Transcript NASSCOM is… - Indian Railway

Indian IT-ITES – Driving Growth by Moving up the
Value Chain
Workshop on Transport Modeling Research &
Software Development, Vadodara
April 2005
This material was used by NASSCOM during an oral presentation; it is not a complete record of the
discussion. No part of it may be circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from NASSCOM.
TM
About NASSCOM
NASSCOM is…
•
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Premier trade body and the chamber of
commerce of the Indian IT-ITES industry
Global trade body with over 900 members, of
which nearly ~200 are global companies from
the US, UK, EU, Japan and China
Strategy
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Objective
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Primary objective – to act as a catalyst for the
growth of the Indian IT-ITES industry.
Facilitation of trade and business in software
and services
Encouragement and advancement of research
Propagation of education and employment
Providing compelling business benefits to
global economies by global sourcing
•
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Partner with the Central and State
Governments in formulating IT policies and
legislation
Partner with global stakeholders for promoting
the industry in global markets
Strive for a thought leadership position and
deliver world-class research and strategic
inputs for the industry and its stakeholders.
Encourage members to uphold world class
quality standards
Strive to uphold Intellectual Property Rights of
its members
Strengthen the brand equity of India as a
premier global sourcing destination
Expand the quantity and quality of the talent
pool in India
Continuous engagement with all member
companies and stakeholders to devise
strategies to achieve shared aspirations for the
industry and the country
Vision: To establish India as the 21st century’s software powerhouse
and position the country as the global sourcing hub for software and services
Discussion Outline
The Emerging
Landscape of
Global Services
Evolution of
Indian IT-ITES
Q&A
Discussion Outline
The Emerging
Landscape of
Global Services
Evolution of
Indian IT-ITES
Q&A
Global sourcing of services is not just a passing fad…
In 2003, 300 of the Fortune 500 employed offshore resources…
2003
Have nots
40%
Have
60%
33% increase in
offshore penetration
year over year
2004
Have nots
20%
Have
80%
Source: Gartner
…in 2004, this figure is expected to have risen to 400
…but a business imperative
•
Widespread acceptance of the benefits of offshore outsourcing – based on
significantly favourable total transaction cost economics
•
Maturing industry structure, highlighted by vendor consolidation and greater
standardization of infrastructure elements
•
Multi-tier suppliers, and multiple country options - enabling clients to
appropriately balance cost, control, quality & risk
•
Transition from one-off offshore outsourcing contracts to an integrated
global delivery model
•
Increase in addressable market, re-definition of ‘offshore-able’ activities to
include more complex, higher value-added services and increasing offshore
penetration
•
Distinction between domestic and offshore service providers beginning to
fade – as each begin to adopt a mix of onshore-offshore delivery strategies
IT-ITES has emerged as the poster child of the global
economy…
Classic example of a disruptive technology...
…with significant potential for value creation…
Source: McKinsey Global Institute
…across multiple business functions and industry sectors…
…without geographic boundaries
…with global service delivery becoming a mainstream
phenomenon
$ Billion
$ Billion
800
70
Total Offshore IT Services Revenue
700
60
600
Total Offshore BPO Services
Revenue
50
500
40
400
30
300
India Offshore IT Services Revenue
India Offshore BPO Revenue
20
200
10
100
0
0
2004
2005
Global BPO Revenue
2006
2007
2008
2009
Global IT Services Revenue
Source: neoIT
The list of services sourced globally is expanding rapidly…
Information Technology (IT)
Business Process Outsourcing (BPO)
Application Development
Human Resources
Application Support &
Maintenance
Finance and Accounting
Infrastructure Services
Back Office Administration
Engineering/ Design
Services
Payment Processing
System Integration &
Consulting
CRM
Tech Support
Knowledge Process Outsourcing
...indicating strong forecasts for offshore IT Services…
$B
% (CAGR)
30
25
Total Market Size ($ B)
28.24
2002
17.6
2005
29.9
2008
51.8
75%
20
60%
15
45%
12.2
27%
10
5
90%
25%
13%
29%
3.27
0.79
0.32
25%
14%
5.13
1.85
30%
15%
11%
0
0%
Mexico
Philippines
2002
China
2005
Eastern
Europe
Others
2008
Canada
India
CAGR
Source: neoIT
…as well as offshore BPO
$B
% (CAGR)
25
20
90%
Total Market Size ($ B)
2002
8.1
2005
19.8
2008
42.2
77%
19.8
75%
60%
15
45%
44%
40%
10
45%
8.7
38%
29%
30%
4.9
5
3.1
3.1
15%
1.8
13%
0.8
0
0%
Mexico
China
2002
Philippines
2005
Central &
Eastern
Europe
Others
