IT Industry Insights

The Indian IT companies’ service offerings and geographical concentration is undergoing tremendous change. Today, IT companies’ service offerings expand from application development and maintenance, to high-end services such as testing, consulting and engineering designing. The global delivery model has not only helped these companies deliver quality work but also have aided them in cost-control. In this section, D&B presents the insights derived from a detailed analysis of data gathered through primary research.

For collecting this data, around 11,000 companies from the IT industry were contacted, out of which 395 responded. The list of 395 companies was further shortlisted, based on the total turnover, and only companies with a total turnover of more than Rs 100 mn were selected for profiling. In the end, this book profiles 210 companies, out of which 132 are the ones who responded to the questionnaire sent by us and the rest are public listed companies operating primarily in the IT segment and having an annual income of more than Rs 100 mn. However, the insight for this report is mainly derived from the 132 direct responses that provided more than 80% of the information.

Bangalore & Mumbai – Most preferred locations for delivery centres

It was not surprising to find that Bangalore emerged as the most preferred location for operating centres among the top IT companies, closely followed by Mumbai. Of the total operating centres for all companies profiled in this publication, Bangalore is home to 15.6%, followed by Mumbai at 14.7%.

Similarly, zone-wise, 38% delivery centres are located in the South zone, followed by 30% in the West zone, 14% in the North zone and 8% in the East zone.

Of the 55% companies, who provided this information, about 36% operated either from an SEZ or an STP. It was observed that the top-most operating locations were mostly STPs. Around 8% of the companies operate from more than one location.

Furthermore, within the southern region, Bangalore, Chennai and Hyderabad were hosts to most centres. Mumbai, Ahmedabad and Pune also emerged as the hot spots in the western region. Additionally, these three featured in the top 10 centres on an all-India basis. Delhi captured the top slot in the northern region, with 96 operating centres. Interestingly, Jaipur emerged at the second spot with 22 centres. Kolkata was the most popular operating location in the East with 62 centres. Noida, Chandigarh, Coimbatore and Gurgaon were some of the upcoming operating locations.

Software & IT Services – Most preferred combination

As mentioned earlier, exclusivity is no more a virtue for the IT companies, as they chose to offer multiple services to achieve a broader customer base. For instance, a company that provides customised software products for its clients may also offer network consulting solutions that are more compatible with its products. A robust number of companies, almost 37%, also operate in the combined segment of software products and IT services. In this exclusive area of operations, 1% is present only in the software segment, 5% in the IT services segment and 3% operates exclusively in the hardware segment. The hardware companies are operating on an annual maintenance contract basis nowadays apart from offering other related hardware products and services.

The companies providing software products and IT services are almost equally distributed among the revenue categories of below Rs 200 mn, Rs 200–20,000 mn; and Rs 20,000 mn and above.

Apart from the combination of services and software, the two most popular software products and services provided by the companies were custom application development and IT consulting, which represented 12% and 9% of the cumulative services offered by the respondents, respectively. The data collected revealed that notebook, desktop and networking products, which collectively accounted for 41% of the total hardware segment covered in the study, were the most popular. Furthermore, among the verticals served, the BFSI continued to dominate, as 13% companies were operating in this vertical. This vertical was closely followed by manufacturing at 11% and telecom at 10%.

50% growth expected in the next two years

As the number of national and international opportunities started increasing, IT companies took the initiative of maximising their potential for growth. Of the companies who responded to our questionnaire, 54% were formed during 1991-2000, while 16% were formed during 2001-2007. The companies who responded have shown considerable growth of around 56% in for the period of FY05-07 while the overall IT services in the industry grew by around 34% in the same time period. Additionally, as most of these companies have ambitious future plans (tapping new markets, entering new verticals etc), they are expecting a growth of 50% in the next 2 years.

As is evident in the above figure, the companies formed during 2001-2007 have demonstrated the highest growth rate. Additionally, almost all companies have displayed interest in growing through the organic or inorganic means. In fact, most popular paths to growth have been by offering value added services and tapping new geographical locations, displayed by 17% and 16% of the companies, respectively. IT support & infrastructure management and IT consulting are expected to be the growing service lines for the next 1 year and BFSI, retail & distribution services are the most promising verticals.

41.8% of the respondent companies expect the salary hike to be in the range of 11-15% in the coming 1 year while 27.6% companies feel the salary hike will be in the range of 16-20%.

Skilled manpower shortage, high labour attrition hound the IT Industry

IT companies, whether small or big, face challenges related to talent, which is the core asset of this business. However, the only striking difference is that while the small and medium players are more worried about the rising salary levels, their large counterparts are more concerned about looming concerns of shortage of manpower and high attrition rate, as reiterated in our earlier study on IT SMEs.

As depicted in the above figure, the companies were asked to respond to the major hurdles that they face and their gravity on a scale of 1 to 10. It turned out that for the players from the western region, rising salary level is the main concern, whereas shortage of skilled manpower is a major worry for the southern region. Also, when it came to the lowest ranks, the western region rated inadequate infrastructure as the lowest, whereas the southern region rated marketing and networking as the lowest. For the eastern region companies, high attrition rate is the major challenge faced after shortage of skilled manpower, while for the northern companies, these challenges are perceived as moderate.

Additionally, a majority of companies, 43% to be precise, have a feeling that the IT industry is going to face attrition rate in the range of 16-20% in the coming year. While 49% companies feel that the IT spending will increase till 20% in the coming 1 year.