Factors and Policies Influencing the Expansion of Services...

TM

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Factors and Policies Influencing the Expansion of

Services Trade– Experiences of the Indian IT-BPO Sector

New Delhi, October 2006

2Copyright © NASSCOM 2006TM

Over the past decade, the Indian IT-BPO sector has witnessed phenomenal growth…

1.4 1.9 2.6 3.96.0

1.84.0

7.7

12.8

23.6

13-15

7.2

60 +

31.0

FY98 FY00 FY02 FY04 FY06 FY07P FY10^

DOMESTIC MARKET* EXPORTS*

USD Billion

Source: NASSCOM ^NASSCOM McKinsey Study 2005

26.3%

34.6%

31.2%

23.6%

21.1%

22.1%

31.0%FY00-06

28.9%FY00-10

25.7%FY06-10

CAGR

10 YR TARGET

ACHIEVED

REQUIRED

* Includes IT Software and Services, ES and Products, as well as ITES-BPO

TOTALPERIOD


…and has emerged as a ‘poster-child’ for global services trade


Five factors have served as key enablers of India’s success

• Competitive pressures driving demand for more efficient business models

• Strong fundamentals– Talent, quality and cost advantage

– Emphasis on information security gaining prominence

• Demonstrated proof of concept and rapid expansion of scope and scale by the Indian vendor base

• ‘Enabling’ without ‘interfering’ approach adopted by the government

• Organized and concerted effort by the industry


Talent, quality and a sustained cost advantage form the core of India’s value proposition

• Annual outturn of ~3 million graduates– Over 400,000 engineers– Approximately 2.5 million graduates in other streams

• Global recognition for demonstrated standards in quality– Number of CMMI certified units in India higher than that in other

countries put together– Indian companies driving next-generation quality practices in

offshore service delivery (e.g. eSCM); combining the virtues of 6sigma, lean, etc.

• Sustained cost advantage– Sourcing from India has delivered cost savings of 35-60 percent– Factors beyond ‘wage-arbitrage’ driving sustained value


Unfailing information security and data protection is rapidly becoming a prerequisite

• Emphasis on maintaining highest standards by India based units – acknowledged by global regulators– In April 2005, the FSA released a report highlighting the

preparedness of India-based units to address the challenges of information security

– Banking Code Standards Board scrutinized and found the security and data privacy standards (in India) to be ‘exemplary’

• Proactive efforts by the industry and the government to strengthen the regulatory and enforcement framework– Regulatory reform

– National Skills Registry

– Self Regulatory Organization


Demonstrated proof of concept; ability to rapidly expand scale…

• Leading MNCs played a key role in demonstrating proof of concept– ‘Anchor clients’ instrumental in driving scale as well as building

credibility

• Indian IT-BPO sector has grown rapidly; employee base forecast to exceed 1.5 million this year– ~1 million employees added in the past 5 years alone– Forecast to cross 2.3 million by 2010

• Not just abundance of raw talent, also rich sources of domain knowledge– A lot of middle management talent across sectors (e.g. financial

services, hospitality, travel, etc.) has been sourced from localcompanies in those verticals


…and scope of work has sustained growth

1980 1985 1990 1995 2000 2005 & beyond

Mutual Gains Re-invest Mutual Gains

Strategic ImpactStrategic Impact

Val

ue

Val

ue

Full Process Outsourcing (F&A, HR)

Multiple Process Outsourcing

Rules-based ProcessingProblem Solving/Decision Making

Customer Contact

Transactional Data Entry

Data Entry

Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation

Out-Tasking

BPO

Transformational BPO

Application Support

Technical Support

Customer Contact / Hardware & Installation Support

Maintenance

R&D Services Product Development & Testing

Design & Integration

ITBPO

Source: neoIT

Research and AnalyticsEngineering Services

Note: Services listed are indicative not exhaustive

1980 1985 1990 1995 2000 2005 & beyond

Mutual Gains Re-invest Mutual Gains

Strategic ImpactStrategic Impact

Val

ue

Val

ue

Full Process Outsourcing (F&A, HR)

Multiple Process Outsourcing

Rules-based ProcessingProblem Solving/Decision Making

Customer Contact


Data Entry


Data Entry

Cost ControlCost Control Focus on Core CompetenceFocus on Core Competence Business TransformationBusiness Transformation

Out-Tasking

BPO

Transformational BPO

Application Support

Technical Support

Customer Contact / Hardware & Installation Support

Maintenance

R&D Services Product Development & Testing

Design & Integration

ITBPO

Source: neoIT

Research and AnalyticsEngineering Services

Note: Services listed are indicative not exhaustive


The ‘enabling’ without ‘interfering’ approach adopted by the center, has been a key catalyst

• Minimal restrictions / regulatory impositions on investment in the sector– 100% FDI under automatic approval

• STPI formed in 1991 as an autonomous organization under Ministry of Communication and Information Technology – Single window clearance

– Fiscal and procedural incentives

– World class communication infrastructure

• Telecommunications sector deregulation


…complemented by focused efforts by several state governments

Andhra Pradesh Example


Farsighted government policies and initiatives to play an integral role in the sector’s continued growth

Factors and Policies Influencing the Expansion of Services...

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