2008
Canada
India
CAGR
Source: neoIT
Discussion Outline
The Emerging
Landscape of
Global Services
Evolution of
Indian IT-ITES
Q&A
Indian IT-ITES – the eye of the storm, is witnessing
unabated growth…
1,800
USD billion
5%
4.1%
INR billion
3.5%
Share in India's GDP
3.2%
1,275.8
2.9%
2.7%
1,200
3%
978.3
657.9
1.5%
565.9
1.2%
2%
•
361.8
253.1
186.4
6.0
5.0
•
779.6
1.9%
600
•
8.2
12.1
13.4
16.1
21.5
28.2
0
0%
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04
Indian IT-ITES has grown at
a CAGR of 28% over FY
1998-2005
Share in India’s GDP has
more than doubled from
1.9% to 4.1% - expected to
reach 7% by FY 2008
Industry aspires to reach
USD 50 billion in export
revenues by 2008
200405E
Source: NASSCOM
…that is expected to continue
While the IT Services and Software segment remains the
mainstay of the industry…
100%
ITES-BPO
IT Services &
Software
Hardware
0%
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05E
Source: NASSCOM
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IT Services and Software revenues have accounted for half to two-thirds of the industry
aggregate
ITES-BPO revenues have witnessed significant growth – currently account for nearly 20% of
the industry aggregate
Services (IT + ITES-BPO) together account for over three-fourths of the industry revenue –
mirroring the composition of the worldwide industry
...ITES-BPO is growing rapidly…
…with the service portfolio moving up the value-chain
1980
1985
1990
Transformational BPO
2000
2005
& beyond
Design & Integration
Product Development & Testing
Remote Infrastructure
Management
Customer Contact
Research and Analytics
Customer Contact / Hardware
Full Process Outsourcing
& Installation Support
Problem Solving/Decision Making
Rules-based Processing
BPO
Value
1995
Out-Tasking
Application
Support
Maintenance
Technical Support
Transactional Data Entry
Data Entry
Strategic Impact
Cost Control
IT
BPO
Source: neoIT
Focus on Core Competence
Mutual Gains
Business Transformation
Re-invest Mutual Gains
Indian vendors are expanding their addressable market…
Remote Infrastructure
Management
Remote management of services such as helpdesk services, server management,
data centre management, network management, asset management, desk-side
support, IT security services, maintenance services and applications operations.
IT Consulting
IS strategy, IT architecture assessment and planning, operational analysis,
technical system and network designing, product / solution specific consulting
Knowledge Process
Outsourcing
Financial services: Equity research analyst support, valuations, financial modeling
and analytics, buy/ sell-side research, sector and specific stock tracking. Actuarial
analytics, credit risk analytics and modeling. Fund management and
administration.
Professional services: Accounting, tax and audit support, legal and litigation
support, business / corporate and market research
Others: Contract research in pharmaceuticals and biotechnology, animation and
graphics for the entertainment sector
Case Example: Remote Infrastructure Management
…and unlocking the potential in high-end, specialized areas
Texas Instruments
Develops embedded software for broadband, DSP, wireless terminal and
OMAP applications and OS. The company has filed 225 patents out of its
India-based facility over the last 17 years. Has over 900 employees at its India
center, plans to increase its employee strength to 2,500 by 2005.
Intel
Has an end-to-end product development lab in Bangalore that was set up in
1998. Announced plans to double the number of engineers employed to 3000
by the end of 2004.
Adobe
Adobe’s R&D center at Noida is its largest facility of this kind outside the
US.15 Ten percent of the company’s global R&D workforce is based out of
India.
Microsoft (IDC)
Works as an extension of its R&D team in Redmond and employs over 150
professionals. Has announced plans to increase its investment in India to USD
400 million by 2005.
Others
IBM, Veritas, Baan, SAP Labs, Cadence Design Systems, Cisco, CSC,
EDS, Huawei Technologies, Motorola, ST Microelectronics, and more
…such as product development and engineering services
Daimler Chrysler
Has had an R&D facility in India since 1996 that undertakes software
development for its super luxury cars, encryption, image/signal processing,
telematics; engineering services-finite element modeling, CAD/CAM and PDM
Ford
Established in 2001, Ford Information Technology Services India provides
design capabilities and e-business solutions to Ford’s Asia Pacific operations.
General Motors
Established in 2003, GM India undertakes research in math-based tools, vehicle
development and automotive electronics, vehicle design tools, enterprise
modeling & virtual manufacturing, automotive materials and chemical systems
Honeywell
Undertakes software product development and support, technology
development and hardware engineering for the company’s aerospace,
automation and control businesses.
