Name: Chintada.

Pradeep 1226113112 INFORMATION TECHNOLOGY OUTSOURCING SUMMARY:

The global Information Technology sector has made a remarkable progress in the last decade. It has transformed the world, enabling innovation and productivity increases, connecting people and communities, and improving standards of living and opportunities across the globe. While changing the way individuals live, interact, and work, IT has also proven to be a key precondition for enhanced competitiveness and economic and societal modernization, as well as an important instrument for bridging economic and social divides and reducing poverty. IT outsourcing industry that is well placed to bring world-class applications of the technology to domestic customers. This report provides the evidence which shows that there is a strong positive impact of IT outsourcing on output and productivity in India. It also demonstrates that in aggregate, IT outsourcing makes a substantial contribution to Indian economic growth.
INTRODUCTION: Indias IT and ITeS services with exponential growth are a unique export-led success story which has put India on the global map. While India has achieved a brand identity in this sector, other developing countries are trying to emulate Indias example. Besides its impact on growth (both direct and indirect), it is also a provider of skilled employment both in India and abroad, generating direct employment for nearly 2.8 million persons and indirect employment of around 8.9 million in 2011-12. The IT-ITeS industry has four major sub-components: IT services, business process outsourcing (BPO), engineering services and R&D, and software products. The global slowdown has impacted the revenues of the IT-Business Process Management (BPM) sector, the growth of which decelerated from 15 percent in 2011-12 to an estimated 8.4 percent reaching US$95.2 billion in 2012-13 as per NASSCOM. The deceleration in growth of the dominant export sector (80 percent share) was from 16.5 percent in 2011-12 to 10.2 percent in 2012-13, while domestic revenue growth decelerated from 9.7 percent to a 1.9 per cent (due to currency effect) during these years. In Indian rupee terms domestic revenues have grown at 14.1 per cent in 2012-13

compared to 16.6 per cent in 2011-12. NASSCOM estimate of growth for 2013-14 are 13-15 percent for total IT-BPM revenue, 12-14 percent for exports and 13-15 percent for domestic sector. NATIONAL POLICY ON I.T: The government has also announced the National Policy on Information Technology 2012 which aims to maximally leverage the power of ICT to help address the economic and developmental challenges the country faces. Under the National e-Governance Plan (NeGP), the government focuses on making critical public services available electronically and promoting rural entrepreneurship. Of the 31 Mission Mode Projects (MMP), 24 have been approved by the Government of India (with 22 MMPs having gone live). At central level these are: MCA 21,a complete e-governance project of Ministry of Corporate Affairs, pensions, income tax, central excise and customs, banking, insurance, passport, eOffice, National Population Register (NPR) and UID, India Post, immigration visa, and foreigners registration and tracking. Some of the issues and challenges related to this sector are the growing competition from developing countries with lower costs, rising protectionist sentiments in developed countries, and transfer pricing issues

Indian IT-ITES Industry Performance : The Indian Information Technology - Information Technology Enabled Services (IT-ITES) industry has continued to perform its role as the consistent growth driver for the economy. It has built the global brand for India as a knowledge economy. Global leaders, media and analysts have recognised the potential for India through the brand built by this sector. IT enabled solutions have helped government and industry enhance governance and efficiency.

