Industries Overview
For the purpose of industry review we have relied for information on NASSCOM Strategic Review 2007, Annual Review of the Indian IT-BPO Sectors, NASSCOM report dated February 2007.
Industry Outlook
While the forecast spend in the global IT industry remains moderate, the Indian IT Industry is expected to continue on its growth trajectory. As before, service exports will be the key drivers of this growth suitably complemented by a booming economy and a growing domestic market.
Global Information Technology - Future of Global Sourcing
Global technology related spending is forecast to exceed USD 2.1 trillion by 2010, growing at a CAGR of more than 7 percent over 2006-2010. Growth in global sourcing is expected to outpace growth in total spend, with up to USD 110-120 billion of the total amount spent on software and services in 2010, likely to be sourced through the global delivery model.
Over the next four-five years, growth rates in IT related spends are expected to outpace GDP growth across the world.
Within Corporate IT spends, growth across the various segments is projected to be driven by a steady increase in aggregate spends, as well as reallocation of budgets from internal to external spending. This will, in turn, encourage the expansion of services adapted to lower cost, remote / virtual delivery models, thereby increasing the addressable market for global sourcing.
Off shoring opportunities:
Globalisation is rapidly becoming an integral part of any major business strategy, and is making global sourcing indispensable. Maturation of offshore delivery will continue to increase the overall market opportunity by allowing existing customers to expand the scope of their contracts and by allowing new customers to utilize services that were previously too expensive.
The ageing demographics in most developed countries will necessitate an increase reliance on globally dispersed talent pool to meet the demand for professionals contributing to accelerated growth of global sourcing phenomenon.
Rapid evolution of technologies and internet applications, and the rise of pervasive computing are expected to drive a rapid and quantum increase in technology adoption by businesses and individuals.
The proliferation of client devices and end-user or end-use devices at the network edge will result in addition of billions of devices to the network edge which will drive the need for more enterprises systems to deploy, manage and make use of them.
The resultant increase in scale and complexity of ICT infrastructure and applications, will lead to an increased demand for skilled IT resources.
The Indian IT-BPO sector outlook:
The outlook for Indian IT-BPO remains bright, and the sector is well on track to achieve its aspired target of USD 60 billion in export revenues by FY 2010.
Strong demand outlook, under-penetrated service lines and increasing emphasis on the role of ICT and innovation to be key drivers of growth.
CAGR Period Domestic Market 10 Year Target FY 00-10 22.1% Achieved FY 00-06 23.4% Required FY 06-10 18.6%
Exports* Total
31.2% 28.9% 34.6% 31.5% 24.2% 23.1%
Worldwide IT Services spend 2005-2010
2005 2006 2007E
Project based 153,380 161,827 170,804 IT Consulting 24,303 25,576 26,949 Systems Integration 77,133 81,108 85,128 Custom Application Development 23,478 24,434 25,450 Network Consulting & Integration 28,466 30,709 33,277 Outsourcing 158,922 170,512 183,010 Application Management 20,443 22,491 24,663 IS Outsourcing 87,898 92,443 97,095 Network and Desktop Outsourcing 31,214 33,214 35,325 Software as a service 2,252 2,810 3,554 Hosting Infrastructure Service 17,115 19,554 22,373 Support and Training 131,665 137,764 144,119 Software development and support 56,872 60,419 64,141 Hardware Deployment and support 53,310 54,914 56,450 IT education and training 21,483 22,431 23,528 Total 443,967 470,103 497,933
(USD Million) 2008E 2009E 2010E
180,514 190,745 201,443 28,418 29,976 31,668 89,300 93,627 98,161 26,588 27,872 29,266 36,208 39,270 42,348 196,459 210,376 224,693 27,037 29,560 32,241 101,780 106,526 111,449 37,588 39,916 42,367 4,456 5,275 5,963 25,598 29,099 32,673 150,561 156,789 162,741 67,856 71,535 75,065 57,987 59,324 60,493 24,718 25,930 27,183 527,534 557,910 588,877
Worldwide Offshore IT Services spend 2005-2010
2005 2006 2007E Application Management 1,416 1,750 2,172 Custom Application Development 3,328 3,708 4,145 IT Consulting 740 807 904
USD Million
2008E 2009E 2010E
2,703 3,274 3,893 4,595 4,982 5,343 1,037 1,202 1,411
