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History

Indian IT industry came into being with the establishment of TATA Consultancy Services in SEEPZ, Mumbai by the TATA group. Before this the Indian Government used to acquire the EVS EM computers from the Soviet Union, which were used in large companies and research laboratories. TCS was started as a data processing unit but soon they realized that neither the government nor the private companies were interested in data processing, so TCS decided to position the company as management consultants. But soon after this development, days of the license raj begun with the imposition of FERA. Import tariffs were high and software was not considered an industry, so exporters were not eligible for bank finance. Even opening an overseas sales office was not allowed until 1979. But TCS took a tough decision and started collaboration with Burroughs, which was a mainframe builder. TCS designed software support for Burroughs clients in US and Europe. Over the next few years TCS begin serving international customers with a combination of deputing people at customer locations abroad and working on their machines in India. This was the start of todays much talked about offshore projects. In the meanwhile some other players like Patni Computer Systems, Infosys and Wipro Technologies came into being. All were mainly offering IT enabled solutions to other companies. These developments created a huge demand for IT professionals. Moreover the relaxed immigration laws in the U.S. attracted the major chunk of IT professionals to U.S. Indian government also realized the importance of IT graduates and IT stream was started in IITs and other govt. institutes. Later IIITMs, specialized institutes for IT came into being. In 1991, Indian government came out with economic reforms. This development revolutionized the IT industry. All the major international players like HP, Oracle, CTS, Accenture, IBM etc entered the Indian market. But the economic boom also created a lot of business opportunities which helped the IT industry to grow.

Entry of players
iGate Patni
The name of the company was initially "Data Conversion Inc" in 1972.Narendra Patni and his wife Poonam started this experiment in their house, naming one room as the US and the other as India. In one room, they wrote instructions to convert data from paper documents to computers. In another room, a group of MIT students typed out the data into a Flexowriter machine that produced paper tape, which was then a very labor-intensive data-conversion process. Patni decided to import multi-user server systems and sell computer time. An agreement with US-based computer manufacturer Data General, to supply computer systems through satellite links, helped create Patni Computer Systems in 1978. The company was incorporated in India on 10 February 1978 under the Indian Companies Act, 1956. In 1986, India's first ODC (Offshore Delivery Centre) for Data General was set up. Patni successfully initiated and developed the outsourcing business model, which flourished into one of the largest industries worldwide, connecting the world in ways that were not done some time ago. During the early 1990s the company was focused on its hardware market and did not take advantage of the growth of software opportunities. It was then that Patni hired consulting group McKinsey to recommend how to scale up their business. The firm recommended massive restructuring of the organization into strategic business units, based on market segments and technological expertise supported by horizontal groups. From an 80-crore company in

1996, the company's revenues grew to $US656 million by 2009.

Infosys
Infosys was founded in 1981 by N. R. Narayana Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok Arora.

Wipro
The company was established in 1980 as a subsidiary of Wipro (Western India Products) Limited listed on the New York Stock Exchange. Wipro was initially set up as a vegetable oil manufacturer in 1945 in Amalner, Maharashtra, producing sunflower Vanaspati oil and soaps. At that time, the company was called Western India Vegetable Products Limited (later abbreviated down to Wipro).The company logo still contains a sunflower to reflect their original business. During the 1970s and 1980s, the company shifted its focus and began to look into business opportunities in the IT and computing industry, which was at nascent stages in India at that time. Wipro marketed the first indigenous homemade PC from India in 1985. With the passage of time Azim Premji transformed it into one of the largest IT outsourcing services provider of the world.By 2000, Wipro Technologies emerged as the largest publicly listed software exporter in India and the first software services provider to be assessed at SEI Level 5 in the world. Wipro won the Golden Peacock Innovative Service Award for effective service delivery using state of art technology in 2001. Wipro was awarded SVG1, the highest rating in Stakeholder Value Creation and Governance Practices by ICRA, a premier credit rating agency in India and an associate of Moodys Investor Services of USA.

