The Indian IT-BPO industry: NASSCOM outlines the road ahead

NASSCOM recently shared information about the performance of the IT-BPO industry during 2007-8 and outlined the strategies the industry was looking at to sustain momentum and deal with the uncertain global economic climate during 2008-09.

In an effort to keep the media and industry watchers abreast of the developments taking place within the IT-BPO sector, NASSCOM shared with them the results of its annual survey on the performance of the Indian IT software and services sector (excluding hardware) and rankings of the top IT-BPO players.

The Six Point Agenda NASSCOM will be focused on the following areas during FY08-09: 1. Creativity • Tap the opportunity to add new revenues through product, process and business model innovation 2. Community • Build communities of best practices that enable professionals to interact across organisation and geography barriers 3. Collaboration • Continue the collaboration between firms and with industry associations in key markets and collaboration countries 4. Adoption of Green IT • Encourage environmental responsibility aided by the search for greater productivity and competitiveness, reducing waste and increasing efficiency 5. Societal development and inclusivity • Strengthen rural India as a complementary force to Urban India’s capabilities in the Industry. Gender inclusivity and inclusion of differently-abled workforce in the IT-BPO sectors 6. Education and skill building • Continue to undertake focussed efforts towards developing an employable workforce through scaling of various ongoing initiatives

According to NASSCOM, the revenues of the Indian IT-BPO industry (including the domestic market) grew by 28 percent, touching USD 52 billion in FY 2007-08, up from USD 39.6 billion in the previous year. Software and services exports increased by 29 percent (USD) during the same period, with revenues crossing the USD 40.4 billion mark. Within this segment, services exports touched USD 23.1 billion, while engineering services and product exports revenues grew to USD 6.4 billion during FY 07-08, a jump of 29 percent. BPO exports, meanwhile, were up by 30 percent (USD) during the year.

By maintaining its export momentum, the IT-BPO industry underscored its strong fundamentals and indicated that it was on track to reach USD 60 billion in exports and USD 73-75 billion in overall software and services revenues by 2010.

NASSCOM’s Action Plan for member companies Membership Services Broad-basing engagement with senior leaders in member companies and across industry Focusing attention on specific segments–captives, engineering, products, BPO, RIM Increasing attention on the BPO sector through a focus on labor, state governments, crisis management, etc. Focusing on research with six new reports planned for release in FY08-09 Scaling successful pilots undertaken for emerging companies

The reasons behind the strong performance of the industry, NASSCOM stated were its robust Global Delivery Model, process maturity and focus on Innovation. The indications were that the Indian IT-BPO industry was building on its leadership by scaling the experience of customers and providing them value that went beyond cost. The IT-BPO industry had not only expanded its delivery network to include nearshore and onshore centres and begun providing 24x7 services, it had also achieved end-to-end process delivery capabilities and enhanced Process reengineering expertize.

At the same time, Innovation had become a major growth catalyst, with companies undertaking Service innovation (through customization for new markets) and actively creating IP and filing patents.

As part of the Survey, NASSCOM also released its Annual Rankings for the Top 20 IT software and services exporters in India, the Top 20 BPO companies and the Top 20 IT-BPO employers in the country. While TCS, Infosys, Wipro Technologies, Satyam Computer Services and HCL Technologies led the IT software and services listing, the BPO Rankings had Genpact, WNS Global Services, IBM-Daksh, Aditya Birla Minacs and TCS BPO as its top five players.

The top 20 IT-BPO Employers for 2007-08 had TCS, Infosys Technologies, Wipro Technologies, Satyam Computers and HCL Technologies in the top five spots.

Highlights of the annual Survey

NASSCOM’s Survey indicated the following about the IT-BPO industry:

• IT services exports grew substantially on account of increasing traction of the industry in emerging markets such as Remote Infrastructure Management and traditional segments such as application management.
• A widening service portfolio enabled the IT software and services sector to beef up exports and deepen engagements with key customers.
• The domestic market continued to gain momentum, growing at 26 percent in INR terms on account of the overall positive economic climate, increased adoption of technology and outsourcing.
• BPO exports were driven by the strong service portfolios of companies, their vertical specialization and enhanced global delivery capabilities.
• ES and software product exports increased by 29 percent (USD).
• Key players used a mix of organic and inorganic growth strategies to surge ahead and maintain momentum in a challenging environment.
• Direct employment reached nearly 2 million—with 1.5 million in the exports segment, a YoY increase of 26 percent. in 2008. The indirect employment multiplier suggested that the industry created between 6-8 million additional jobs.
• The globally integrated Indian IT-BPO industry was gearing up to meet the existing international challenges and emphasizing on productivity and efficiency gains to ease supply constraints such as wage increases and attrition.
• IT-BPO players were increasing their near-shore presence to  enhance “follow-the-sun” and “multi-lingual” capabilities. Overall, the country’s IT-BPO firms were present in over 77 cities across over 25 countries, apart from India.
• While the US and UK remained the dominant markets, the industry was steadily increasing its exposure to other geographies and new markets, especially in Continental Europe.

The high impact trends

According to NASSCOM, the performance of the Indian IT software and services and BPO industry while impacted by factors such as US economic slowdown, would be catalyzed by a revival in technology spending during the second half of 2008. The existing trends indicated that CIOs expected to spend as much on technology during 2008 as they did in 2007, though budget allocations would be back-end loaded. There were also signs that services demand would vary by sector as well as nature of services. While the slowdown being experienced by the Banking, Insurance and Financial Services vertical would continue, IT spending would rise in areas such as manufacturing and healthcare.

Focusing on what CIOs were looking at today and in the future, NASSCOM stated the following:

• While discretionary spends were somewhat controlled, infrastructure and BPO were key priorities for CIOs
• Demand for offshore delivery was strong, with one out of every four CIOs in the USA expecting to enhance offshore spending over the next year and 70 percent of CIOs planning to maintain spending at current levels

NASSCOM initiatives to spur IT-BPO growth

Talking about the initiatives it had launched to catalyze the growth of the IT-BPO industry NASSCOM said these were centered around Education and certification, Security and Innovation.

In the area of Education and Certification for instance, the focus was on execution and scalability and driving existing initiatives. NASSCOM had made headway with its NAC (NASSCOM Assessment of Competence) program for instance, signing MoUs with six States and DONER (eight North eastern states) and gaining visibility in Tier II and III townships. 15272 candidates had appeared for NAC in the last one year and five Job fairs organized with over 50 companies participating. The NAC Tech examination meanwhile, had been administered in over 15 colleges/institutes till date, with 2215 candidates appearing for the test. NASSCOM added that it was preparing a Model DPR (Detailed Project Report) for setting up 20 new IIIT’s with the Ministry of Human Resource Development, as announced in the 11th 5-year plan.

Focus on Security

In the area of Security, NASSCOM’s National Skills Registry had gained ground, drawing 2.36 lakh registrations and 57 companies. The target was to touch 500,000 registrations by December 2008. On the cyber training front, four cyber labs had become operational in Mumbai, Pune, Thane and Bangalore. A Cyber Security Research Centre had been launched at Chandigarh in partnership with the Chandigarh Administration and Punjab Engineering College. Over 4,300 officers and prosecutors had been trained till February, 2008

The Data Security Council of India (DSCI) had become fully operational with an office set up in Delhi. While in the short term the DSCI was looking at releasing a legal guidance document for SMEs, creating Security Forum chapters in seven Indian cities and launching special interest groups on various horizontal subjects, in the long term the aim was to improve the quality of data security practices and procedures, improve collaboration with international stake holders and provide certification in at least 2-3 different aspects related to Data Security

NASSCOM’s Global Trade Development Program (GTDP) meanwhile had increased its focus on the US and the issues impacting India. It had also begun developing new markets such as Japan and stepped up trade activity by penning new agreements with the EU.

Looking ahead

The NASSCOM Survey has projected that the overall software and services revenues will increase by 21-24 percent to touch USD 50 billion in FY 08-09. The reversal in Rupee appreciation is expected to lead to higher INR revenue growth figures during the year. At the same time, the focus by the Indian IT-BPO industry on cost and productivity in the recessionary conditions are expected to lead to higher demand for offshore services. The domestic market too will maintain its strong momentum, according to NASSCOM.

The indications are also that the next decade will be very different from the last one, with structural shifts in demographics that will reflect more prominently in international trade and economics. Technology evolution and adoption is expected to witness some disruptive changes as theInternet generation takes over the workforce. The NASSCOM Survey shows that the opportunities will be huge, and India will be best placed to address them. As of now, the IT-BPO industry has tapped less than 15 percent of the over USD 380 billion addressable market.