IS Outsourcing & Network & Desktop Outsourcing 618 844 1,212 Systems Integration 2,772 3,333 4,029 Others 4,192 4,991 5,837 Total 13,066 15,433 18,299
1,811 2,674 3,885 4,835 5,639 6,426 6,723 7,609 8,446 21,704 25,380 29,404
Indian IT Services Export Revenues FY 2005-07E
2004-05 Project Oriented 5,580 IT Consulting 250 Systems Integration 200 Custom Application Development 4,980 Network Consulting & Integration 150 Software Testing - Outsourcing 3,290 Application Management 2,690 IS Outsourcing 600 Hosting Infrastructure Services - Others ( SOA & Web services + E-Business / E-Commerce) - Support & Training 1100 Software development and support 1100 Hardware Deployment and support - IT education and training - Total 9970
USD Million
2005-06 2006-07E
7,708 10,481 348 473 374 508 6,538 8888 166 226 282 385 4,363 5,932 1,588 2,160 839 1,141 - - 1,935 2631 1,234 1677 986 1341 80 109 167 227 13305 18090
GLOBAL SOURCING TRENDS
Global Technology related spending in 2006
Worldwide spend on technology products and related services crossed USD 1.5 trillion in 2006, growing at an estimated 7.7 percent over the year. Software and services remain the dominant segments, accounting for more than 70% of the total spending. Growth in spends was balanced across the key segments of hardware, packaged software and IT services, and ranged between 7.6-7.9 percent.
USD million Segment 2005 2006 Application Management 20,443 22,491 IS Outsourcing 87,898 92,443 Network and Desktop Outsourcing 31,214 33,214 Software as a service 2,252 2,810 Hosting Infrastructure Service 17,115 19,554
Segment 2005 2006 IT Consulting 24,303 25,576 Systems integration 77,133 81,108 Customs Application Development 23,478 24,434 Network Consulting and integration 28,466 30,709
Segment 2005 2006 Software development and support 56,872 60,419 Hardware Deployment and support 53,310 54,914 IT education and training 21,483 22,431
IT Services form the largest segment of worldwide spend on technology products and related services. Total spend on IT services was estimated at USD 470 billion in 2006, a growth of 5.9 percent over USD 444 billion in 2005
Within IT services, outsourcing is the largest and fastest growing category. In 2006 the total spend on IT outsourcing was estimated at over USD 170 billion, more than 36 percent of the total, and is estimated to have grown by 7.3 percent. Application management and hosting services are high growth segments within outsourcing, estimated to have grown at double-digit growth rates.
Revenues from project-based services were estimated at USD 162 billion in 2006, an average growth of 5.5 percent over USD 153 billion in 2005. Most sub-segments within this category are estimated to have reported near-average growth, with the exception of network consulting and integration which grew at 7.9 percent Support and training services revenues were estimated at nearly USD 138 billion in 2006, a growth of 4.6 percent over the previous year
Offshore Spending:
The underlying theme across all these dynamics observed in the outsourcing market is the growing capability and acceptance of the global service delivery model.
Comparing the growth in worldwide spends on key categories of IT services with the growth in offshore spends for the same services, it is observed that growth in offshore spend across categories is at least twice as high as the overall growth in category spends and up to 9 times faster for emerging segments such as infrastructure management services. However the total offshore spends even on custom application development and maintenance, which has the highest levels of offshore penetration, is still less than 16 percent of the total spend on the segment.
This, coupled with the continued success of the global delivery model clearly supports the strong growth expected in the offshore spends on IT services.
Offshoring Indian Connection
Even as global delivery assumes a more distributed pattern, India remains the anchor location accounting for approximately 58 percent market share in offshore IT-BPO
Reports indicate that about three-fourths of the Fortune 500 and at least half of the Global 2000 corporations are already sourcing technology related services from India. India's established delivery base, ability to scale-up quickly and proven credentials offer a sustainable, low-risk route to these first-time users of offshore outsourcing.
As a proportion to the national GDP, the Indian technology sector has grown 1.2 percent in FY 1998 to an estimated 5.4 percent in FY 2007. Net value-added by this sector, to the economy, is estimated at 3-3.5 percent for FY2007.