Mahindra Satyam
Mahindra Satyam formerly Satyam Computer Services, is an Indian IT services company based in Hyderabad, India. It was founded in 1987 by B Ramalinga Raju. Mahindra Satyam is a part of the Mahindra Group which is one of the top 10 industrial firms based in India. The company offers consulting and information technology (IT) services spanning various sectors, and is listed on the Pink Sheets, the National Stock Exchange (India) and Bombay Stock Exchange (India). In June 2009, the company unveiled its new brand identity Mahindra Satyam subsequent to its takeover by the Mahindra Groups IT arm, Tech Mahindra on 2009. It is ranked #5 in Indian IT companies and overall ranked #153 by Fortune India 500 in 2011.

Evolution of players
Post liberalization
In 1991 the Department of Electronics created a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients office.

Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible scale in 1992. Indian economy underwent economic reforms in 1991, leading to a new era of globalization and international economic integration. Economic growth of over 6% annually was seen during 1993-2002. The economic reforms were driven in part by significant the internet usage in the country. The Government placed the development of Information Technology among its top five priorities formed the Indian National Task Force on Information Technology and Software Development. Within 90 days of its establishment, the Task Force produced an extensive background report on the state of technology in India and an IT Action Plan with 108 recommendations. Much of what it proposed was also consistent with the thinking and recommendations of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's telecommunications sector. The Information Technology Act 2000 created legal procedures for electronic transactions and e-commerce.

GOI planned to establish new Institutes especially for Information Technology to enhance this field. In 1998 India got the first IT institute name Indian Institute of Information Technology at Allahabad. The success of Information Technology in India not only had economic repercussions but also had farreaching political consequences. India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies. The relationship between economy and technologyvalued in the western worldfacilitated the growth of an entrepreneurial class of immigrant Indians, which further helped aid in promoting technology-driven growth. India is now one of the biggest IT capitals in the modern world. Economic effect of the technologically inclined services sector in Indiaaccounted for 40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25% of its workforce.

The share of IT (mainly software) in total exports increased from 1 percent in 1990 to 18 percent in 2001. IT-enabled services such as back-office operations, remote maintenance, accounting, public call centers, medical transcription, insurance claims, and other bulk processing are rapidly expanding. Indian companies such as HCL, TCS, Wipro, and Infosys may yet become household names around the world. The favorable policies of the Government of India has resulted in the about 3.7 million additional talent pool every year, which gave the industry a mix of young and experienced pool of talent. The favorable government policies resulted in higher computer penetration of the country, and also led to emergence of many Indian cities as a major IT hub for the global IT industry. This was a s a result of the tax holidays and SEZ that GOI started to promote the industry and investment in country.

GENERAL ENVIRONMENTAL FACTORS


POLITICAL FACTORS
Political factors affecting the IT industry include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability etc. One important feature of Indian IT industry is that the major chunk of business is coming from outside India. So, international politics also has a huge impact on the Indian IT industry. U.S government has declared that U.S firm that outsource IT works outside the U.S will not get tax benefits, this has caused reduction in U.S BPO contract from the U.S in the last some years thereby reducing revenue from the U.S.. Indo-US relations have become worse after India gave a major deal to French Dassault for fighter planes. US have warned India about banning the IT outsourcing. This will be a huge setback to the Indian IT industry. On the other hand, Indian government has decided to contract IT job to Indian IT companies creating more opportunities for the company and the industry at large. In software development different countries configuration rules and regulation are considered since client demand differs because of different system requirement. Political instability in India, in practical terms, posed no risk to foreign direct investors because no policy framed by a past government has been reversed by any successive government so far. We can find a comparison in Italy which has had some 45 governments in 50 years, yet overall economic policy remains unchanged. Even if political instability is to return in the future, chances of a reversal in economic policy are next to nil.

