Engineering Food Processing IT & ITeS-BPO 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

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 1.2% 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 the growth. Global giants like Microsoft, SAP, Oracle and IBM have already established their research & development centers in India.

Source: NASSCOM, Dun and Bradstreet Research

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) has reached to nearly US$ 40 billion during FY07 and is expected to grow by nearly 27% to US$ 49-50 billion 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 billion in FY06 to US$ 31.3 billion 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 billion in FY06 to US$ 4.9 billion in FY07.
• In FY07, MNC investments have crossed US$ 10 billion and are expected to increase in the next few years.
• The total number of IT and ITeS-BPO professionals employed in India was estimated to have grown from 1,293,000 to 1,621,000 in FY07

Exports:

Row: Rest of the world
Source : NASSCOM

US and UK are the dominant markets for IT & ITeS-BPO exports. However, revenues from newer markets are growing rapidly.

Verticals

The major verticals served by IT and 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 billion 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 million direct employment opportunities. Thus this sector will require a huge investment.

Cluster Insights

Key characteristics of the study:

• The average revenue growth of IT & ITeS-BPO companies in the last two years is around 48%.
• 27% of the companies possess quality and process certifications like ISO 9001: 2000 or CMM.
• 57% of the IT & ITeS-BPO companies are involved in exports.
• 23% of the companies earn more than 50% of its revenue from the international market.
• Europe is the most preferred export destination.
• Most of the companies cater to the BFSI vertical.
• Around 59% of the companies were established between 1990s & 2000.

Ownership patterns

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

• In the last two years, proprietary firms have shown the highest revenue growth of 59% followed by private limited companies at 50%.
• 26% of the private limited companies earn more than 50% of their revenue from exports.

Sub segment

Companies providing software products dominate the turnover bracket of Rs 5 - 10 mn and Rs 25 – 50 mn whereas companies providing IT services dominate the Rs 10 - 25 mn bracket.

• 25% of the companies providing software products earn more than 50% of their revenue from the international market.
• Companies operate in software and ITeS-BPO segment specialise in catering to BFSI verticals while those in the hardware and IT services segment mainly caters to the manufacturing verticals.

Turnover Bracket

America and Europe are the most preferred export destinations for the companies in the turnover bracket of Rs 5 – 10 mn as well as Rs 25 - 50 mn.

• Most of the companies catering to the BFSI have a turnover bracket of Rs 5 – 10 mn while those catering to the manufacturing vertical have a turnover bracket of Rs 5 – 10 mn and Rs 25 – 50 mn.

Growth & Future Plans

The companies expect an average revenue growth of 52% in the next two years.

• 53% of the companies from the turnover bracket of Rs 10 – 25 mn registered a revenue growth of more than 40 % in the past two years.
• 57 % companies with turnover bracket of Rs 5 - 10 mn expect their revenue to grow by more than 40% in the next two years.
• Strategies envisaged for future growth plans range from diversification, entering new markets, developing new marketing initiatives and acquisition. According to the study, 53% of the companies are planning to enter newer markets and 24% are for diversification of their businesses.

Benefits & Hindrances

Manpower training, technology and marketing turned out to be the key beneficial factors from the cluster whereas government subsidies, funding, infrastructure and taxes & duties were cited as the key hindrances.

• Manpower training and technology emerged as the two major benefits derived for the companies with a turnover bracket of Rs 5 – 10 mn.
• 32% each from the turnover bracket of Rs 5 – 10 mn and Rs 50 – 100 mn face hurdles in acquiring government subsidies.

Note: - The Cluster Insights aims to grasp the pulse of the small and medium enterprises operating in their respective industries. The attempt is to chart their operational structure, business practices, future plans etc. For this exercise, we have considered the companies profiled in this publication.