Publish Date : 16-10-2005 07:48:00   Source : By Sumeet Chatterjee

In the ‘flat world’, with all-round level-playing field created by technology, India has emerged as a global brand name in providing cheaper and high-quality information technology services that rake in billions of dollars from major global giants like General Electric, Boeing and Citibank.

As many as 50 percent of Fortune 500 companies are clients of Indian IT firms and over 200 of these global majors are currently outsourcing their support services to India, says a Deutsche Bank study.

India’s leadership over other competing outsourcing destinations is driven by strong fundamentals such as a large pool of qualified, English-speaking manpower and an emphasis on delivering quality at a significant cost arbitrage.

“The Indian IT industry is in a strong position to leverage the global software opportunity and establish India as the premier IT destination in the world,” says S. Ramadorai, chief executive officer of Tata Consultancy Services (TCS).

TCS is India’s largest software company and an arm of the $17.6 billion private diversified conglomerate, the Tata Group.

Experts say with the slow waning of protests in the West against the shipping of tech jobs to low cost economies, more and more local companies are likely to reap the benefits of providing services to overseas clients.

A great example of this is Indian IT powerhouse Infosys. It created last year a wholly owned US-based subsidiary called Infosys Consulting, which is changing the face of the global consulting business.

The Infosys Consulting business model is based on providing customers far greater value for money compared to traditional consulting firms based on its experience, says Stephen Pratt, chief executive officer and managing director of Infosys Consulting.

“In the older consulting model followed by our competitors, the client uses very few top business consultants on-site, along with a number of technology experts. So, with the amount of money they pay to have all the technology experts on-location, they can only afford a few on-site business experts,” he explains.

“With our model, a lot of the technology experts are offshore in India, at a much lower cost — so the client can afford to have many more business experts on location. This really helps the client,” says Pratt, who adds that the strength of the company will grow from the current 120 to around 500 in the next two years.

In one year, the company declared that it provided an average of 103 percent of the business value provided to clients. It worked with 25 Global 1000 companies.

According to the Infosys business model, each business expert that it hires in the US for its consulting clients generates work for four tech people in India.

“So we are going to hire about 500 business experts who are going to create work for 2,000 tech experts in India,” says Nandan Nilekani, chief executive, president and managing director of Infosys Technologies.

“We don’t want to undersell the fact that we have changed the architecture of the consulting business. Now our competitors realise that they have to be like us if they want their business to grow,” says Nilekani.

“This is the first time that an Indian company has changed the architecture of the global business in a particular area.”

The company hopes to break even by the fourth quarter of this year and almost double its list of clients by end of next year.

The Indian IT and IT-enabled services (ITES) industry recorded 34.5 percent growth in exports, touching $17.2 billion in fiscal 2004-05 ended March 31, says the National Association of Software and Service Companies (Nasscom).

“The Indian software and services industry has been able to maintain its growth momentum and consolidate its partnership with overseas customers, adding to their competitiveness,” says Ramadorai, an industry veteran.

IT industry employee base in India crossed the one million mark in fiscal 2004-05. Indirect employment attributed to the IT-ITES sector was 2.5 million in 2004-05.

While the US and Britain still remain the dominant markets, Indian companies are gaining traction in newer geographies like Japan and Singapore.

Britain, Germany and France are the top three markets in Europe for the Indian technology outsourcing companies. Other important export destinations include Italy, Finland, Sweden, the Netherlands and Switzerland.

For companies like TCS, Europe is one of the main strategic growth markets and the company has 19 offices across 11 countries in the European Union, employing over 700 people.

Enthused by the growth opportunities in India, a slew of global technology majors are rushing to set up shops or increase their presence in India.

US tech giant IBM reportedly plans to increase its headcount in India by 14,000 workers this year even as it retrenches up to 13,000 jobs in Europe and the US.

This will see IBM’s Indian workforce rising to 38,196 professionals in 2005 from 24,150 in 2004. IBM India has seen double-digit growth in the last five years.

Similarly, leading business software solutions provider SAP said in July it planned to double its headcount in India to 4,000 by the end of next year. SAP Labs India has the company’s largest development facility outside Germany.

Presently, SAP’s Bangalore facility, among the four global development hubs, accounts for 20 percent of the company’s 10,000 developers globally.

“It is heartening to note that companies are also increasing their focus on the domestic market,” says Kiran Karnik of Nasscom, the primary lobby group for the IT and services industry.

“A significant objective for the year would be to increase collaborations among Indian companies to share ideas, information and best practices to sustain and grow the domestic market,” he says.

“Extensive use of IT within the country can result in great economic benefit, efficient and transparent governance, and empowerment of the disadvantaged.”

According to tech sector research firm Gartner, emerging markets such as India and China will act as the main engines of growth in the IT services market across the Asia Pacific region over the next few years.

“As the Indian economy grows, the focus of demand for IT services will shift from large deals to increasing number of mid-size and small enterprises signing deals,” says Ravindra Datar, principal analyst (Asia Pacific) of Gartner.

“This is expected to drive the next phase of growth in the Indian IT services market,” he adds.

According to Gartner, while India has established as a leading destination for offshore IT and BPO (business process outsourcing) services through the last 10 years, the domestic market demand has started picking growth very recently.

Indian IT industry’s growth is having a significant multiplier effect on Asia’s fourth-largest economy with the emergence of a rising class of younger consumers with high disposable incomes.

With the IT industry becoming one of the biggest employment generators in the country, it has spawned a number of ancillary businesses such as transportation, real estate and catering.

In the fiscal year 2004-05, the Indian IT and ITES industries are estimated to create the demand for nearly 12,500 passenger cars, over 80,000 two-wheelers and 150,000 mobile phone subscriptions.

The sector currently accounts for six to seven percent of the incremental demand in the real estate and construction services.

China, which outstrips India in almost every sphere of business except software, is racing to take on India, the world’s second-largest software exporter after the US, by unveiling new policies and offering incentives to the companies.

China attracts a bigger chunk of foreign investment and its share of world exports, whether textiles or toys, is far larger. In IT, however, India takes pride in outdoing its rival, industry experts said.

Compared with $17.2 billion in IT products and services exports for India in the fiscal year ended March 31, China sold $2.5 billion worth of software throughout the world last year.

No major Chinese software companies are globally important whereas Indian firms like Infosys Technologies, Satyam Commputer Services, and Wipro are favourites of investors both in Mumbai and in New York.

In an AT Kearney survey, comparing alternative destination for outsourcing of IT services, India leads the pack driven by cost competitiveness, rich experience in offshore outsourcing and a large labour force second only to China.

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