Others
TCS, Infosys, Wipro, Akzo Nobel, GE, KPIT Cummins , Nielsoft, and more
Today, several large global corporations source IT-ITES
from India…
Research /
Analytics/
Engineering
Shared
Services
(IT / HR / FA)
Customer
Relationship
Management
Back Office
Processing
Data Entry /
Transcription
BFSI
ICT
Auto
Healthcare
Others
…across industry verticals and business functions
Industry maturity has fostered the evolution of multiple
engagement models…
From primarily captive…
Indian bestof-breed
vendor
Outsource to
Global brand
Feasibility of
outsourcing
the process
…to a hybrid model
Outsource to
Global brand
JV/ Alliance
Delay
JV/ Alliance
Captive
Delay
Cross-border operation sophistication
Source: McKinsey Analysis
Indian bestof-breed
vendor
Captive
…and a diverse vendor landscape…
MNC Vendors with Indian Ops
Indian IT Firms
Services with
High
Penetration
MNC Captive Units
Indian BPO 3PSPs
Emerging
Service Lines
• Custom application
development support
and maintenance
• Customer Fulfillment
• Accounts &
administration
• Engineering services
• Remote infrastructure
management
• IT consulting
• Research & Analytics /
KPO
• Animation
…addressing the specific needs of different client groups
India Business Models
Captive Models
Pure Captive Model
• An internal cost center or a 100%
subsidiary company set-up to
execute offshore business
processes and/or IT services
• Amex, Dell, Standard Chartered,
HSBC, Ford, Sun
Strategic Alliance/Joint
Venture Models
Joint Venture (JV)
• Joint Venture with equity participation
from customer and vendor. Customer
retains control due to investments in
entity.
• British Telecom - Mahindra
BOT and Inverted BOT
• Where the Indian Provider sets up
facility and provides implementation
support to start with
• Customer can buy out at a
predetermined stage
• Reverse scenario has also been
seen in the market
• Aviva-WNS/EXL,24/7, AIG- Polaris
Outsource Model
Pure Outsource
• Use of a India-based provider to
offshore business processes or IT
services
Managed Outsource
• Full-/part-time resources on the
ground in India to facilitate transition,
relationship mgmt and transfer of
organization and domain knowledge
to third party providers
While cost advantage was the initial attraction…
•
•
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Significantly favorable total
transaction cost economics
Gross savings on factor cost
up to 78%
Net realized savings ranging
between 25-60%
Source: McKinsey Global Institute
COST ELEMENT
USD / FTE / Year
US
Value
INDIA
Share
Value
SAVING
Share
On US Cost base
PROCESS
ACHIEVED SAVING
Transaction Processing
25%-40%
42,927
73.3%
6,348
48.4%
85%
Accounting / Contact Center Services
30%-40%
IT/ Telecom Costs
2,400
4.1%
3,770
28.7%
-57%
IT Services
25%-50%
Office Facility Costs
3,700
6.3%
1,991
15.2%
46%
Finance / Insurance
40%-60%
Other G&A Expenses
9,571
16.3%
1012.5
7.7%
89%
Digital Content
30%-50%
58,598
100%
13,121
100%
78%
Software/ ERP / Analytics
40%-60%
Personnel Costs
Total Cost
Source: NASSCOM, Evalueserve Analysis
Blended rate for voice and non-voice operations
Source: GECIS, FT Outsourcing to India Conference – November 2004
The above figures are indicative and the actual costs – savings could vary by process; further the cost advantage may be partially offset by travel, transitioning and
non-process communication costs
…access to a large, highly qualified pool of talent,
Over 60
years
Indian Demographic Profile
7.0%
Undergraduate engineering degrees
granted in 2003
292,000
100% > 1 billion
195,354
20-59 years
0-19 years
47.9%
103,440
Source: NCAER, Registrar general of India
45,145
Favourable demographic profile
High annual graduate turnout
Attractive employment prospects –
beyond monetary compensation
Japan
Russia
US
South
Korea
'000s
1,045
1,000
842
800
670
600
522
430
400
284
160
200
Rapid scaling up of employment in
the sector
China
Source: NASSCOM, US Census Bureau
1,200
•
60,914
45.1%
India
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82,409
56
0
1990-91
1996-97
Source: NASSCOM
1999-00
2000-01
2001-02
2002-03
2003-04 2004-05 E
…a high degree of quality orientation...