ECONOMICAL FACTORS
These includes factors affecting IT industry ranging from rising working pay, global recession, competition, contract availability and fee. Domestic IT spending grew by 20% and reached $20 billion in 2009. Currency fluctuations caused by the devaluation of the dollar has affected the industry during the last global recession as the Indian IT firms are mostly export based, and a strengthening rupee decreases their profit. Real estate prices decline resulted in rental expenditure forcing customer to leave luxuries goods such as electronic and computers that need software to work. Recession cause low attrition rate due to job layouts and job cuts. India economic attraction has helped in convincing investors due to low cost advantage. With reduction of work force due to job layoffs and unsuitable balance sheet most companies have decided not to make much expenditure in purchase, but make optimum use of existing facilities to make profits. Most debtors with financial crisis have been granted more time to pay up causing large debt

deficit. With the decline of banking and financial sectors, the revenue from there is expected to decline, hurting the bottom line of IT majors.

SOCIAL FACTORS
Social factors ranging from employee right, language barriers, race nationality of company or other issues etc affect the IT industry. English language being widely spoken in India has helped in fostering the industrys relationship and interaction in India and on the global stage. India is one of the few countries to have an increasing share of working population, since there is great availability of both skilled and unskilled labour force. Great number of institute and universities offer IT course creating room for availability of IT professional at lower cost since there is job competition. Industries have to consider the type of services the software is meant for, age difference of users, life style of the different countries of supply. It should be noted that there will always be difference in client behaviours which is supported by the fact that different countries have different culture.

TECHNOLOGICAL FACTORS
TELEPHONY Cellular mobile telephony tariffs in India are the lowest in the world. A comparison of Indian cellular tariffs vis--vis the tariffs prevailing in comparative emerging economies in South America & AsiaPacific region, clearly brings out the affordability of Indian cellular mobile telephone services. India has the world's second-largest mobile phone user base with 894 million as of December 2011. It has the world's third-largest Internet user base with over 121 million as of December 2011. NEW IT TECHNOLOGY With the evolution of SOA and semantic web services, enterprise solution heeds to the limitations of conventional enterprise systems by providing data convergence and concept reutilization with intelligence. Web2.O represents the next transition in the evolution of web applications; they promise to restore the richness, interactivity and usability lacking in many web applications. As with any technological transition, for an enterprise this implies that there are new opportunities to be explored and new challenges to be negotiated. SOA has benefited enterprises with benefits such as standardized patterns, interoperability, centralized governance, easy integration etc. Almost all industry domains have benefited from SOA strategy in order to build more flexible and malleable IT architecture involving reusable services. On the other hand, Web 2.0 practices bring the interesting idea of bringing enterprise products i.e. services and consumer-savvy applications together.

LEGAL ASPECTS AND POLICIES


This speedy growth of IT Sector is undoubtedly due to the efforts of Indian government and the other developments that took in the other parts of the globe. IT Act 2000 The arrival of the Internet and the World Wide Web made it possible for people to communicate and transact over cyber space. It was a revolutionary step for humanity, but it also created a significant need for the regulation and governance of these activities, a requirement that lead to the creation and implementation of cyber laws across the globe. India became the 12th nation in the world to adopt a cyber law during 2000. From the perspective of e-commerce in India, the IT Act 2000 and its provisions

contain many positive aspects. Firstly, the implications of these provisions for the e-businesses would be that email would now be a valid and legal form of communication in our country that can be duly produced and approved in a court of law. Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act. Digital signatures have been given legal validity and sanction in the Act. The Act throws open the doors for the entry of corporate companies in the business of being Certifying Authorities for issuing Digital Signatures Certificates. The Act has given a legal definition to the concept of secure digital signatures that would be required to have been passed through a system of a security procedure, as stipulated by the Government at a later date. Under the IT Act, 2000, it shall now be possible for corporate to have a statutory remedy in case if anyone breaks into their computer systems or network and causes damages or copies data. The remedy provided by the Act is in the form of monetary damages, not exceeding Rs. 1 crore. Income Tax Deduction under sections 10A/ 10B of Income tax Act, 1961 (IT Act) in respect of profits derived from export of computer software. Existing units which commenced operations prior to April 1, 2000 and claimed deduction under the provisions of erstwhile sections 10A/ 10B, can continue to claim such deduction under the provisions of newly substituted sections 10A/ 10B for the unexpired period of ten consecutive assessment years. Deduction would continue to be available in case of corporate reorganizations by way of amalgamation or demerger. Depreciation on computers and computer software is 60 percent.

