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IT enabled Services

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IT enabled Services (ITeS)

February, 2011

The Indian information technology (IT) - business process outsourcing (BPO) sector including the domestic and exports segments continue to gain strength, experiencing high levels of activity both onshore as well as offshore. The companies continue to move up the value-chain to offer higher end research and analytics services to their clients.

India’s fundamental advantages—abundant talent and cost—are sustainable over the 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.

National Association of Software and Service Companies (NASSCOM)—the apex body for software services in India—has recently released publication-Strategic Review 2011, the IT-BPO sector's revenue as a proportion of the country's gross domestic product (GDP) has grown from 1.2 per cent in 1998-99 to an estimated 6.4 per cent in 2010-11. Further, NASSCOM predicts that the Indian IT-BPO revenues may touch US$ 225 billion by 2020.

As per the Strategic Review 2011, the BPO sector continues to be the fastest growing segment of the industry and is expected to reach US$ 14.1 billion in 2010-11, growing at 14 per cent. The year also witnessed the next phase of BPO sector evolution - BPO 3.0 - characterised by greater breadth and depth of services, process re-engineering across the value chain, increased delivery of analytics and knowledge based services through platforms, strong domestic market focus and SMB centric delivery models.

Further, as per NASSCOM, within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export revenues of US$ 33.5 billion, accounting for 57 per cent of total exports.

Domestic BPO segment is expected to grow by 16.9 per cent in 2010-11, to reach US$ 2.8 billion, driven by demand from voice based services, in addition to adoption from emerging verticals, new customer segments, and value based transformational outsourcing platforms.

Moving up the value-chain

ITeS, which started with basic data entry tasks over a decade ago, is witnessing an expansion in its scope of services. It now offers services such as knowledge process outsourcing (KPO), legal process outsourcing (LPO), games process outsourcing (GPO) and design outsourcing, among others. The Indian BPO sector has not only added scale in the last nine years, but has also matured significantly in terms of scope of service offerings, buyer segments served and service delivery models. Apart from achieving maturity in the horizontal segment, providers are increasingly developing vertical/ domain specialisation to capture greater value.

According to the DIT, among the verticals serviced by India's IT/ ITES-BPO industry those that account for the largest share of revenue are banking, financial services and insurance (BFSI) (41 per cent), Hi-Tech/ Telecom (20 per cent), manufacturing (17 per cent), retail (8 per cent), with smaller contributions coming from media, publishing and entertainment, construction and utilities, healthcare and airlines and transportation. Important industry verticals being serviced by the BPO segment are insurance, retail banking, travel and hospitality, auto manufacturing, telecom and pharmaceuticals. Horizontals such as Customer Interaction and Support (CIS), Finance and Accounting (F&A) and Human Resource Management (HRM) are important areas in the BPO segment.

The Indian animation industry is estimated to grow at a compounded annual growth rate of 22 per cent to reach US$ 1 billion by 2012, according to NASSCOM. It also estimates the gaming industry to grow 49 per cent, reaching US$ 830 million by 2012.

According to a report 'Globalization of Engineering Services', published by NASSCOM and Booz Allen Hamilton, India may capture 25 to 30 per cent of the projected US$ 150 billion to US$ 225 billion market for off-shored engineering services, i.e. around US$ 50 billion, by 2020.

According to a report by consultancy firm ValueNote, the LPO revenues in India are estimated to reach US$ 1.1 billion in 2014 from US$ 146 million in 2006.

Advantage India

According to AT Kearney's 'Global Services Location Index 2011', a ranking of the top 50 most attractive offshoring destinations, India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions.

India has constantly held the number one position since 2004, when the rankings started. According to the report, India has the first-mover advantage in the back-office operations’ avenue, coupled with reasonably priced skilled workforce and sound knowledge base.

According to NASSCOM, by 2014-15, the Indian IT-BPO industry is expected to contribute about 7 per cent to global annual GDP and create about 14.3 million employment opportunities (direct and indirect). By 2020, new segments (SMBs), new verticals (Public sector and Defence, Healthcare, Utilities, Printing and Publishing) and new geographies (BRIC) will account for 50-55 per cent growth in the addressable market. India supply base is well placed to tap this potential, with their two decade long experience, mature service capabilities, presence in almost all verticals, global footprint and an abundant talent pool.

For India’s top technology firms focused on the markets of US and Europe, the country’s US$ 15-billion-plus domestic market for IT services is the latest battleground. In a year when top markets for software exports are recovering and expected to grow at less than 5 per cent, India’s domestic market for IT is set to grow three times faster, mainly on the back of higher government spending on IT and new outsourcing projects from local banks.