Indian IT-BPM Industry- venturing in uncharted waters, enabling business growth for clients in the digital era

As the saying goes “All great changes are preceded by chaos.” And this could not be truer for the global economy today. Beginning with economic turmoil, the ripple effects of which are still being felt today, to the ongoing political upheavals across the world. From the erratic movements in global commodity prices, inflation and unemployment and the constantly shifting business and technology landscape, volatility is now an ongoing reality than an exception. At the same time, businesses all over the world now face the digital, connected customer- one who is informed, decisive and influential. Organizations have no choice but to use technology to undergo a digital transformation themselves. Digitization can extend reach of organizations, enhance management decisions, and accelerate development of new growth engines.

Thus unpredictable economic conditions and rapidly evolving customer requirements is influencing how and where each dollar is spent; as firms not only look to get more with less, but also get new, yet unrealized benefits. Customers today expect technology not only to enable efficient operations, but also creating new avenues of growth. This scenario is both challenging and exciting, and is ensuring a dual role for technology, which will be used for both traditional applications that are anchored around stability and efficiency, and modern systems that focuses on agility, rapid application evolution, and tighter alignment with business units. This is likely to dictate global technology spend with an increased need for enterprise digital transformation as the new way to engage and serve customers.

Global IT-BPM industry:

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These trends have immensely impacted the IT-BPM sector along with the overall effect of changing customer expectation, digitisation and regulatory changes across the globe. In such a scenario, the worldwide IT-BPM spend was nearly USD 2.3 trillion, a growth of over 4.5 per cent over 2013. Packaged software, IT and BPM services continued to lead, accounting for over USD 1.25 trillion–55 per cent of total spend. Hardware spend at USD 1,022 billion, accounted for balance 45 per cent. While Americas remained the largest market, APAC recorded highest growth of 5.1 per cent, driven by faster growth in BPM services. Emerging verticals like healthcare, communication and media, government were key growth drivers for the IT segment during 2014.

2014 saw renewed demand for overall global sourcing, which grew by 9-10 per cent over 2013, nearly twice the global technology spend growth. India maintained its leadership position in the sourcing arena with a share of 55 per cent. New GIC delivery centres added in 2014 recorded an impressive growth of 49 per cent with over 27 per cent additions being in India.

Indian IT-BPM industry: A nearly USD 150 billion industry

The Indian IT-BPM industry is relentlessly continuing its growth path. The industry demonstrated flexibility and resolve to adjust to turbulent economic conditions and experience double digit growth. Overall revenue (exports + domestic) for FY2015 is expected at USD 147 billion, a growth of 13 per cent over last year, an overall y-o-y addition of ~USD 17 billion. Industry contribution relative to India’s GDP is set to touch an estimated 9.5 per cent and share in total services exports >38 per cent.

Exports are likely to record a 12.5 per cent growth to reach ~USD 99 billion, up by USD 11 billion last year. Domestic IT-BPM market at USD 48 billion is set to grow faster than exports market at 14 per cent, driven largely by the addition of eCommerce into the picture. IT services is the largest segment, with a share of >45 per cent followed by BPM with share of >26 per cent.  Packaged software, ER&D and product development segments together have 16 per share followed by eCommerce (10 per cent) and hardware (9 per cent).

The industry currently employs >3.5 million – India’s largest private sector employer. It is also playing a key role in promoting diversity within the industry – women employees (>34 per cent share), 170,000 foreign nationals and a greater share of employees from non-Tier I Indian cities.

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Exports market:

FY2015 is expected to see the exports market at ~USD 99 billion, recording a 12.5 per cent growth over last year. ER&D and product development segment is the fastest growing at 13.3 per cent, driven by higher value-added services from existing players and an increased business from GICs. IT services exports are to grow at industry rate of 12.6 per cent. Value-added services around SMAC – upgrading legacy systems to be SMAC enabled, greater demand for ERP, CRM, mobility from manufacturing segment and user experience technologies in retail segment is driving growth in IT services. BPM is being driven by greater automation, expanding omni-channel presence, application of analytics across entire value chain, etc.

