H O W I S T H E I N D I A N I T -B P O

I N D U S T R Y FA C I N G T H E
C U R R E N T G LOB AL
U N C E R TA IN TIE S ?

A N A S S C O M U pda te

G a nes h N a ta ra ja n
Positive growth in FY08 under clouds of uncertainty
Indian IT-BPO Sector Exports
Revenue Aggregate and Share of GDP
Domestic
US$ billion, percentage Percentage of GDP
5.2% 5.5%
4.7%
4.1%
3.6% 28%* 64.0

29% 48.1 • Sustained export

growth – revalidates
31% strong fundamentals
37.4
• Revenue aggregate as
32% 28.5 a percentage of GDP
continues to rise
21.6

FY04 FY05 FY06 FY07 FY08

Source: NASSCOM

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* Domestic Revenue Adjusted for Currency
All segments grew well in FY 08
Sourcing model
100% = US$ 64 billion Indian Providers
Global Captives
Global Providers
23.1
IT Services
18.0 28% IT*
12%

10.9 18%
Exports 62-66% BPO
8.4 30% YOY 70%
growth

Product Dev 6.4

and Engg BPO
Services 4.9 27.5
29%
%
28%
40%
0.5
Domestic 34-38% Hardware
0.5 FY2008
Market ** 32%
FY2007

Source: NASSCOM Source: NASSCOM

*Includes product development and engineering

** Negligible 3
New verticals reduce dependency
FY2007 Airlines and
Transportation
3%
Healthcare Other
3% 5%
Construction and Utilities
• Banking, Financial
4% Services, Insurance and
BFSI Hi-tech / Telecom
40%
Media, Publishing and
Entertainment
account for nearly 60%
3% of Indian IT-BPO exports
Retail
8% • Manufacturing and retail
are other large sectors

• Airlines, media,
Manufacturing healthcare and utilities
15%
are some emerging
high-growth sectors

Hi-tech / Telecom
19%

Source: NASSCOM

Vertical market exposure for industry exports is well balanced across several
mature and emerging sectors
* Excludes hardware exports
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Industry progressing to offer end to end service
BPO EXAMPLE
Coverage Revenue Split by Service Offered
Percentage of full service
Best in class 2007 Median 2007 Median 2004 FY2008E

42 100% = US$ 10.3 billion

Human Resources
Management
22 Customer
11 Interaction &
Vertical-
specific BPO Support
100 44%
Procurement Services 48 Services
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73 18%
Knowledge Services 35
15

76 22%
Finance & Accounting 34
15 Other
8% Finance &
Horizontal
Services 4% 3% Accounting
Customer Interaction & 82
42 Knowledge 1%
Human Resources Mgmt.
Support 25
Services Procurement Services

Source: NASSCOM
Source: NASSCOM

Export growth is also being supported by increasing breadth and maturity of the
service portfolio.
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Geographical spread diversified
Percentage CAGR FY2004-07
100% = US$ 31.4 billion* FY2007
ROW 2% FY2004
APAC2 6%
Continental
12% 43%
Europe1 30%
>55%

UK 18% UK
Continental
Europe 36%
US

APAC

US 61%

Source: NASSCOM FY2007 Indian IT-BPO Exports grew at a CAGR of 35% over FY2004-07

Europe, APAC and Middle East markets growing rapidly

•Excludes hardware exports
1 Top 3 countries include Germany (~2.5%), Netherlands (~2%), Switzerland (~1%)
2 Top 3 countries include Australia (~1.5%), Japan (~1.5%), and Singapore (~1.3%) 6
 But……

Will the meltdown in the financial markets and the

slowdown in all sectors make all these projections
irrelevant ?
Current Global Uncertainties

Signs of US Slowdown post sub-prime and wall

street crisis; impact on other economies
Economic instability
 Oil crisis, food prices, inflation, unstable
currencies, volatility in stock markets etc.
Concerns over US election; forthcoming Indian
elections and the continuing decline of stock markets
Constraints within India on talent, infrastructure etc.

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Tightening the belt

Wake up call 10 months ago when USD touched Rs. 39

Focus on productivity, efficiency, resource utilization
Wage moderation, reduced lateral hiring, reduced attrition
More efficient asset utilization – real estate, IT etc
Expansion into tier 2/3 cities
Domestic market and new markets

These improvements will have lasting impact over

years!

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Information Security & Risk Management
The NASSCOM 4 E model for trusted sourcing – Engagement, Education,
Enactment and Enforcement is being proliferated.

