1.

GLOBAL SOURCING TRENDS

Worldwide technology products and related services spend is estimated to cross USD 1.6 trillion in 2008, a growth of 5.6 per cent over 2007.

Worldwide BPO spending in 2008 grew by 12 per cent, which was the highest among all the segments. BPO today is an integral part of the global delivery chainand is increasingly involved in mission critical applications.

Global sourcing market size has increased threefold since 2004, to reach USD 89-93 billion in 2008.

Offshore IT-BPO service providers continued to build their global delivery footprint, expanding service lines and also growing inorganically by acquiring firms in the US and Europe to build skills and nearshore delivery capabilities. Therefore,

thoughthe established players dominated the market, Indian heritage service providers gained ground and market share. 2. IT-BPO SECTOR-OVERVIEW

Total IT-BPO industry to reach USD 71.7 billion accounting for 5.8% of Indias GDP; software and services revenues aggregated to about USD 60 billion

Software and Services export revenues estimated to grow over 16-17% to reach USD 47 billion

Direct employment expected to reach nearly 2.23 million, an addition of 226,000 employees, while indirect job creation estimated at ~8 million Indias fundamental advantagesabundant talent and costare sustainable overthe long term. With a young demographic profile and over 3.5 million graduates and postgraduates that are added annually to the talent base, no other country offers a similar mix and scale of human resources

Seven Indian cities account for 95 per cent of export revenues, focus on developing 43 new locations to emerge as IT-BPO hubs

Higher growth in European/Asian market

2a. IT SERVICES, ENGINEERING SERVICES, R&D AND SOFTWARE PRODUCTS IT SERVICES IT Services involves a full range of engagement types that include consulting, systems integration, IT outsourcing/managed services/hosting services, training and support/maintenance.

IT services (excluding BPO, Engineering Services, R&D and Software products), contributing to 57 per cent of the total software and services exports,

remains thedominant segment and is estimated at USD 26.9 billion, a growth of nearly 16.5 per cent in FY2009.

Domestic IT services spends grew at over 43 per cent in FY2008, showing strong signs of increasing sophistication as building enterprise IT infrastructures and applications, networking and communication became key priorities for India Inc.

ENGINEERING SERVICES, R&D AND SOFTWARE PRODUCTS

The engineering, R&D, and software products exports segment is expected to grow by 14.4 per cent in the current fiscal, to touch USD 7.3 billion, which highlights thestrong impetus and renewed focus on improving IP driven service capabilities inIndia.

Indian software product companies revenues are expected to account for 21 per cent of total software product revenues in FY2009, up from 20.6 per cent in FY2008. The market is expected to grow exponentially driven by an increasing number of start-up software product businesses as well as a rapid growth of existing businesses.

2b. BPO MARKET

BPO services exports, up 18 per cent, was the fastest growing segment across software and services exports driven by scale as well as scope. BPO serviceportfolio was strengthened by vertical specialization and global delivery capabilities.

Emergence of domestic BPO is the key highlight for FY2009 recording a growth of above 40 per cent in INR terms. The growth is led by the BFSI, Telecom and Airline industries and a greater vendor focus with specific service offering

Horizontal BPO, accounting for more than 80 per cent of Indian BPO exports, represents the larger and relatively more established set of services being delivered from India

Other

aspects

of

Indian

BPO,

besides the growing

breadth

and

depth

of the serviceportfolio, that reflect its increasing maturity include the increasing global delivery footprint and continuous emphasis on enhancing service delivery efficiency and productivity. 2c. HARDWARE MARKET

Despite the declining trends in pricing observed across key categories, increasing volumes have ensured that the domestic hardware revenue aggregate continues to grow. While hardware exports remained steady, domestic hardware segment remains the largest segment to grow at 17 per cent in INR terms during FY 2009.

PC adoption is growing at more than 30 per cent incase of SMBs

3. INDIANS IT-BPO VALUE PROPOSITION Strong fundamentals, a robust enabling environment, and enhanced value delivery capability are the hallmarks of the Indian IT-BPO industry.

India enjoys a cost advantage of around 60-70 per cent as compared to source markets. Additional productivity improvements and the development of tier 2/3 cities as future delivery centres, is expected to enhance Indias cost competitiveness.

Timely government policies and increased public-private participation have played a key role in developing an enabling business environment for the Indian IT-BPO industry. The Governments focus on education has helped create the large talent base from where the industry draws its workforce. The Governments proactive approach towards the IT-BPO industry was further highlighted in 2008 through actions such as the IT Act Amendment, extension of tax incentives by a year, removal of the SEZ Act

anomalies and the introduction of progressive telecom policies that focus on work from home.

Indian companies are now trying to adopt a culture that encourages innovation, embrace new trends such as Green IT, and deliver solutions that are focused on re-engineering and transformation. India is emerging as a leading Innovation hub with increasing number of patents being filed and granted from India

The silver lining of the economic downturn is the opportunity for the industry to enhance its overall efficiency. Companies are increasingly looking inwards and focusing on process benchmarking, enhanced utilization of infrastructure and talent, increasing productivity and greater customer engagement

4. FUTURE OUTLOOK

Despite the unprecedented economic downturn the industry will witness sustainable growth

The global technology related spending is expected to grow from 2010 onwards led by growth in outsourcing adoption.

Greater focus on cost and operational efficiencies in the recessionary environment is expected to enhance global sourcing

India Inc would remain focused on tactical measures to achieve cost savings and greater productivity

Services and software segments are estimated to cross USD 1.2 trillion by 2012. This is more than the 5.2 per cent growth expected in the total IT spending

The huge potential for global sourcing is further highlighted by an addressable market size of USD 500 billion in 2008, which is more than five times bigger thanthe current market

The industry will continue to diversify in terms of geographies, verticals and servicelines SMBs are expected to emerge as a significant opportunity due to lower IT adoption currently

Lack of working age population in the developed economies and a significant long term cost arbitrage indicates Indias sustained cost competitiveness

Service providers are expected to enhance focus to domestic market to de-risk business and tap into the local growth opportunities