ENVIRONMENTAL FACTORS
Environmental conservation and protection is an issue which has gained prominence because of deteriorating environmental balance which is threatening the sustainability of life and nature. All these issues have been taken very seriously by different stakeholders in the society including the government and legislations and movements are creating pressure for an environment friendly business. These have far reaching implications for business ranging from the kind of business, the product being manufactured, how it is manufactured and how friendly it is for mankind and nature. IT companies are mainly trying to have energy efficient processes and equipments. Companies are focusing on reducing the carbon footprints, energy utilization, water consumption, opt for green buildings etc.

Indian IT industry classification


Revenue Large cap Revenue > US$ 250 million y y y y Mid cap Revenue US$ 50-250 million y y y Small cap Focused on key niche areas of operations y y y y Key characteristics y business model

Large-cap companies are mainly concentrated on application development and Maintenance, package implementation, BPO and consulting. Such companies are well-positioned to bag large IT contracts with scalable capabilities. They have strong delivery capabilities across multiple verticals. Low client concentration characterizes such companies. Such companies compete with global IT vendors such as Accenture, IBM, HP Enterprise Services and Cap Gemini Mid-cap companies are mainly concentrated on specific domain capabilities. Scale and margin pressures characterize such companies. They are facing increasing competition from small- and large-cap player Such companies are focused on developing capabilities around a specific domain and aspiring to be leaders in the domain. Scale and growth pressures as well as limited growth in niche areas are typical of such companies. High client concentration characterizes such companies. They are facing increasing competition from large-cap/middle-cap players entering niche areas

Major verticals served by IT industry


BFSI is the major vertical of business for the IT-BPO segment with export revenue of USD20.1 billion during FY10 commanding a share of over 40 % of the total ITBPO exports from India during FY10 Over 85 per cent of the total Indian IT-BPO exports is across four sectors viz. BFSI, telecom, Manufacturing and retail. The hitherto smaller sectors are expected to grow going forward.

Geographical segmentation of export revenue


US has traditionally been the biggest importer of Indian IT exports and during F Y10 over 60 per cent of Indian IT-BPO exports worth USD30.1 billion were absorbed by the US Non US-UK countries only share 21.5 per cent of the total Indian IT-BPO exports .

Demand from emerging countries is expected to show strong growth going forward

Top 2 Players
TATA Consultancy Services
Strategy of TCS y Since last few years TCS is successfully leveraging labor cost in Eastern Europe, South America and China. y Getting big foreign names on board of directors is also one of the key strategies for TCS. The current three foreign directors are: Clayton M Christensen (HBS Professor, joined in 2006), Dr. Ron Sommer (former Chairman of the Board of Management of Deutsche Telekom AG, joined in 2006) & Laura M Cha (member of the Executive Council of the Hong Kong Special Administrative Region (SAR) and Non-Executive Chairman of HSBC Investment Asia Holdings Limited) y Look beyond US and UK for growth and beyond India for skills to emerge as a global firm. Clearly bullish with successes such as ABN Amro in continental Europe, Qantas in Australia, and almost 18% to 20% revenue from the Asia Pacific market, TCS wants to growss its businesses in global markets including India. y Recent acquisitions in Ireland and Latin America demonstrate its ambition to create delivery centers of respectable size outside of India. y TCS was the first one to set up a delivery centre in China. Corporate Strategy TCS is a firm believer in organic growth and acquire only those companies which are in line with TCS strategic long term goals. Diversification Strategy In February 2008, TCS restructured its global operations to adopt an integrated, customer-centric approach, which is expected to helpful in eliminating the risk factors arising from the U.S. economic collapse. The companys operations are now divided into five units: Industry Solutions (for verticalspecific services), Major Markets (North America, Western Europe and the U.K), New Growth Markets (Latin America, Eastern Europe, Middle East & Africa and India), Strategic Growth Business (TCS Financial Solutions, SMB and Platform-based BPO) and Organizational Infrastructure. Strategic Alliances TCS has strategic relationships with various global technology vendors. These relationships are in various dimensions such as Customer, Service Provider, Supplier, and Alliance Partner. Extending collaborative research to several global technology vendors has made relationships with them more holistic. TCS and these technology vendors collaborate on joint research leveraging each others strengths to research and to the development of best-of-breed offerings. The intent is to define and develop solutions with associated services and offer the same as an integrated business model to customers. Some of the strategic alliances are listed below. y Intel y SAP y HP

