Indian IT Industry:A Billion Opportunities Now
Date: Thursday , June 01, 2006
The information technology industry in India has taken center stage on the global platform and is poised towards a period of new growth opportunities. As the global IT opportunity increases from its current size of more than half a trillion dollars, Indian IT industry with its mature processes and robust business models is well placed to take a bigger share of the market. The industry has been able to handle both the growth as well as the scale. This is clear from the fact that while the industry has grown over 200 times in less than 15 years, the five pioneers of the industry still enjoy a leadership position in IT services.
Much of this growth has been possible because of the vision and courage of pioneer companies but forces of economic change have played their part as well. It is helpful to remember that rapid economic growth across the globe is a relatively recent phenomenon.
Between 1 AD and 1000 AD there was little change in global wealth. It took an Industrial Revolution that culminated in the middle of 19th century to put the world on a path of high growth. Between 1900 and 2004 the global wealth increased from $1.9 trillion to $41 trillion. This pace has only accelerated in the recent times with the availability of more computing power, better telecommunication networks and the birth of the World Wide Web.
Over the last decade, three characteristics have tended to define the global economy. The economic wealth creation has increased quickly at approximately 4.2 percent every year. In comparison, the services sector of the global economy has increased at relatively faster rate at 6.2 percent every year. The fastest growth, however, has been in global trade, which has increased 7 percent every year over the last decade. Today more than half the world’s wealth is traded with trade as a proportion of global GDP at 54 percent.
These three forces have come about in exactly the same time period when Indian IT industry too has experienced a very rapid growth. It has definitely benefited from the increase in quantum of global trade and an expansion of the share of services in the global economy. Another factor that has helped the Indian IT industry is the rapid cycle of innovation and commoditization in various products and services throughout the world. A prime example of this is the mobile phone. It was developed in the West but manufacturing hubs and large consumer bases in Asia helped bring the prices of the handset as well as the service to extremely affordable levels. Today, cellular service in India and other parts of Asia is perhaps the cheapest in the world. Similar examples abound in products such as DVD players and Internet services.
A similar thing is also happening in software technology services. While software products such as enterprise resource planning and financial applications have been developed in U.S. and Europe, the cost of customizing, deploying and maintaining them has come down remarkably thanks to high-quality cost-effective service delivery locations such as India.
This trend will only grow, aided in good measure by today’s knowledge economy that will bring an ever larger numbers of innovations to the market. This is in continuation of the trend that started in the 20th century. Most of global wealth as we see it today – computers, telecom, automobiles, and heavy engineering – was produced by inventions that came about in the 20th century itself. We can therefore safely conclude that with the world becoming more connected and conducive to a seamless flow of ideas, capital and people across geographies the 21st century will see more inventions and a much larger growth in global wealth relative to the last century.
India will have to use these trends to its advantage. All companies in the industry have done a very good job so far and now they need to invest more in collaborative models of organization. This will only enhance industry’s productivity. The large number of global IT companies now operating from India should not be viewed from a zero-sum-game perspective. There are plenty of opportunities for the Indian and the global companies to collaborate on complex engagements and learn from the best practices of each other. And if one considers that less than 10 percent of Global 500 IT spending is offshored and large regions like Europe and Asia have offshored relatively little as yet then the opportunity is so vast for all of us that the industry can only be constrained by its own capabilities and not by external forces.
The Indian IT industry is operating in a global market place where capital and manpower can move freely and hence it has to see global sourcing as strategic. Wherever we get an optimal mix of high-quality and appropriate costs it should be able to extend our delivery model to that geography. Having said this, the industry has to focus on some key issues.
The most important issue is that of innovation. When one says innovation it is usually thought of in the technological or product paradigm. Equally important, if not more, is the innovation in management systems, structure, processes and frameworks. Today, customers tell us their business problems and expect us to come up with innovative solutions. This is not business as usual and requires a mindset shift. Having established a cost-leadership the industry now needs to turn its attention to ingenious solutions. Almost all leaders in the industry realize this.
Another critical challenge for the Indian IT industry is improving the quality of manpower that it hires at the entry-level. The IT industry is one of few industries where a person fresh out of college has to start working on critical assignments from the beginning. The economics of IT industry are such that the more industry-ready the candidate, higher the productivity of the company and by extension, the industry. Unlike other industries the knowledge and the skill requirement in the IT industry are in constant flux. This makes the task of getting industry-ready manpower even more challenging.
The industry has to simultaneously address the issue of a manpower shortage in engineering talent. India produces more than half a million engineers every year. Much of this talent makes its way to the IT industry but now with the Indian Economy in full-steam other sectors too are beginning to attract engineering talent. We will have to find a way of augmenting capacity in engineering institutions without sacrificing the quality. This is a slightly more involved issue and one we will have to find an effective solution by carefully thinking through all the aspects.
The one issue that goes beyond the industry is physical infrastructure–roads, ports, power, and planned townships. One hopes that with the government regulations in place, the infrastructure sector will attract capital and the projects will be quickly executed over the next few years. The country will have to move at measured but rapid pace to bridge the demand-supply gap in power, build modern townships that offer a high quality of life and decongest the airports. This task may appear daunting but a combination of strong political will, flow of global capital into the country and India’s technical expertise makes it very achievable.
In conclusion one can say that all the challenges before the industry are surmountable given the number of hurdles the industry has crossed on the way. The future of the industry remains very bright.
Ramalinga Raju is the Chairman of Satyam Computer Services, India's fourth largest IT services company.