the total IT market in India. Business Process Outsourcing: BPO is a relatively small market in India and a large part of it is captive. Infrastructure Outsourcing: Infrastructure outsourcing is one of the biggest revenue–generating service lines in the domestic market. outsourcing of non– core business activities including new transformational IT deals in various industry sectors such as banking and telecom and emergence of new technologies such as cloud and data analytic would drive the future growth of IT services in India. The domestic IT services market is growing the fastest amongst all domestic IT segments. Application and Software Related Services: The market for commercial application and custom application services would be driven by the growth in demand for application software. . replacement / upgrading of legacy systems. BPO companies are also increasingly being established in tier 2 and tier 3 cities to enable service providers to deliver the services at lower costs. there is a new trend related to third–party transformational outsourcing relationships between customers and service providers. However. increase in size and scale of companies. Demand for applications would also lead to increased demand for software support. Increase in IT adoption by companies. driven by the following factors:    Increasing need for companies to focus on their core competencies and invest in their core activities due to intense competition High–end skills required for maintaining and upgrading the complex IT systems to match the industry best practices that will be more difficult to manage internally reduction and lean IT organizations IT Consulting: IT consulting is expected to grow at a robust rate. emergence of complex IT systems and the need to enable them to communicate with each other.

light weight. 1.800 crores. Application Software: Some of the key examples of application software include enterprise software. and portable computing devices. and graphics software. security software and system and network management software. However. current technology and business trends such as adoption of disruptive technologies like cloud and mobility and growing business threats point toward a strong market potential for security software as well as system and network management software. 3. System Infrastructure Software: This segment primarily comprises of systems software. 2. leading providers will face some stiff competition from the growing presence of open–source software. office suites. Network Equipment: Network equipment is another big revenue–generating segment in the overall hardware market. Servers and Storage: Growing acceptance of cloud computing. 3. Software Products The total software products market for the year 2013 is estimated to be around INR17. The market for notebooks / tablets is driven by the increasing demand for affordable. accounting software. would drive companies to invest in these applications. It is expected that increasing investments by companies in expanding and upgrading their current IT infrastructure would lead to increased investments in network equipment by most of the end–user industries. the increasing demand for notebook / tablets will lead to a fall in the demand for desktop PCs. with concerns for security and improved customer services. 2. The systems software market is more mature and developed. However. However. increasing IT adoption across industries. accounting for around 18 percent of the domestic IT market. The slower growth of the desktop PC segment shall be driven by the increasing demand for computing devices in education and the ongoing Government initiatives to increase the reach of IT. The value chain of the industry in broad terms can be depicted as follows: . The use of application software is increasing due to multiple factors including replacement / upgrading of legacy systems. Growing adoption of cloud computing and virtualization. virtualization and digitization is expected to drive the demand for servers and storage in future. testing and deployment of applications as well as emerging mobile applications. and increasing acceptance of pay–per–use model (software as a service) for software licensing. primarily driven by the use of cloud leading to redefinition of methods of design. systems and devices. reducing licensing fees. Personal Computers: Notebooks / tablets and desktops together comprise a major part of the IT hardware market.1. Application Development Software: The market for application development software is expected to grow at a healthy pace.

PORTER’S FIVE FORCES .

HCL has been reducing its debt over the years while Infosys is a zero debt company. . TCS and HCL Technologies.602079776 In IT industry. TCS has a varied policy for hedging its currency risk. Therefore the Degree of operating leverage is very low in IT industry. Most of their projects are funded through internal funds. DEGREE OF OPERATING LEVERAGE DOL (TCS) DOL (Infosys) 1. EMPLOYEE MANAGEMENT In I. namely.170881945 0. variable expenses are higher as compared to the fixed expenses. TCS has a mix usage of options and forward contracts as hedging instruments. the British pound. So maybe they don‘t take debt. For HCL and Infosys also the employees are increasing but the percentage increase is not more than TCS which is the market leader. The comparative analysis of the three companies depicts that the number of employees of TCS manages is far more as compared to HCL and Infosys. the US dollar. Some companies like Infosys have only foreign currency. Market downturns have not affected the company as its continuously expanding its employee base for the past five years.Infosys. Also their actual assets are human capital which cannot be acquired. DEBT TO EQUITY RATIO None of these companies have high debt to equity ratio.GENERAL FEATURES OF THE MAJOR PLAYERS IN INDIAN IT INDUSTRY We have analyzed three players in this industry. And we have seen some trends across these players. the Japanese yen and the euro. Out of all the major players Infosys has a stable and consistent hedging strategy. which makes the industry vulnerable to fluctuations of the Indian rupee against major global currencies. Different companies follow different hedging proportions and strategies.T companies the major asset is the employees. FOREIGN EXCHANGE IMPACT A majority of the business of Indian IT services players is transacted in foreign currencies.