EMC2

Acquisition Strategy TCS is looking at growth from two ways first through organic means and second through the inorganic way. The inorganic way of growth is through acquisitions of those companies that make business sense to TCS. The companies should add great value to TCS. Like for instance TCS acquisition of CMC is helping it taking a sharper look at the domestic IT business. Both the companies have synergies in the government sector, since both the companies are well known for doing work for the government. TCS Joint ventures TCS went for a joint venture (JV) in Feb 2007 with three Chinese partners and is billed by the company as a "role model for the Chinese IT industry. The TCS joint venture, in which Microsoft took a 10 per cent stake, planned to employ over the next five year at least 5,000 people that would represent a considerable scaling up from the company's then present strength of 800 employees in China. The Chinese software industry remains fragmented and lacks scale. Only about 10 Chinese IT firms among some 8,000 employ more than 1,000 people. The TCS joint venture will thus be one of the largest software companies in China once it reaches its 5,000-employee target. The new venture is widely expected to enable TCS to finally break into the $30-billion domestic Chinese IT market, a market that has in the past proved elusive for Indian IT companies.

INFOSYS
Phase I: Getting a Foothold
Working with shackles: y Command and control economy
y Import restrictions y Punitive taxes y Under-developed capital markets y Foreign exchange controls y Capital shortage for infrastructure investments y Poor telecom infrastructure

Strategy:
y Onsite focus y Few large customers y Indirect sales

Phase II: The Run Up


Liberalization of the economy: y Abolishing of licenses
y Rationalization of taxes y Export incentives y Rationalization of tariffs

y Abolishing of wealth tax on productive assets y Foreign exchange reforms y Free pricing of issues and entry of FIIs y Employee stock option plans

Strategy:
y Global benchmarking y Global delivery model o Do work where it makes economic sense and reduce the total cost of ownership o Use two working shifts in the same calendar day to reduce time to market o Ramp up resources in multiple continents y Employee retention y Investment in sales and marketing y Becoming a company of choice for investors, customers and employees

Phase III: The Big Leap


Current environment:
y Market trends o Globalization, deregulation & consolidation are changing business fundamentally o Financial markets have been transformed o Increasing competition from low cost economies y Technology trends o High speed ADSL and optical fiber are

providing higher bandwidth


o Wireless access and new technologies like

WAP and Bluetooth are becoming popular


o Web appliances are expected to proliferate and non-PC devices will outnumber

connected PCs in the future y Outsourcing is increasing because of: o Time-to-market considerations o Internal resource shortage o Cost control o Complexity of IT o Improved vendor capabilities
o Focus on core-competency

Various detail of the IT industry:

The Indian IT industry has see a compounded annual growth rate of about 16.4% from 2007 till 2011.

It services is still the major contributor of the revenue in exports for the Indian IT industry, accounting for almost 56.8% of the total export revenue generated by the IT companies.