Monday, November 3, 2008

Outsourcing Information Technology

The information technology industry has truly transformed the way the world looks at India. Rapidly capturing global imagination, the success of its IT industry has placed India at the forefront of the emerging global knowledge economy. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has grown from 1.2 per cent of the gross domestic product (GDP) in FY 1998 to an estimated 5.5 per cent in FY 2008. The net value added by this sector, to the economy, is estimated to be 3.3 to 3.9 per cent for FY 2008.

India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services.

The government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum, from the earlier few million dollars worth exports in early 1990s.

As per NASSCOM's latest findings:

* Indian IT-BPO sector grew by 33 per cent in FY 2008 to reach US$ 64 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 52 billion, growing by 28 per cent over FY 2007.
* Software and services exports (including exports of IT services, BPO, engineering services and R&D and software products) reached US$ 40.4 billion, contributing nearly 63 per cent to the overall IT-BPO revenue aggregate.
* IT-BPO exports (including hardware exports) grew by 28 per cent from US$ 31.8 billion in FY 2007 to US$ 40.9 billion in FY 2008.
* While the US (61 per cent) and the UK (18 per cent) remained the largest IT-BPO export markets in FY 2007, the industry is now making a mark in other countries as well - with exports to Continental Europe in particular, growing at a compound annual growth rate (CAGR) of more than 55 per cent over FY 2004-2007.
* Domestic IT market (including hardware) reached US$ 23.1 billion in FY 2008 as against US$ 16.2 billion in FY 2007, a growth of 43 per cent. Hardware remained the largest segment of the domestic market with a growth rate of 44 per cent in FY 2008. Software and services spending grew by over 41 per cent during the year.
* The industry's vertical market exposure was well diversified across several mature and emerging sectors. Banking, financial services and insurance (BFSI) remained the largest vertical market for Indian IT-BPO exports, followed by high-technology and telecom. These sectors together accounted for nearly 60 per cent of the Indian IT-BPO exports in FY 2007.
* Manufacturing, retail, media, healthcare, airlines and transportation, and utilities were the other key segments.

Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent.


A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. The Outsourcing Service Provider Performance Study 2007, undertaken by sourcing advisory firm Equa Terra, reported that the majority of UK businesses offshore all or parts of their IT functions to India and plan to continue with this strategy as India continued to be the favourite outsourcing destination for businesses in UK in terms of satisfaction.

India's most prized resource is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the US. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. The enormous base of skilled manpower is a major draw for global customers. According to a Gartner study, India remains the undisputed leader in offshore services and tops the list of 30 countries on criteria's such as language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property, security and privacy.

Twenty-nine India-based companies including Tata Consultancy Services, HCL Technologies, Genpact, and WNS Global Services amongst others, have been listed among the best 100 IT service providers in a new survey carried out with a view to assist business heads of major outsourcers identify reliable, innovative and tech-savvy partners.

Reference: IBEF

1 comment:

kimrennin said...

The U.S. software firms have increasingly utilized the low-cost information technology (IT) labor force in India. Companies wishing to capture the benefits of outsourcing can engage in contracting or foreign direct investment.Modern FDI theories predict that Indian software outsourcing should occur primarily in the form of FDI. Contrary to the FDI theories, however, many U.S. companies are hiring Indian software contracting companies in order to use the lower-cost Indian IT labor force. This paper analyzes Indian.
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