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Infotech
September 2006

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Contents
Market Overview Government regulations & policy Advantage India and business opportunities

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Market Overview
Market Overview Government regulations & policy Advantage India and business opportunities

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Market Overview

IT-ITES one of the fastest growing sectors in India

Revenues (USD Bn.) 40 CAGR - 30% 36 20 28 22

Revenues ~ USD 36 billion (2006 Est.) CAGR (FY 2004-06) - 30 % Contribution to GDP up from 2% in 2000 to 5% in 2006 Exports ~ USD 23.5 billion (2006 Est.) CAGR (FY 2004-06) - 35 % Has nearly doubled in last three years

0 2004 2005 2006 (Est)

Exports (USD Bn.) 20

CAGR - 35%

Domestic Market - USD 13 billion (2006 Est.) CAGR (FY 2004-06) - 22% Buoyed by an economy growing at nearly 8% per annum over
the last 3 years

10 11 9 0 2004 2005

13

2006 (Est)

Source: NASSCOM

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Market Overview

Exports contribute nearly 65 % of IT sector revenue

Segment wise revenue trend
40

19%

100% = USD 36.4 bn

13%
35

48%

100% = USD 28.5 bn

21% 47% 14% 20%

Year 2006 (E)

30

100% = USD 21.7 bn

23% 48%

Year 2005
18%

IT services ITES- BPO Engg Services, R&D and products Hardware

25

13% 16%
20

Year 2004

IT services and ITES-BPO revenue largely export driven Exports contributed 75% of IT services and 87% of ITES-BPO revenue Share of services in domestic market increasing Revenue from services up from 43% to 47 % in the last 3 years
Source: NASSCOM

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Market Overview

Business pressures and India advantages continue to drive off-shoring

Share of Offshore component of revenue on the rise

The Global Offshore Delivery Model

adopted by Indian software services vendors and increasing sophistication to sustain delivery over the last decade or more is already translating into more work being handled off-shored

% of revenue

57%

45%

36%

29%

IT companies have developed capabilities

64% 74%
to handle larger slices of work offshore and provide substantial value to customers facing pressure to drive down costs while maintaining quality

43%

55%

Continued pressure on margins and

2000 Onshore Offshore 2002 2004 2006 (E)
tangible benefits from off shoring is expected to substantially increase the momentum in offshore outsourcing.

Source: NASSCOM

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Market Overview

Indias IT industry structure is vibrant and competitive

Category
Tier I Tier II Offshore operations of Global IT majors Pure play BPO Captive BPO Emerging players

No. of players
3-4 7-10 20-30 40-50 150 >3000

Share of export revenue

y 45% of IT Services y 4-5% of BPO y 25% of IT Services y 4-5% of BPO y 10-15% of IT Services y 10-15% of BPO y 20% of BPO y 50% of BPO y 10-15% of IT Services y 5% of BPO

Revenue Performance
> than USD 1 billion USD 100 million-USD 1 billion USD 10 million-USD 500 million USD 10 million-USD 200 million (Excl. leader - USD 500 million) USD 25 million-USD 150 million (top 10 units) < USD 100 million (IT) < USD 10 million (BPO)

Source: NASSCOM

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Government regulations & policy

Market Overview Government regulations & policy Advantage India and business opportunities

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Government regulations & policy

IT-ITES is one of the key thrust areas of Government of India

Liberal Policy framework for the sector. Continuous liberalisation and reform policies of Government of India had a positive impact Liberalisation and reforms in the telecom sector have had a direct impact on the industrys competitiveness and
created further avenues for the growth of IT and BPO sectors

Export promotion and Tax/duty incentives Foreign Trade Policy 2004 - 2009 permits import of all kinds of computers (Except second hand computers) in
India without any licenses.

EPCG Scheme for software sector allows import of capital goods at 5 % basic customs duty subject to
undertaking certain export commitments

A number of Special schemes including Export Oriented Unit , Special Economic Zone etc offer a wide range of
duty concessions and exemptions for IT exports

Indias federal governments have comprehensive IT policies to facilitate greater investments in the sector

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Government regulations & policy

India has enacted comprehensive legislation (IT Act 2000) which covers copyright protection and cyber laws
Copyright and IPR Intellectual Property Rights (IPR) of computer software covered under the
Copyright Law.

