Strategic Review 2013: The IT-BPM Sector in India

IT-BPM Services – Turning the corner

Uncertainty and moderation of economic activity across the world was the highlight of the year – the high degree of uncertainty left an indelible impact on the IT-BPM industry. The Indian IT-BPM industry has rapidly evolved – in terms of expanding their vertical and geographic markets, attracting new customers, transforming from technology to strategic partners – thus cementing India’s position as the premier global sourcing landscape, share for 52% in 2012 (50% in 2011).

Future growth will be from a combination of higher value services, increasingly non linear play and further extension of cost proposition. Indian IT-BPM industry has already begun moving from enterprise services to providing ‘enterprising solutions‘ – incorporating SMAC (social, mobile, analytics cloud) to create client impact on not only cost, but also revenues, profit margins and cash flows.

In the face of a volatile economic environment, global tech spend grew 4.8% to ~USD 1.9 trillion in 2012. Hardware grew ~7% (demand from rising lower/middle class); IT services & package software grew 3.3% each (impact of SMAC technologies); BPM, fastest growth at 4.9% (platform and analytics); ER&D grew ~4% (industry adjusting to changed consumer preferences).

In line with this growth, global sourcing market reached USD 124-130 billion, growth of 9% – nearly twice the growth of global IT spend. APAC spend grew 6 per cent, nearly 1.6X faster than mature geographies, Americas (5%) and EMEA, (~1%). Lingering concerns about the global economy also impacted contracts; volume fell ~13 per cent; however, average contract value (ACV) remained fairly steady at USD 21 billion largely due to a number of mega deals in BPM.

Indian IT-BPM industry – transforming from enterprise services to enterprising solutions

The Indian IT-BPM industry has exhibited rapid evolution – in terms of expanding their vertical and geographic markets, attracted new customer segments, transformed from technology partners to strategic business partners imbibing a shared vision, offering considerably wider spectrum of services over the years. Growth has been both organic and inorganic, resulting in the emergence of the first Indian MNCs- over 580 global centres in over 75 countries delivering IT-BPM services. At the same time there has been no let down in focus on operational efficiencies. Global in-house centres continue to evolve to higher value added roles further cementing India’s premier position in the global sourcing landscape, accounting for 52% of the market in 2012, up from 50% in 2011.

FY2013 has been a year of transition & transformation as the industry continued on its growth trajectory transitioning from enterprise services to “enterprising solutions”. These are not standard lift and shift solutions – our clients expect the industry to tell them what is best, suggest changes, improve and replace existing workflows. Today the vendor has to be a lot more enterprising, display entrepreneurship to ensure a service delivery that is IP driven and productized, involves global delivery and talent, served over multiple platforms, has the customer at the centre of every module, and is transformative in nature. Customers want solutions that do not have capex involved, and today vendors have to design then as a pay as you go model, and recover their costs on a gain-share basis. The Indian IT-BPM industry is leading the drive to design solutions incorporating SMAC (social, mobile, cloud, analytics) to offer innovative, enterprising answers. These enterprising solutions are able to create client impact on not only cost, but also revenues, profit margins and cash flows.

Exports: Aggregate overall revenues: USD 108 billion

• IT software & services revenue (excl. hardware): USD 95 billion
• Exports (excl. hardware): USD 75.8 billion, a 10.2% growth over FY2012
• Domestic revenue (excl. hardware): To grow 14.1% to INR 1,047 billion
• Employment: Direct (~3 mn); indirect (9.5 mn)

Domestic: IT-BPM revenue (excluding hardware) expected to grow over 14% to INR 1,047 billion:

• IT services: Fastest growing (14.5%) to reach INR 674 billion, driven by IS outsourcing, cloud
• BPM: 12.7% growth (INR 167 billion), driven by hosted services & higher uptake by verticals
• Products: INR 205 billion, 14% growth – cloud, mobility & need to replace legacy systems

Future Outlook

The global economy is set to improve 2013 onwards – simultaneously, BRIC economies are emerging as sources of innovation. Technology changes are also opening new opportunities – these factors are expected to drive growth in global technology spend by 6 per cent in 2013; global sourcing to grow faster at about 9-11% to USD 135-140 billion.

Indian IT-BPM revenue (domestic+exports; excludes hardware) in FY2014 expected to grow by ~13-15% to USD 106-110 billion; of this, exports are likely to be about USD 84-87 billion, a growth of about 12-14 per cent. To achieve this next level of growth, industry stakeholders need to work on five core areas:

• Establish world class infrastructure, enhance corporate governance, risk/security framework
• Significantly improving the quality of education
• Establish India as an innovation hub & foster entrepreneurship
• Social change through tech-enabled healthcare, education, financial,  public services
• Exploit opportunities in new, emerging geographies, underpenetrated verticals and customers

This article is being shared from  Nasscom official blog