20161002

BPO Industry & role of IT– Advantage to India in Globalization Era

Dr. Vijay Pithadia
PhD, Electronics Technocrat 
Abstract

Indian IT-BPO industry continued to build on the strong growth momentum of the recent past. Over the years, the stature of Indian IT and BPO services companies has grown on the back of a steady reputation for high quality delivery at costs that are significantly lower than rates at which comparable services can be sourced from overseas vendors. India is considered to be the most favored destination for offshore IT service delivery. Outsourcing to India has provided companies with significant benefits over the arbitrage in labor costs - through business process enhancements and improvements.  Indian  vendors  are  expanding  their  service   offerings, enabling  customers  to deepen their offshore engagements; the  shift  from low-end  business processes to higher-value, a knowledge-based  process  is having  a positive impact on the overall industry growth. In spite of the rising elements of cost, Indian offshore operations provide cost savings of 40-50  per  cent;  in  spite of wage inflation  averaging  10-15  per  cent annually,  companies  are able to leverage declines in  telecom  and  other overhead  costs, productivity gains and economies of scale to  sustain  the cost arbitrage.  India has already registered its mark on the globe in ITES-BPO sector

Introduction

The last three decades have been characterized by rapid developments in IT. Although main frame computer, have been used since the early 1950s, a greater use of computer applications may be traced to the introduction of the personal computer (PC) in the 1970s. The 1980s were characterized by significant structured changes in the IT, industry. These included the emergence of software as an independent and dynamic component segment of the IT industry and the growth of global production networks. During the 1990s, the Asiaand Pacific Region emerged as one of the major players in global IT production in all the core segments of the industry.

The principal components of IT include: hardware, designed around the “microchip” (semiconductor integrated circuit) and its associated peripherals; software, which includes programming languages and their applications, communication devices comprising both terrestrial and wireless units and related equipment, on a whole generation of new computer languages and protocols that link individual computers into a vast network through which information can flow unrestricted.

Indian IT-BPO Industry

Indian IT industry has become an engine of growth and productivity improvement for all sectors of the economy and for the country. With the continued thrust on liberalization in order to make IT products cost effective and price competitive, the use and penetration of computers in the society is fast expanding with special emphasis on multi-lingual technologies. The IT sector is amongst the fastest growing sectors in the country. IT professionals works in all major markets around the world and the Indian software industry has already established its credentials in providing high quality solutions has in the availability of English speaking technical manpower in abundance, that is well suited for the analytical work like software development. The capability of Indian software industry is also reflected in its very high market capitalization.
Fortunately for Indiathe phenomena of “reverse brain drain” are enriching its workforce with people having diverse international experience, knowledge of latest technology, management skills and much more. This has made it easier for MNC to set up their back offices in India.

The major sectors, which are witnessing a special thrust for adoption of IT, are Government administrations, Insurance, Banks, Financial Institutions, Defense, Central Tax System, Ports, Customs, Telecom, Education, Small Offices and Individuals. Large sectors with slow IT penetration rate such as textile industry and healthcare sector are being encouraged by the Government and the private sector to adopt IT. ERP implementations and systems integration continue to be at the forefront of IT growth in India.  

Major Steps taken for Promotion of IT Industry

In India, the success of software industry can be attributed in no small measure to the excellent teamwork between Government and Industry. The Government of India, impressed by the excellent performance of the Indian Software Industry has provided all support, including fiscal benefits, the availability of high-speed data communications and infrastructure, besides ensuring an almost red tape-free system. The Government, in fact, has given the red-carpet treatment to this industry. The fiscal benefits include trade free zones, Software Technology Park Schemes, zero import duty on software, and 100% exemption on profits from software exports. Tariffs on raw materials, parts, other in puts and capital goods have been rationalized to make domestic manufacturing viable and competitive. Depreciation on IT products allowed at 60% p.a., taking into cognizance the high rate of obsolescence of such products. This will enable supporting developers to enjoy tax concessions, similar to the supporting developers to enjoy tax concessions, similar to the supporting manufacturer’s concept in manufacturing sector.

With the formation of a Ministry for Information Technology, Government of India has taken a major step towards promoting the domestic industry and achieving the full potential of the Indian IT entrepreneurs. Constraints have been comprehensively identified and steps taken to overcome them and also provide incentives.