Copyright of computer software protected under the provisions of Indian

Copyright Act 1957.

Major changes to Indian Copyright Law were introduced in 1994 and came
into effect from 10 May 1995, making, Indian Copyright law, one of the toughest in the world.

Regulatory norms in Indian cyberspace Comprehensive legislation for Information Technology - The Information
Technology Act 2000 enacted.

Aims to provide the legal infrastructure for e-commerce in India India only the 12th nation globally to enact cyber laws.

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Advantage India and Business opportunities

Market Overview Government regulations & policy Advantage India and business opportunities

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Advantage India and business opportunities

Indias cost and talent pool advantage is well established

University graduates in Science/Engineering every year in 2002-04
800 000 graduates 475 525 690

India with 28% has the largest share of the

global talent pool

While China with around 11% stands next, the

use of English as the official business language gives India a significant edge

425 400 350

India also continues to hold a significant labor

0 Japan United States European Union China India

advantage over developed countries thus offering significant cost saving opportunties by off shoring

Hourly Labour Costs index (US=100)

India lead among potential outsourcing

116

140 105 70 35 0 India China US UK 12 19 100 111

destinations as per the A T. Kearney Global Services Location Index 2005

Japan

Source: McKinsey Report, The Emerging Labour Market, June 2005

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Advantage India and business opportunities

Rising FDI and PE are indicative of Indias advantage and global interest
42 31

INR Bn

FDI in IT-ITES
CAGR 178.6%
5.4

2003

2004 FDI in IT-ITES

2005

Sector IT -ITES Manufacturing Healthcare and Life Sciences BFSI Textiles

Number of Deals 33 23 13 6 12

Value (INR Bn) 19.9 15.4 9 6.6 6.5

Private Equity in IT -ITES

Source: NASSCOM

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Advantage India and business opportunities

Indias IT exports to touch US$ 60 billion by 2010

Global IT-ITES spending to cross USD 1198 billion
by 2010
Current size and Addressable market
160
Untapped potential

The addressable market for offshore IT services

USD Billion

and BPO industry is estimated at be USD 150-180 billion and USD 120-150 billion respectively

120

With USD 13 billion, India has less than 10% of the

current addressable market

80

150

India expected to be well on track to achieve USD

60 billion by 2010.

40

6.4 13
Current size
India

Addressable Market
Others

Source: Nasscom. The IT Industry in India - Strategic Review 2006

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Advantage India and business opportunities

Indias IT spending is providing significant opportunities

Indias domestic market is also set to grow substantially, having grown at a CAGR
of 22% over the last three years

Indias spending on software and services has grown at a CAGR of 27% Large Indian corporates have already begun to outsource their entire IT activities A number of large outsourcing deals have been stuck in the domestic market in the recent past,
with the Banking and Financial Services Space and Telecom being the noteable sectors.

India will be the fastest growing market in Asia Pacific in terms of IT spending Servers shipments are expected to cross 100,000 during 2006 Outsourcing Services to outgrow Technology Product Services in 2006 and would contribute
to nearly of 24% of Indian IT Services market

Excerpts from India Top 10 ICT Market Predictions 2006

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Advantage India and business opportunities

Indias tier 1 companies

Tata Consultancy Services Ltd. Ranked 1 in 2005 by NASSCOM Incorporated - 1968 Revenues - USD 2.97 Bn 71,000 employees

Wipro Technologies Ltd. Ranked 3 in 2005 by NASSCOM Incorporated - 1997 Revenues - USD 1.81 Bn over 50,000 employees

Infosys Technologies Ltd. Ranked 2 in 2005 by NASSCOM Incorporated - 1991 Revenues - USD 2.04 Bn 52,700 employees

Satyam Computer Services Ltd. Ranked 4 in 2005 by NASSCOM Incorporated - 1987 Revenues - USD 0.72 Bn 24,798 employees

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