IT Services (excluding BPO) continue to lead Indian IT-BPO exports, accounting for 55 percent of the total exports. This segment is expected to grow by 36 percent.
Project based services accounted for nearly 58 percent of Indian IT services exports in FY 2006 marginally higher than the 56 percent reported in the previous year. Steady growth in traditional areas such as custom application development and maintenance is being supported by strong demand for system integration and testing services.
System integration contributed 2-3 percent of Indian IT services exports in FY2006. Over the next 4-5 years worldwide spends on system integration service are projected to grow below average rates of 4-5 percent annually. However, the offshore component of these spends is forecasted to grow at a CAGR of more than 18 percent over 2006. This represents a flow of money from onshore customers to offshore service providers.
Consulting (IT + Network) services contributed 3-4 percent of the IT services export aggregate in FY2006. Consulting remains a sought after new line of business. While the `high-touch' nature of consulting services is likely to necessitate onshore presence and delivery capabilities, and the segment expected to witness pricing pressures in key geographical markets, offshore players are forecasted to witness increasing levels of penetration in this segment with offshore spends on consulting projected to grow by about 13-14 percent over the next 4-5 years, as against 5-8 percent growth in the overall worldwide spend on these services.
Indian IT firms have successfully adapted the global delivery model to Infrastructure outsourcing. Revenues from this segment are estimated to have grown from about USD 600 million in FY2005 to over USD 800 million in FY2006.
Offshore spending on IS outsourcing and infrastructure management is witnessing the highest levels of growth across categories of IT services spends. Growth in global offshore IS outsourcing spends in 2006 was estimated at 36 percent, and is forecast to accelerate to a CAGR of 44 percent over 2005-2010.
Changing economic and business conditions, rapid technological innovation, proliferation of the Internet and increasing globalization are creating an increasingly competitive market environment that is driving corporations to transform the manner in which they operate. Managing customer expectations is becoming increasingly difficult with customers demanding improved products and services with accelerated delivery times and at lower prices.
To adequately address these needs, corporations are focusing on their core competencies and are using outsourcing service providers to help improve productivity, develop new products, conduct research and development activities, reduce business risk, and manage operations more effectively.
Offshore outsourcing, which began with Information Technology, has expanded over the years to Business Process Outsourcing as well. Reducing telecommunication costs and the success of pioneers like GE are driving growth in offshore outsourcing.
IT departments of many companies are placing great emphasis on lowering costs and improving performance by accessing the latest technology expertise and accelerating the delivery of new systems and solutions. To accomplish these objectives, many IT departments have shifted all or a portion of their IT development, integration and maintenance requirements to IT outsourcing vendors that provide high quality, timely and cost-effective solutions and services. This outsourcing enables companies to eliminate or reduce the large in-house IT staff otherwise required to evaluate, implement and manage IT initiatives, thereby reducing their present and future investment requirements.
Increasing trend towards leveraging offshore delivery capabilities to attain high quality IT solutions and services at a lower cost, companies are turning to providers with a global delivery model that combines onsite client teams with Global Delivery Centres. IT vendors with offshore delivery capabilities that are able to offer products and services at a lower total cost of ownership are increasingly being preferred by clients globally, for the quality of their services, their responsiveness to clients and their on-time delivery capabilities.
India has been recognized as a preferred destination for offshore technology services. In June 2004, the Gartner Strategic Analysis Report indicated that through 2008 India may remain a dominant offshore service provider. A NASSCOM-KPMG report published in 2004 indicated that the total Indian IT services and IT-enabled services export market was nearly $10 billion in 2003 and is projected to grow to $49 billion by 2009, representing a compound annual growth rate of approximately 30%. There are several key factors contributing to this growth. These include:
* High quality delivery capabilities of Indian organizations;
* Accelerated delivery through round-the-clock execution for global clients;
* Significant cost savings;
* A large pool of skilled IT professionals.
Life insurance advertising up 72% in 2007Advertising by the life insurance sector in the country rose 72% in 2007, with players from that space capturing 80% share of overall television advertising by the insurance sector that year. A report titled 'Advertising by the Life Insurance Sector', released by AdEx India, a division of TAM Media Research, also says that the Life Insurance Corporation of India (LIC) took the top slot, as far as TV ads were concerned, among players in the life insurance space.nc
