SMAC - New wave of opportunity for IT industry: CARE

CARE Research's report on IT services industry

Indian IT services conquered the global technology landscape capitalizing on India’s low-cost, English-speaking talent pool. Over the years, Indian IT players have transformed their business models from labour arbitrage to that of a value-added, end-to-end service provider, reaching out to more than 60 countries thriving on the success of the robust Global Delivery Model (GDM). Indian IT sector is predominantly exports driven, with exports comprising 80 percent of the total revenue, and employs more than 3 million people directly. Globally, corporates are using outsourcing as a strategic tool to reduce costs evident from the fact that global sourcing is growing twice as fast as global technology spend, Indian outsourcers being primary beneficiaries of the same. Indian IT services exports are dominated by Indian companies, contributing around 3/4th of the total, whereas rest of the share is distributed almost equally among global IT multinational players and captive centres of global corporates. IT-BPM players have established an empire of close to 600 global delivery centres around the globe in 75 countries.

Of late, unemployment fuelled by financial meltdown has given rise to anti-outsourcing protests in the developed markets forcing governments to enact curbs on outsourcing such as the new Immigration Bill in the U.S. Nevertheless, with more than two decades of experience, Indian IT players would weather the storm.

IT services Exports to continue winning streak; domestic market to complement the growth
IT services exports have grown at a CAGR of around 15 percent from FY08-FY13 on the back of rise in global offshoring. FY2013 witnessed a dent in IT services exports with the ongoing weakness in the U.S. and contraction in the European economy. This also resulted in declining propensity to spend on discretionary projects. This was evident from the fact that the project related revenue (revenue from IT Consulting, System Integration, Application Development, Network Integration etc) lost some share to outsourcing related revenue (revenue from application management, Infrastructure Services Outsourcing etc) as the latter grew at a faster pace in FY 2013.

Exports: U.S. economy, accounting for more than half of the Indian IT services exports, is the growth engine for Indian IT and is showing signs of revival as indicated by labour market data. IT budgets are expected to show improvement. Going by other indicators like Industrial Production and continuing stimulus, U.S. economic growth still remains cautiously optimistic. CARE Research believes that Indian IT services will continue to grow at the historical average rate garnering early double digit growth over the next couple of years.

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