Engineering IT & ITeS-BPO Pharmaceuticals PREFACE| FOREWORD | EXECUTIVE SUMMARY | METHODOLOGY| CLUSTER OVERVIEW | COMPANY LISTING| SPONSORS| LAUNCH EVENT |D&B EDITORIAL TEAM Alphabetical Listing Total Employees Turnover Revenue Range Region Exported Offerings

Overview of the IT & ITeS-BPO Industry

The Indian Information Technology (IT) and ITeS-BPO sector plays a vital role in the growth of the Indian economy. The industry’s contribution to the country’s GDP has grown significantly from 1.8% in 1999-2000 to around 5.4% in FY07. The Indian IT & ITeS-BPO industry has shown a growth of 28% with the total revenue aggregating to US$ 47.8 bn in FY07.

A changing global business scenario and the liberalisation of Indian economic policy, favouring the outsourcing trend, acted as key drivers for growth in the Indian IT industry. Cost advantage, availability of skilled manpower, quality of services, duty exemptions and a global delivery model, combination of on-shore and off-shore activities, with an increasing off-shore component, are some of the key factors that enabled the IT & ITeS-BPO to sustain growth. Global giants like Microsoft, SAP, Oracle and IBM have already established their research & development centers in India.

Key Highlights of the sector in FY07

• Revenue from the Indian IT software and services sector (including the domestic and exports segments and excluding hardware) reached nearly US$ 40 bn during FY07 and is expected to grow by nearly 27% to US$ 49-50 bn in FY08.
  
  
• Services and software products are the main contributor to exports of the sector. The exports of the sector have increased from US$ 23.6 bn in FY06 to US$ 31.3 bn in FY07, registering a growth of 33%.
  
  
• Achieving increased traction in offshore product development and engineering services have supplemented India’s efforts in IP creation. The exports in this segment have increased from US$ 4 bn in FY06 to US$ 4.9 bn in FY07.

Source : NASSCOM

• US and UK are the dominant markets for IT & ITeS-BPO exports. However, revenues from newer markets are growing rapidly
  
  
• In FY07, MNC investments have crossed US$ 10 bn and are expected to increase in the next few years.
  
  
• The total number of IT & ITeS-BPO professionals employed in India was estimated to have grown from 1,293,000 in FY06 to 1,621,000 in FY07.
  

Verticals

The major verticals served by IT & ITES-BPO industry are banking, financial services and insurance segment followed by Hi-Tech/Telecom and manufacturing.

Source : NASSCOM

Issues & Challenges

• Rising attrition rate is one of the major concerns for IT & ITeS-BPO industry. For instance, TCS reported an attrition rate of 11.5%, up from 10.6% from the previous year while the attrition rate at Infosys was 13.7% in FY07 as compared to 11.2% in FY06.
  
  
• Rupee Appreciation is also the major concern for the most of the Indian IT & ITeS-BPO players. Rupee appreciation not only affects the margin but also the competitive edge over the international firms.
  
  
• The continuation of the tax holiday is uncertain which may slow down the future expansion plans. With dissimilarity in tax regimes, the existing STPI units would opt to re-invent themselves as SEZ units. It should be also noted that low-cost competitors like China are rapidly emerging as an alternative destinations.

Future Outlook

According to NASSCOM, the Indian IT & ITeS-BPO exports are likely to touch US$ 60 bn by 2010. The growing demand for global outsourcing, favorable government policies, skilled manpower, quality services and the growing effect of technology-led innovation are some of the key factors for the growth of IT & ITeS-BPO sector.

The favorable government policies have helped Indian IT & ITeS-BPO sector to grow rapidly. According to the Planning Commission of India, the Indian IT & ITeS-BPO sector would generate another 2.5 mn direct employment opportunities. Thus this sector will require a huge investment.

Cluster Insights

Cluster Insights are aimed at grasping the pulse of the small and medium enterprises operating in their IT & ITeS-BPO industry. The attempt is to chart their operational structure, business practices, future plans, etc., for which, we have considered the companies profi led in this publication.

Key Characteristics of the Hyderabad IT & ITeS-BPO cluster

• The average revenue growth of IT & ITeS-BPO companies during the last two years has been around 39%.



• 66% of the IT & ITeS-BPO companies were involved in exports.



• 34% of the companies earn more than 50% of their revenue from the international market.



• America is the most preferred export destination.



• Healthcare & life science, government & defense and BFSI are the top 3 preferred verticals.



• 40% of the companies were established between 1990 & 2000.

Ownership Pattern

The ownership pattern of the IT & ITeS-BPO companies in the Hyderabad cluster is inclined towards the private limited companies.

• In the last two years, private limited companies recorded a revenue growth of 42% whereas public limited companies recorded a growth of 43%.
  
  
• 39% of private limited companies earn more than 50% of their revenue from exports.
  
  
• A majority of the private limited companies cater to the healthcare and life sciences vertical.

Sub-segment:

Majority of the companies provide software products

• 32% of the companies providing software products and 26% of the companies providing IT Services earn more than 50% of their revenue from the international market.
  
  
• Companies offering in software products specialise in catering to the government and defense sector while those in the ITeS-BPO and IT services segment mainly cater to the healthcare & life science verticals.



• In the last two years, companies dealing in IT Services have shown the highest revenue growth of 42% followed by companies dealing in software products at 39%.

Turnover Bracket

Companies in the turnover bracket of Rs 10 – 25 mn have the maximum representation in the turnover bracket.

Source : NASSCOM

• Most of the companies catering to the healthcare and life science vertical have a turnover bracket of Rs 50 - 100 mn while those catering to the government and defense vertical have a turnover bracket of Rs 5 – 10 mn.
  
  
• 43% of the companies in the turnover bracket of Rs 5 – 10 mn recorded more than 50% of their earnings form the exports.

Growth and Future plans

The companies expect an average revenue growth of 49% in the next two years.

• 18% of the companies registered a revenue growth of more than 50% in the past two years.
  
  
• 32% companies expect their revenue to grow by more than 50% in the next two years.
  
  
• Strategies envisaged for future growth plans range from diversifi cation, entering new markets, developing new marketing initiatives and acquisition. According to the study, 43% of the companies are planning to enter new markets while 34% are having diversification plans in the near future.

Cluster benefits and hindrances

Manpower training and technology turned out to be the key benefi cial factors from the cluster whereas funding and taxes & duties were cited as the key hindrances.