NASSCOM Report on Indian IT-BPO

According to the National Association of Software and Services Companies (NASSCOM), the Indian IT-BPO sector is expected to rake in revenues in excess of $47.8 billon - almost a 10-fold increase over the aggregate revenue of $4.8 billion in FY 1998. The sector, including domestic and exports segments, is growing at an estimated 28 per cent in FY07. Moreover, direct employment is expected to exceed $1.6 million, according to NASSCOM’s just released Indian IT Industry ‘Strategic Review 2007’ report. Inward foreign investment may scale new heights this year with multinationals planning to invest over $10 billion in the next few years. Service and software exports remain the mainstay of the sector with the USand UKstill remaining the dominant markets. FY07 export growth is likely to beat forecasts and exceed 32 per cent as firms are keenly exploring new areas for business development.
IT services exports, which account for 55-57 per cent of the total exports, are growing at an estimated 36 per cent and are expected to touch $18.1 billion in FY07. New areas of application and infrastructure management and testing are gaining traction with their share in the business mix growing steadily. BPO operations continue to grow in scale, the report said, as total exports for this segment are expected to exceed $8.3 billion in FY07 a growth of 32 per cent over the previous year. Increasing traction in offshore product development and engineering services is supplementing India’s efforts in its own Intellectual Property creation. This group is growing at 22-23 per cent and is expected to report $4.9 billion in exports. Worldwide technology-related spends are forecast to reach $2.1 trillion by 2010. Growth in global sourcing is expected to outpace growth in total spends, with up to $110-120 billion of the total amount spent on software and services in 2010 likely to be sourced through the global delivery model. With more and more companies abroad increasingly adopting offshore based support for development and maintenance, the outlook for India based IT and BPO services providers is expected to be positive in the next few years and the sector is well on track to achieve its aspired target of $60 billion in export revenues by 2010.

Indian IT-BPO in Global-markets

While globally IT firms witnessed an overall drop in new outsourcing contracts in 2006, Indian companies – such as Infosys, TCS and Wipro – bucked the trend with a sharp jump of over 14 times in their market share in the past four years. In contrast to the massive gains registered by Indian service providers, the market share of ‘Big Six’ global outsourcing majors – Accenture, IBM, HP, ACS, CSC and EDS – declined to 46 per cent last year, from 71 per cent in 2002. The market share of India –based providers rose to 7 per cent last year, from less than 0.5 per cent in 2002. Indian firms have been particularly successful in the Applications Development and Maintenance segment, where they expanded their market share to 36 per cent in 2006 from 8 per cent in 2003.

Trends

The Indian IT services industry has been witnessing changes in customer demands and the service providers who are best able to adapt to these changes will succeed in the long run.  Some key emerging industry trends are described below:

Increasingly, companies are expecting more value from their IT service providers than just the traditional cost advantages derived by off shoring the delivery of IT services. Companies increasingly prefer service providers that can provide strategic advice related to designing and increasing efficiencies of business processes and also assist in implementing their recommendations. Also, service providers with strong industry expertise are favored over those who can only provide strong technical skills. Companies are increasingly looking for IT service providers that can provide end-to-end solutions over a long period of time. In addition, companies, which have a presence across various geographies, need IT support on a global scale and often seek a single service provider that can offer a comprehensive range of services on a long-term basis across the world, and understand and integrate a wide spectrum of emerging technologies with existing systems.

As outsourcing contracts increasingly gain strategic importance to businesses, customers’ senior management teams have become more involved in outsourcing contract negotiation and monitoring.  As a result, IT service providers need to ensure that their senior account managers develop strong and lasting working relationships with customers' senior management. Companies   are   increasingly   demanding transparency in performance measurement. IT service providers with their own well developed benchmarks, frameworks and models to measure performance or demonstrate potential benefits are likely to have significant advantage over their competitors who offer more generic IT services.

Challenges & Opportunities Ahead:

In the beginning of the last century, the world GDP was something about $1.5 trillion, which grew to about $32-33 trillion towards the end of the century. While this growth was fast, a faster growth took place on the services front of the economy, which now accounts for 70% of the Global GDP and the Global trade, which the later being 54% of the former. The most important challenge lies in focusing a lot more on innovation. The industry has set before itself a revenue target of $60 billion by 2010. Innovation is the key to addressing the challenge.

There are opportunities to innovate in technology, process, integrated service offering and, last but not the least, the manner in which companies organize themselves to deliver the solutions. For innovation to prosper, Indian companies need to provide a conductive atmosphere through their HRD systems and, in this respect coming up with the right organizational design will be very important. The second challenge is to improve our human capital base. The current level of supply is reasonably sufficient at this stage, but we could have significant productivity gains if this talent coming out of the institutes and colleges is better prepared for the industry. We will also need to increase the quantity going forward, as there are estimates that in another 5years we might be short of half-a-million people from an industry perspective.

Conclusion

However, we can be confident that the Indian IT-BPO industry, which has thrived along with technology and business pattern shifts, is well prepared to address all the issues and emerge even more competitive in the Global competitive era. Seeing the report, any one can conclude that the growth of Indian IT-BPO industry, will take India to the top most position in the global IT-BPO market. The Indian IT-BPO sector is growing faster giving threat to the internationally well established firms. 

Bibliography


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