Objectives Initiatives/Impact

• Compliance with global standards • Maximum ISO 27001 certifications

Standards
e.g., ISO 27001, CoBIT obtained globally
• Contractual safeguards, robust BCP/ • Data Security Council of India formed
DR planning

Network • Secure design, documentation & • Documented security policies covering

security implementation of network e.g., use of information, mobile computing,
firewall, antivirus encryption user access

Physical • Isolation of sensitive areas • Robust and uniform best practices

security • Access control systems e.g., CCTV
surveillance, security guards

Personnel • Background checks • National Skills registry (NSR) to

security • Non-disclosure agreements facilitate personnel background checks
• Cyber security training and awareness

• Compliance with international laws • Amendments to strengthen the IT Act

Laws
• Strengthening of Indian legal system 2000 and Indian Penal Code being
enacted
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 43 tier 2/3 Delivery locations identified
• 7 centers account for over 95% of exports
• 43 tier 2/3 cities emerging; will reduce
New Delhi, Noida, 17% pressure on these centers
Gurgaon • On an average, costs in tier 2/3 cities is 28%
less than leader cities
• By 2018, it is forecasted that 40% of IT-BPO
exports will originate from non-leader
locations
Mumbai, 15%
Pune
Employment Distribution Amongst
Others 3%
Location Categories (‘000s)

8,0742 CAGR

Non-Leader 34%
Hyderabad 14% 40% >18X
Chennai 15%

Leader Cities
1,996 Leader1 10%
New Emerging 60%
Cities >2.5X
Bangalore 36%
Source: NASSCOM

The industry is well spread across multiple locations. Tier 2/3 cities emerging

Note: 1. Leader locations are Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR (Delhi, Noida, Gurgaon, Faridabad), Pune
2. Assuming a conservative growth in employment at 15% CAGR over next decade 11
Comprehensive Plan for making India’s large talent base
“employable”
Objectives Initiatives

• Enhance overall yield • Industry to enhance investments in training

Short Term
• Improve employability • Entry-level assessment for BPO and IT,
• Expand to tier 2 finishing schools : Through NAC, NAC-Tech
locations • New locations identified; govt’s engaged
• Lower skill dependence

• Lower training • Faculty Development Program: to increase

Medium Term
investment the suitability of teachers
• Enhance specialist and • Facilitating industry access to specialist
project management programs offered by independent agencies
expertise
• Add education capacity • Expansion of higher-education
Long Term
• Promote education infrastructure: government to set-up 20 new
reform IIITs
• Program to increase PhDs in technology
• NASSCOM VC fund focused on technology
innovation

Recognizing this imperative, the industry is proactively working on several

initiatives to strengthen India’s long-term cost advantage
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INDIA – Differentiators!

Abundant Talent!
347 higher education institutes
16,885 colleges with a total enrollment of over 9.9
million
Producing 495,000 technical graduates
Nearly 2.3 million other graduates
Over 300,000 post-graduates every year
 Major initiatives planned
Large part of industry
New training taken care of by
Existing Colleges Industry
Vehicles colleges / FS
Cost for training to be
Conduct of borne by individuals

Students NAC-Tech
Industry
Shadowing
Recruitment
Tier 1 1 week Billable
Colleges training Resource for
by Industry industry
Tier 2
Colleges
Finishing
Tier 3 School /
Colleges Training •Up gradation of
Institute college curricula
• Conduct of Faculty
Development Programs
• Student Assessments
College takes care of a large part of training to check efficacy of
which was earlier done by the firms. training

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 New movement launched in Pune
- 100,000 students enrolling at Maharashtra Global Careers
Knowledge Corporation (MKCL) centres will go
through awareness course for vocational skills in
key services segments identified for the future

- 30,000 college students from 100 colleges will go

through intensive training for skills in BPO< Retail
and Healthcare with internships in industry..
Mgmt.
Education Business
Graduation
Career Manager
Seekers
College
Employment
Students

Employability MBA
Vocational
Training
Vocational Career Path
Career Path

Graduate / 12th
Graders

Awareness
Overcoming Talent Crunch : Supply will not be a
constraint in future
Global working age population 2020

UK -2 Mn
0Mn Russia
Ireland Czech -6
RepublicTurkey Mn
-1
US * Mn Iraq 2Mn
-17Mn China
-3 Mn 2Mn Israel Pakistan -10 -9 Mn Japan
-2 Mn Mn
0Mn Iran 19 5Mn
* -5.6 m France Italy 3Mn Mn 7
in 2010 5Mn
Mn
Philippines
4Mn
47 Bangladesh
Mn
Mexico Egypt 4Mn
India Vietnam
1Mn
Malaysia

3Mn 5Mn
Indonesia
Brazil

Source : BCG

With an increasing imbalance in the global workforce, India’s demographic

advantage is likely to be a key driver of future growth
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0.0
Looking forward…

Indian IT-BPO Sector (excluding hardware)

US $ Billions Domestic
21-24%E Exports

28% 50.0

40.3 • YOY USD revenue

growth of IT players for
31.4 H1 09 has been 25%

• Value proposition
11.7 13.0 continues to be strong
8.2

FY07 FY08 FY09E

39.6 52.0 63.0
Source: NASSCOM
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 What will drive growth in the long term?
• Recognise need for transformation and change

• Keep cost pressures under control and ensure more supply sources to avoid
unsustainable salary pressures In new segments.

• Increased domain expertise and focus on innovation will be the key to the
success of India Inc in the new world order.

• Participation of all knowledge eco-system players in making this dream a

reality

• Global talent shortage; pressure on resources in developed world can be

addressed by India to minimise social unrest and negative fallouts of the
digital divide.

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 Thank You !

ganeshn@zensar.com

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