Internet.6 64.T Industry are:        Communication Costs .8 50.4 54.300 250 200 150 100 50 0 INFOSYS TCS HCL TECHNOLOGIES FY09 104. Attrition at second-rung Infosys Ltd rose to 16.7 FY10 113.7 per cent in the previous year) COST DRIVERS According to CIMA.8 198. OF EMPLOYEES INFOSYS TCS HCL TECHNOLOGIES ATTRITION Attrition.2 85 NO. which is defined as employees resigning or retiring and does not include people who were fired.6 per cent of the workforce quit in FY13. IT industry is primarily driven by its employees.3 per cent (14.4 FY12 150 238.2 FY11 130. lower from 12. has a direct relation to the growth of the sector and India's GDP. 10. ‗cost driver is any factor which causes a change in the cost of an activity.9 143. Intranet Server Platforms Employee Hiring and Training PC Services and LAN/WAN Services Marketing & Advertising Costs Software Development Costs Other costs not identified explicitly .7 276.2 per cent a year earlier.8 160. The various are the major cost drivers identified in the I. A cost driver is the unit of an activity that causes the change in activity's cost. At Tata Consultancy Services (TCS).6 77 FY13 156.Messaging.

One of the top FDI destinations across industries. the country‘s weaknesses are its under-developed infrastructure and a restrictive operative environment. Strengths such as a burgeoning middle class.T PENETRATION – SECTOR WISE DEEP DIVE 1. lucrative domestic market. the US invested the most in India. with 30.T Adoption  INR 18. growing domestic consumption levels and a skilled workforce are helping India to strengthen its position in the global marketplace. compared with 11% last year.2% of projects. BANKING Current I. Also. Investors across the world recognize India‘s FDI potential. Seven of the top 10 investors in India during 2007-12 were from Western Europe.India was the fourth-largest recipient of FDI in terms of projects started in 2012.2% of respondents expect India to be surpassed by competition from more dynamic countries. Between 2007 and 2012.4%. and its skilled workforce.India‘s appeal lies in its competitive labor costs.INDUSTRY ATTRACTIVENESS 1. I. as well as its improving telecommunications infrastructure. Foreign investors also applaud its strong management and business education system. High expectations for 2020 – India is expected to be among the top three economies of the world in 2020. 3.5% of global FDI. led by the UK and followed by Germany and France. 2. particularly for economic growth and manufacturing according to EY survey 2014 and 2012 results.500 crores IT spends in banking . An attractive market with a challenging business environment . and in terms of value. followed by Japan with 10. this year only 5. it accounted for 5. However.

T Adoption   INR 15000 crores IT spend on telecom Large strategic outsourcing deals a norm in telecom 3. TELECOM Current I.T service typically deals with infrastructure outsourcing and project development .300 crores IT spend in manufacturing.2. MANUFACTURING Current I.T Adoption   INR 12. adoption levels still low I.

Technical testing & Analysis services. Software Technology Parks (STP). Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:  The Government of West Bengal plans to spend Rs 41 crore (US$ 7. liberalization of external trade. The major fiscal incentives provided by the Government of India have been for the Export Oriented Units (EOU). Software supply services. software development and computer consultancy services. The State has around 600 small. The Government of India's move to do away with the mandatory requirement of 10 hectares of minimum land area for setting up an IT and ITeS special economic zones (SEZ) is expected to provide a major boost to the real estate and IT sector. The policy aims to increase revenues of IT and ITES industry from US$ 100 billion to . Market Research Services. Business and management consultancy services. Government Initiatives FDI up to 100 per cent under the automatic route is allowed in Data processing. relaxation of controls on both inward and outward investments and foreign exchange and the fiscal measures taken by the Government of India and the individual State Governments specifically for IT and ITES have been major contributory factors for the sector to flourish in India and for the country to be able to acquire a dominant position in offshore services in the world. and Special Economic Zones (SEZ).000 professionals directly and nearly three times the number indirectly  The Cabinet has recently approved the National Policy on Information Technology 2012. elimination of duties on imports of information technology products.REGULATIONS & GOVERNMENT INITIATIVES Regulations After the economic reforms of 1991-92.37 million) to roll out citizen-centric services electronically across 19 districts including Kolkata  Kerala has set an ambitious target of becoming a cent per cent digital state in governance. medium and large IT firms employing over 80.

