07 December 2011

Indian IT-Outsourcing sees Mixed Trends

IT-Outsourcing has become one of the most significant growth enhancer for not only the Indian economy but also for various socio-economic parameters such as employment, standard of living and diversity among others. IT-BPO sector in India, alone has aggregated revenues of $88.1 billion in FY2011, generating direct employment to more than 2.5 million people. The industry has played a significant role in transforming India’s image from a slow moving bureaucratic economy to a land of world class technology solutions and business services.

The upbeat domestic IT-BPO spending trend will continue in FY2012 as the industry is expected to grow at 16 per cent to reach $20 billion. IT spending expected to significantly increase in verticals like automotives and healthcare while the government, with its focus on e-governance, will continue to be a major spender. Including the contribution towards India’s growth, IT-outsourcing is illustrating many trends and insights.

 2. Global In-House Centers

Global In-House centers (GIC) established ‘proof of concept’ and branded India as a global sourcing destination. Their impact on India extends beyond revenues and employment – playing a leading role in developing an R&D and product culture, spearheading initiatives to develop affordable products for emerging markets and creating entrepreneurship opportunities. GIC contribute to 22 percent of IT-BPO export revenues and 21 percent of employees. North America and Europe happen to be the largest investors in the captive space; together they contribute to more than 90 percent of the captives in India. The industry has significantly grown over the last 5 years and currently has representation from most of the verticals like Aerospace & Defense, Automotive, BFSI, Bio-Technology, Chemicals, Computer Hardware, Education, Electronic/Electrical Equipment, Energy, Healthcare, Industrial, Semiconductors, Software/Internet, and Telecommunications.

3. Total Contract Value

After a devastating Q2 of 2011, the IT services contract signing activity picked up slightly in the Q3. In this third quarter the total contract value was $27.3 million, which is 43 percent up from Q2 2011, but is 21 percent down on the third quarter of 2010. India made 416 deals in this third quarter of 2011, which is again 12 percent down from the same quarter of 2010. North America, after a terrible start in the beginning of the year, now has reached a total contract value of $3.1 billion, grabbed from the private sector, which is higher than the total generated in the first six months of the year. Europe too has hit total contract volume of $3 billion from the private sectors, with more than one-third of the total derived from the UK. These are the utmost important reasons why India has lost some of its TCVs.

 4. Software Products

There’s a noticeable shift in the Indian Software product business ecosystem which has helped create an enabling environment for the growth of Indian Software Products. There are many catalysts in the development of the domestic market for software products, such as, improvements in the talent and support ecosystem, innovations is software product technology, delivery/business models, and changes in the Indian economy. Increased growth of IT by enterprises, especially among SMBs, and home-users has driven growth in this segment.

5. Indian IT to Grow by 16-18 Percent

Software lobby Nasscom has projected that Indian IT-BPO will attain a growth of 16-18 percent by FY 2012, and despite having so many tilting drawbacks it is quite confident about its survey. “There is no reason for us to be worried. We have spoken to customers, and they are looking at expanding into geographies and bringing newer solutions to the market”, Nasscom President said on the sidelines of the Nasscom BPO Strategy Summit 2011. The growth in software and services export is expected to be 16-18 percent and the sector is slated to bring in revenues of $68-70 billion. The growth in the domestic market is estimated to be 15-17 percent, with revenues of about $19-20 billion.

1. Knowledge Professionals

Out of 4 millions pass outs every year in India, 3.3 millions are from non-technical backgrounds including arts, commerce and science. This has given birth to an employability gap, where significant amount of money is spent to enhance employability with in-house training and academia partnership, creating talent pool of process and vertical specialists, which is equivalent to an employee’s 3-4 per cent of their salary bill. During the FY2011, there was a much greater focus on ongoing development of specialized skills and capabilities as Indian professionals has to be transformed from knowledge based talents to skilled manpower. Analysis indicates that the training spent per employee in the IT-BPO industry is among the highest in the organized services sector.