Government of India has played a key role in supporting development of this sector. From providing tax incentives under Section 10A/10B, setting up STPI, creating capacity and competition for telecom services, zero import duty on software are some of the steps taken for this industry to develop as the leading global sourcing hub of the world. However, there has been a marked improvement in FY2010-11, with reduction in recessive conditions, enabling the return of double digit growth for the industry However, all the stake holders viz, Industry, Industry Associations, Central/State Government would be required to work together to address the emerging challenges to sustain the growth rate by retaining the competitiveness and build for the next wave of growth. IT-ITeS Exports : The exports revenue of Indian IT-ITeS industry has grown from US $ 40.4 billion( Rs. 164400 crore) in 2007-08 to US $ 59 billion (Rs. 269630 crore) in 2010-11 and are projected to reach $ 69 billion by 2011-12 with CAGR of 17% in dollar terms. In view of the severe global economic recession in the developed markets, which account for almost 90% of Indias IT-ITeS exports, the exports growth rate during the year 2008-09 declined to single digit (5.5%). The export industry is diversified across three major focus segments - IT Services, BPO and engineering services. While IT Services have been the mainstay of the industry, BPO and engineering services sector has built upon the India value proposition and today there exist integrated service providers across the three focus areas as well as niche providers. IT-ITeS Domestic Market: The domestic revenue of IT-ITeS industry has increased from US $ 11.7 billion (Rs.47000 crores) in the year 2007-08 to US $ 17.2 billion (Rs.78700 crores) in 2010-11 and is projected to reach US $ 20 billion (Rs.90000 crores) by 2011-12 with estimated CAGR of 19.5% in dollar terms. Thus, the growth rate of domestic IT-ITeS revenue has outpaced the growth rate of IT-ITeS exports from the country. The Government is expected to contribute significantly to this growth through spending for the National e-governance Plan (NeGP). Leading Indian firms, multinationals as well as the SMEs are gearing their products and services to tap into the e-governance opportunity.
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Objectives, Targets and Achievements of Eleventh Five Year Plan The main objective of Eleventh Five Year Plan was to evolve strategies to become world leaders in development of IT software and services including ITES. India continues to be a premier destination for the global off-shoring market of IT-ITeS, accounting for almost 55% in 2010 as compared to 49% in 2005. India has emerged a dominant player in global IT services outsourcing with increase in Indias share to 70% in 2010 from 52% in 2005. Although Indias share in BPO sourcing market has declined from 45% in 2005 to 34% in 2012 but continues to be the leader in this space. KEY CONSTRAINTS AND CHALLENGES: Competition and strong pull from other countries : China, Philippines, Vietnam, Poland, Hungary, Mexico, Brazil, Egypt are an indicative list of countries that are emerging as competitive locations with this increasing to almost 50 locations which present a huge challenge to Indias success story. Many of these countries are offering a host of incentives (income tax holiday, deduction from taxable income upto 40% of the salary of additional skilled and unskilled workers, reduced rentals, subsidy on trainings, access to government contracts) to attract global players to set-up operations in their countries. Various Governments provide attractive incentives through fiscal, indirect and ICT sector-specific schemes. There is real danger that some of these locations will move from being small second-source alternatives to primary sources. Already, many MNCs and Indian companies are setting up centres in these countries. As an example, Philippines is already half the size of the Indian ITES/BPO industry and is expected to grow at rapid pace. China is intent on transforming its economy from a manufacturing engine into a services hub, and the Chinese Government has been pushing the growth of the countrys service outsourcing market. Though the total offshoring market in India is much higher compared to China, R&D offshoring has a different story. Indias accounts for 20-25% of the global R&D offshoring market with China close behind at 15-20% market share. There are about 920 MNCs with about 1,200 subsidiary centres carrying out R&D related work in China. However, there are only about 400 R&D centers in India. Chinese government has initiated several policies & programs to promote R&D activities in the country. The financial and tax incentives and other preferential treatments have been able to save 15-20% of the operations cost and has also helped reduce the set up costs significantly for MNCs. China is pushing talent development and its strategy is
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to increase spending on education and provide monetary incentives to companies developing talent pool. Made in India procurement : The combined spend on IT (hardware, software, services and network) related procurement by the Government in India is huge and Government is the largest procurer of IT in India. Apart from