workforce is available at relatively lower costs. therefore. In order to control costs. to be able to accommodate costs within the allocated budget. IT providers. companies start from a very low baseline of IT management capabilities and infrastructure. need to identify alternative value propositions for the domestic market. Indian companies are typically ―high touch clients‖ and prefer more hand holding from their vendors. Due to this mindset. Indian companies are cost sensitive Several Indian companies still consider IT as a cost center. do not have historical investments in building IT capabilities for their businesses. vendors and suppliers as well as disbursement of loans and payments towards investments should be made only through the electronic mode CHALLENGES FACED BY THE INDUSTRY In India. prefer integrated deals and press for outcome–based pricing models. need to play an end– to–end role where they partner with clients to help adopt IT. companies may eventually compromise on some key aspects of the implementation. and implement transformative business processes. making it challenging for IT providers to pitch the effectiveness of their solutions purely based on the cost advantage. Indian companies are late adopters of IT Indian companies. companies tend to resort to hard negotiations. They expect the providers to become business partners who will make up for the lack of internal IT capabilities. Client Relationship Management is important The pattern of IT buying by Indian companies differs significantly from that observed in other countries. this cost consciousness translates into lower margins in India compared with the global market.  US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020 The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks. and not a driver for value addition and business growth. build IT systems from scratch. Process optimization and business transformation are what Indian companies need. that all payments to customers. thus. and many times this can be challenging to provide at the price levels they demand. being late adopters of IT. staff. IT providers. IT . For IT providers. Given the relatively inadequate internal capabilities. in contrast with their counterparts in developed countries who have an established basic infrastructure. all at the same time. As a result.

Risk associated with exchange rate fluctuations A majority of the business of Indian IT services players is transacted in foreign currencies. need to possess strong account management capabilities with dedicated resources to be able to serve Indian clients effectively. A fall in billing rates may adversely impact revenues. there is a gap between the end user companies‘ expectations in terms of delivery quality IT providers thus. the infamous U. Concentration of service offerings Changes in the service mix can impact a company's overall performance. demanding the same quality of delivery as promised by IT providers to foreign clients. the British pound. the US dollar.S immigration bill. as well as ensure delivery on key aspects like cost. Immigration regulations Most employees employed by Indian firms are Indian nationals. revenues. in turn. they are quite discerning as buyers. a downturn in any of those verticals. they also need to ensure that they gradually move to higher-end service-lines such as package implementation and systems integration to command a higher price. schedule. or structural changes that the industry goes through may adversely affect its revenues. and quality of service. Billing rate risks Billing rate risks refer to the potential danger of clients renegotiating billing rates. while majority of their clients are US-based. which makes the industry vulnerable to fluctuations of the Indian rupee against major global currencies. need to balance the expectation of high quality delivery with the price points demanded in the Indian market. Any change in immigration regulations by any particular country can adversely impact the revenues of the Indian IT firm e.providers. Concentration of verticals Verticals refer to various industries from which a firm derives its revenues. Put simply. Traditionally. Currently industry is too much dependent on BFSI sector. A proportion of services offered to clients‘ needs to be performed on site. Indian firms have focused on providing application development and maintenance services. Commoditization of these service-lines could adversely affect billing rates and. causing them to move southward. thus. . namely. Expectation of high quality of delivery While Indian companies are late adopters of IT and cost sensitive. firms need to ensure that they operate in a variety of service-lines.g. the Japanese yen and the euro. The ability of IT professionals to work in other countries depends upon the necessary visas and work permits that they need to acquire. Besides. They expect vendors to assign quality resources for their projects. For a firm focused on a limited number of verticals. In order to mitigate this risk.

projects offered in the domestic space require end-to-end IT implementation encompassing consulting.5% of the unorganized workforce reportedly undergoes formal skill development. Around 93% of the Indian workforce is employed in the unorganized or informal sector. vendors use the experience gained from executing a project in the domestic market in a bigger project to be executed for a developed market. Such contracts provide ample opportunities to Indian IT service providers to develop their capabilities and win clients abroad. Barely 2. Competency building and competitive advantage are the two most important reasons among those. have been unable to establish themselves successfully in high-end IT consulting.4 million engineering students graduating every year in India. . TRENDS IN I. In contrast. implementation.Broad Skill set gap Out of around 0. posing a big impediment to labor-intensive sectors. testing and infrastructure management services (IMS). system integration and infrastructure management services and continue to lose out to global players. By 2020. Domestic projects involve delivery of end-to-end solutions Indian IT players. to date. only 20% are readily employable. vis-à-vis 11% in the organized sector. Competency building Many times. which lacks any kind of formal skill development system. many players are taking up projects in the Indian market for various reasons. system integration. the country is expected to face a shortage of 13 million mediumskilled workers.T INDUSTRY Players focus on domestic market for strategic reasons Although the domestic market is not as profitable as exports.