Exports to USA, the largest market grew above industry average, aided by an economic revival and higher technology adoption. Demand from Europe remained strong during the first half of the year, but softened during the second half due to currency movements and economic challenges. Manufacturing, utilities and retail growth remained strong as clients increase discretionary spend on customer experience, digital, analytics, ERP updates and improving overall efficiency.  BFSI, the most mature market experienced cost pressures affecting growth.

The industry is attempting to shift from a linear to a non-linear growth model and has therefore been following a differentiated growth path. These strategies include both inward- and outward-looking initiatives. One of the primary strategies focuses on product/IP development; this is further being supported by their verticalised offerings. Expertise developed in specific verticals is enabling IT-BPM firms to deliver innovative products and services to customers that in turn facilitates entry into new markets/geographies, access to customers, etc. Rapid upscaling of capabilities around SMAC and other emerging technologies is enabling it to expand services to existing customers and also attract new customers.

Domestic market:

The need for Indian firms to effectively compete in a globalized world presents an immense. untapped opportunity for the supply side. As an economy, India is beginning to stabilise post elections. Overall business confidence is picking up with the new government in place and its clear policies and economic growth agendas particularly – Digital India and Make in India, have helped drive a vision of a technology enabled India.

India is jumping the technology maturity curve and is already a well-established digital economy – a trend driven largely by consumers. >75 per cent of the population is mobile-enabled, 278 million internet users (2nd largest after the US) and a rapidly multiplying online population, and a USD 14 billion eCommerce market, which is growing at an average of >30 per cent.

A further push in this direction is coming from the government’s Digital India campaign which envisages a USD 20 billion investment covering mobile connectivity throughout the country, re-engineering of government process via technology and enabling e-delivery of citizen services.

The domestic IT-BPM market is rapidly approaching the USD 50 billion mark. In FY2015, the market is expected to be a little over USD 48 billion, an annual growth of 14 per cent. This is faster-than-industry growth that is largely being driven by the growth in eCommerce segment.

IT services (>USD 13 billion) and packaged software (>USD 4 billion) segments are the next fast growing segment at 10 per cent and 12 per cent respectively. IT services is being driven by SMAC-cloud enablement, custom developing application for mobile; with the return of focus on infrastructure projects (largely in later half of 2014), there is an uptick in demand for SI and IT consulting. SMEs are also increasingly opting for managed and datacentre services as a cost saving measure. Packaged software is growing on the back of demand for mobile app development, security software, system software, customer analytics products, etc.

BPM segment is likely to grow 8 per cent to USD 3.5 billion; although there is growing demand for knowledge services, particularly analytics, it remains a CIS dominated segment. BPM is seeing continuous demand for outsourcing from home-bred firms in the BFSI, telecom, healthcare, retail, etc.

Future outlook:

The future of the global technology industry will be shaped by economic forces, and adoption of new technologies. To survive in a globally connected, and increasingly competitive world, IT enabled enterprise digital transformation will be a must. With rapidly-evolving technologies, changing consumer preferences and oftentimes competing channels, many organizations struggle with how to transform internally to meet the challenges of this new, always connected digital world. Organizations therefore need to carefully walk the path towards a comprehensive digital transformation with a concrete strategy to utilize its strengths and alleviate its challenges. As the global economy improves, and consumer confidence increases, investing in new technologies such smart computing products, internet of things, products and platforms,  cloud computing, mobility and analytics  will enable vendors to gain efficiency, agility, access to consumers, and innovation which when properly leveraged will provide tremendous opportunity for the delivery of real competitive value to clients.

The Indian IT-BPM industry is expected to continue to partner and handhold clients to enable business success in the digital era, and is well set on its goal to reach revenues of USD 300 billion by 2020. At the same time, challenges around economic volatility, protectionism, competition and customer understanding will need to be addressed by concerned stakeholders.

 

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