Quality practices in Indian IT-ITES have evolved through three distinct stages…
STAGE I
• Creation of basic
processes
• Alignment of Quality
Management Systems
(QMS) with global
standards (e.g. ISO)
STAGE II
• Emphasis on
software engineering
• Alignment of QMS
with the CMM
framework
• Acquisition of CMM
• Framework for measurable certifications at
improvement
progressive levels of
maturity
• Consistent and orderly
execution of engagements
STAGE III
• Development of
processes, metrics and a
framework for
improvement in all areas
(e.g. sales, billing and
collection, etc.)
• Adoption of process
methodologies such as
People CMM and Six
Sigma to deliver ‘end-toend’ quality
…and demonstrated process expertise…
Country
Level 5
# of Companies**
Canada
1
China
2
India
76
Russia
1
USA
20
• India has far more SEI CMM Level 5
companies than any other country in
the world
• Productivity and efficiency gains
achieved through process expertise
• Significantly lower error rates
compared to similar units in the
exporting country
Source: NASSCOM
…have enabled firms to achieve significant productivity gains
** Compiled after October 2002 – may not be current for all the countries
A comprehensive legal framework…
Data Privacy and Protection Laws in India
Copyright
Patent
Data protection
•
Yes
Product Patents 2005
Comprehensive Framework
2004
Vertical Specific Laws
No
Digital Signatures
Yes
Hacking
Yes
Privacy
Yes
•
Though India does not have
an independent data
protection act – the existing
legal framework matched
with their independent
contracts provide adequate
safeguards to companies
offshoring to India
Further, Indian authorities are
committed to further
strengthening the existing
frameworks to keep them
current and relevant
…and elaborate security practices
•
•
•
•
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Significant (5-15%) IT budget allocation to security
Dedicated security teams
Compliance with international standards and laws
Documented security policies
Regular security audits – internal as well as external (independent
and by client)
• Periodic security training for all employees
• Robust physical security, data back-up / recovery and business
continuity arrangements
World class telecommunication infrastructure
• International connectivity via 3 under sea cables as well as satellite
• Bandwidth prices fast approaching international rates
– Cost of an E1 half circuit has declined by ~60% over the last three years
– In 2005, TRAI has proposed to reduce the cost of an E1 by a further 35%
– Price declines for higher capacities up to 70%
• Increased FDI limit (74%) to attract more global players
International standards in real estate and office facilities
•
•
•
•
•
Large efficient floor plates
Independent control and high-end security systems
Liberal parking standard to accommodate employee transport fleets
Flexible lease terms and rent free period (e.g. during fit-out)
Better cost management through flexible service agreements24/7
operations and complete backup for essential services including
power
• Tenant controls employee amenities and facilities
• Phased procurement/leasing of office space in a single campus
• Plug and play facilities for temporary accommodation
...and strong government support
• Setting up of export promotion zones / special economic zones
• Financial incentives
–
–
–
–
Income tax exemptions and tax holiday under Section 10A/10B
Service tax exemptions
Concessions on excise duties
Concessions on foreign exchange regulations
• Proactive support by the state governments
– Employment linked exemptions and rebates
– Single window clearances
…are other factors that complete India’s value proposition
Complementing the industry’s success in exports is a
steadily growing domestic market…
12
10
Domestic IT-ITES Revenues
USD billion
8
Domestic revenues of Indian ITITES valued at over USD 10bn
•
CAGR of 19.2 percent over FY
2000-05
•
Electronics consumption in India
estimated at $9.7 billion in 2005
•
Still very low compared to other
nations (China is at USD 150bn
and the US is at USD 450bn)
•
MNCs currently account for
leading shares in most segments
– especially in hardware
10.2
6
8.2
5.7
4
6.3
5.9
2
•
4.3
0
1999-00
Source: NASSCOM
2000-01
2001-02
2002-03
2003-04
2004-05E
Total Indian Electronics Market Consumption
EDP
26%
Consumer
25%
Office Equip
1%
Medical &
Industrial
3% Telecom
7% Control & Instr Radio Comm
7%
9%
Components
22%
Source: In-Stat / MDR
…with significant untapped potential
While on a strong footing – India also has its share of
challenges…
• Demand for trained talent outpacing supply resulting in attrition and
increasing direct and indirect costs
• Overburdened infrastructure in existing hubs of IT-ITES activity –
inadequate infrastructure in some of the smaller towns
• Anti-offshore outsourcing debate still lurking
• In spite of its proven dominance, the Indian IT-ITES industry is still
largely a price taker – creating unwarranted pressure on margins
• Maintaining its lead over competing locations
• Leveraging the untapped potential of the domestic market
• Bridging the digital divide in the country
…industry stakeholders are committed to overcoming them
Discussion Outline
The Emerging
Landscape of
Global Services
Evolution of
Indian IT-ITES
Q&A