Charging ahead
In a sector driven by disruptive technological changes, even a year can shake up the market. A decade is long enough to bring about tectonic shifts, script remarkable turnaround stories and pick new winners.
It is, therefore, not surprising that the past decade has proved to be a complete game-changer for the export-led Indian IT sector, transforming the then $4-billion sunrise industry into a $50-billion outsourcing powerhouse. According to Nasscom estimates, the export of technology and business services has clocked a compounded annual growth rate of over 34 per cent between 1998 and 2011. The sector has survived two downturns — the dotcom bust that crushed millions of entrepreneurial dreams in 2000 and the global financial crisis in late 2008.
As a proportion of national GDP, the industry revenue has grown to 6.1 per cent in FY 2010 from 1.2 per cent in FY1998. The IT services exports have also played a major role in maintaining the country’s trade balance. It is estimated that between 1998 and 2008, the industry’s net exports offset India’s cumulative net oil imports by nearly 65 per cent.
True, the industry’s scorching growth rates did falter in the face of the global economic downturn — IT and BPO exports grew 5.5 per cent in FY10 — when nervous clients in the West resorted to cutting IT budgets and cancelling orders. But the industry, quick to sense the changing customer sentiment, re-hauled its business model wherever required, pursued greater internal efficiencies and went after new and untapped markets — demonstrating resilience even in a difficult year.
Looking back, the poster boys of the Indian IT industry — TCS, Infosys and Wipro — have grown over ten times, thanks to the continued focus on building deep client relationships, customer satisfaction, de-risking of business model and financial discipline.
The bulk of the growth of these companies has been organic, although Indian IT vendors — in a bid to compete effectively with global giants such as IBM and HP — have opted for selective buyouts. Notable deals include HCL’s acquisition of Axon, TCS’ buyout of Citi Group’s captive BPO unit, and the string of pearls buyouts by Wipro.
Their ambition to enhance their brand visibility in the Western markets also saw these companies getting listed on the US bourses — Infosys on Nasdaq and Wipro on NYSE. Even mid-sized companies such as Patni Computer Systems listed ADRs on the New York Stock Exchange. Back home, TCS in 2004 went for a Rs 5,300-crore IPO, the largest in the history of the Indian capital market at that point.
Conversely, the large global companies have strengthened their foothold in India by acquiring local companies. In 2004, IBM announced the acquisition of Daksh eServices in an estimated $170-million deal. Two years later, EDS acquired majority stake in Bangalore-headquartered Mphasis in a deal exceeding $380 million (subsequently Mphasis became an HP company in 2008 after the latter acquired EDS).
Taking advantage of the Indian talent pool, large software firms on the likes of Microsoft, SAP, Oracle, Adobe, and chip makers such as Intel and AMD have beefed up their R&D presence in the country.
Given this phenomenal run over the last decade, the IT industry now employs 2.3 million professionals; 70 per cent of its workforce in the 26-35 year age bracket. Besides, India’s tech stint has sparked the growth of ancillary industries such as security services, transportation, catering and construction; it indirectly employs 8.2 million people. In other words, for every job created in IT, about four indirect jobs are being generated in the allied sectors.
Size and scale apart, the industry has matured in terms of its offerings. From being an ADM factory it has moved up the ‘value chain’ to offer consulting, package implementation, remote infrastructure management and engineering services; and onto newer delivery models of cloud computing and software as a service. Large vendors such as Wipro are already investing in building private clouds through which they expect to offer applications to clients without having the latter to invest in core infrastructure.
The quest for growth also led the Indian IT vendors to search for new markets beyond the US and Europe. Besides the domestic market, regions such as Latin America, the Germanic nations, Japan and Scandinavia hold the promise of driving the next phase of growth.
According to Nasscom, the Indian technology and business services has the potential to achieve $225 billion in revenue (exports and domestic market combined) by 2020. But challenges such as low employability of existing talent, infrastructure, policies (the STPI sunset clause) and competition from countries such as China and the Philippines need to be addressed.
Only then can the IT sector continue the momentum it has built painstakingly over the last decade.