Increased adoption of I. Small and medium businesses Wipro is offering cloud services to SMBs in an attempt to become the largest IT vendor in the domestic market. SEZ‘s and Tier II & Tier III cities are projected to be the most revenue generating sources for the IT sector in the future because of the following advantages: . Subcontracting. The sectors in ROJECTED TR focus are: PROJECTED TRENDS FOR THE INDUSTRY STPI‘s. TCS iON has garnered 235 customers in the domestic market. the company doubled its SMB customer base. standardizing and shared risk-reward improve project viability.T by the government The government is taking numerous initiatives across various segments thus increasing the expenditure and adoption.Cloud to gain traction across SMEs Cloud services (Iaas and PaaS) are also on rise as these services are offered using pay-per-use model. CRISIL Research believes that cloud services would result in significant uptake of IT by SMEs. In the last two quarters of FY11.

while across the world are expected to witness a shortage of around 56.S and U. The need of the hour is to focus on these . Jaipur is emerging as an I. BRIC nations. India is expected to have the largest workforce in the world by 2025.T delivery locations 2. with around 2 billion English-speaking people by the end of 2020.T industry is presently concentrated from U. continental Europe and Japan have IT spending of over USD183 billion but contribute only 12 per cent of India‘s IT revenues. Some cities are expected to emerge as regional hubs for the large domestic companies. 4. 5.T city with exports of over USD 64 million in FY10.5 million skilled workers (Source NSDC). Over 50 cities have the basic infrastructure and human resource to support the global sourcing and business servicing industry.K majorly. Within the same period. 43 Tier II/III cities are emerging as I. Redefining Boundaries The major revenue of Indian I. India has the potential to have a surplus of around 47 million skilled workers through its skill development program.PARAMETERS Term Fiscal benefits STPI‘S 10 years •100 per cent tax holiday on export profits SEZ‘S 15 years •100 per cent tax holiday on exports for first five years •Exemption from excise duties •Exemption from excise duties and customs and customs Location and size restrictions •No location constraints •23 per cent STPI units in tier II and III cities •Restricted to prescribed zones with a minimum area of 25 acres Further trends in the Tier II & Tier III cities have been pretty encouraging as depicted by the following facts which is driving big MNC‘s as well as Indian companies to these more profitable locations: 1. The cost in newer cities is expected to be less than 28% than the leading cities 3.

Systems like Virtualization.diverse geographies to reduce dependence on the western powers and become self-sufficient. BFSI. Public sector. independent hospitals and small clinics / nursing homes. PACS. dynamic pricing and market research to use viewer feedback Increased need for social media and mobile based applications to increase reach and revenues HEALTHCARE The healthcare market in India is estimated to be INR 300 billion. Philippines etc. MEDIA This sector is approximately INR 700 billion in revenues and is expected to grow at 15% per annum till 2016. Opportunities for I. private institutions have a larger share (approximately 60 percent) in terms of the total number of institutions. media and utilities have IT spend of over USD587 billion but constitute only 20 per cent of India‘s IT revenues. The private sector is a mix of specialty hospitals. Primary Health Centers (PHCs) and Community Health Centers (CHCs). national chains. the second largest IT market. which is the area to be tapped by I. manufacturing and retail. Redefining Verticals Over 85 per cent of the total Indian IT-BPO exports is across four sectors viz.T are:      Patient management. electronic medical records etc.T industry. While the reach of the Government–managed public healthcare network is higher. The public healthcare system mainly consists of district hospitals.kiosks at hospitals Clinical layer. telecom. Further adoption of technology and outsourcing is expected to make Asian nations like Singapore. BI Hospital Information Exchanges(HIE) Telemedicine & E-prescription . 40 percent revenue of this industry comes from advertisements. healthcare. The following are the sectors to be focused on moving forward. The opportunities are:   Analytics and business intelligence for targeted marketing.disease management software.

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