services, a significant proportion of the IT assets deployed in projects (hardware, software products ) are imported. Indian firms particularly the SME firms who develop products find it difficult to sell to the Government as they lack the sales capacity or they fail to meet the qualifying procurement criteria e.g. annual revenue, number of customer etc. As a result the Made in India IT products find it difficult to scale up. Declining Global ITES/BPO share : Indias share in global BPO off shoring market has declined due to competition from o ther emerging countries. Development of the BPO industry in Tier-II and Tier-II cities, which is feasible under the STP scheme, is important for ensuring long term competitiveness as Tier I locations would gradually lose their competitive edge over the other emerging nations due to high infrastructure cost. Lack of skilled manpower and sustainable supply of talent pool remains a major hurdle especially in tier 2 and 3 cities. R&D Services Among business services, R & D occupies the second position in Indias GDP with growth being consistently high at near 20 per cent in the last few years with growth in 2011-12 at 20.5 per cent. Until recently, the competitive advantage in R&D was almost exclusively with the developed economies. Of late, emerging countries are increasingly involved in R&D and innovation, with active involvement of both public and private sectors. Factors such as low cost, access to new markets, availability of knowledge-oriented manpower, favourable regulatory environment, and fiscal benefits play a major role in driving R&D investments towards emerging economies. These countries are also encouraging innovation through legal, regulatory, and policy support.

Economic Roller Coaster: India Poised to register 6% GDP growth rate and match Chinas rate by 2015 powered by $100 Billion IT Outsourcing Services sector.While the world economy is expected to grow at 2.3% in 2013, India and China are poised to grow at 7% and 6% despite slower recovery of world economy. The World Bank Report states that India is expected to be head and shoulder with Chinas Growth rate by 2015. Indian IT outsourcing industry is expected to add $50 billion in 2013. Indonesia and Philippines are emerging economies but year 2013 have several challenges that lay before them. For instance, in the year 2013 Indonesia will see a slowdown due to worries in the euro zone (According to World Bank) that could curb demand for commodities from Southeast Asias largest economy. The world bank report also emphasizes that the baseline projection of 6.4% growth rate expected for Indonesia in 2013 will plummet to 4%. Philippines on the other hand remains poised to grow at 6% growth for the next two years backed an impressive growth rate of 7% in 2012. Major sectors that will become key drivers are tourism, retail and business process outsourcing. According to World Bank other destination which are emerging destination for IT Outsourcing like Brazil and Ireland are expected to plummet 3% in coming years.These scenarios brings us to the conclusion that, India and China stands to confront in the IT Outsourcing landscape for clients in USA and other European countries. In that, India has several inherent competitive edges when it comes to Software Outsourcing as compared to China which I have analyzed in coming sections. IT Service Industrialization: Capitalizing on Experience Curve & Standardizing IT Services DeliveryGartner report states Industrialization provides organizations with more alternatives than ever and represents a shift from a labor-intensive model to an automated, standardized one.The task of CIOs has now become even more challenging as they have to contribute more with less. Industrialization is not prevalent in IT outsourcing context as each service encounter is varies from each other, yet there is a potential for standardizing repetitive and mundane processes that can significantly reduce overheads. India has a distinct advantage of capitalizing on the economics of the experiences of past projects. With it vast experience in software development outsourcing, Indian companies have proven and tested standards for processes, delivery models and allied tools which is at the heart of IT industrialization.

REFERENCES:

1) PlanningComission,2012,Working Group on InformationTechnology Sector Twelfth Five Year Plan http://planningcommission.gov.in/aboutus/committee/wrkgrp12/cit/wgrep_dit.pdf 2) IndianBudjet,2012,Services Sector http://indiabudget.nic.in/es2012-13/echap-10.pdf 3)Gartner,2013, IT Outsourcing scenario in 2013
http://softwareoutsourcinginindia2013.blogspot.in/2013/01/normal-0-false-false-false-en-us-x-none.html

4) MitchBetts,2012,Surprising Trends in Outsourcing http://www.cio.com/documents/pdfs/outsourcing.pdf 5) Grace Kite, June, 2012,The Impact of I.T Outsourcing on Productivity and Output http://www.soas.ac.uk/economics/research/workingpapers/file76347.pdf