Tech firms see growth in 2005 as outsourcing row wanes

Tuesday, 28 December 2004, 08:00 Hrs
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MUMBAI: India's booming information and communications technology (ICT) sector began 2004 on a cautious note with simmering outsourcing backlash and concerns over creaky infrastructure threatening to derail the growth pace.

But as the high profile sector logs out of the year, analysts and industry experts are unanimous that 2005 will bring in more cheer and less gloom as technology spends both within the country and outside rise rapidly.

With the protest in the West against the shipping of tech jobs to low cost economies on a waning path, more number of local companies are likely to reap the benefits of providing services to overseas clients, say experts.

Along with the boom in outsourcing business, the domestic telecom market is also set to witness blistering growth, especially in the mobile segment, in 2005 as falling prices add more people into the hi-tech communications loop.

India Inc is likely to increase its spending on information and communications technology (ICT) by over 16 percent in 2005 to $22.88 billion, says an industry research firm.

India, Asia's fourth-largest economy, will remain among the biggest growth markets for the telecom sector in 2005 with an addition of 35 million new subscribers - a growth of 18 percent over 2004, according to Gartner.

"Enterprise spending on ICT in India is expected to grow at 16.6 percent to $22.88 billion as compared to Asia Pacific growth at 7.6 percent in 2005," said Sujay Chohan, vice president and research director of Gartner India.

"For vendors the stakes couldn't be higher. Vendors, who have long ignored the local market, cannot afford to miss this transition," Chohan added.

Of the $22.88 billion estimated spending in 2005, $3.34 billion is likely to be incurred on hardware, representing an increase of 21.1 percent over 2004, $16.7 billion on telecom and $2.32 billion on IT Services, experts said.

According to Gartner, projected users of telecom services in India will account for almost one fourth of the new subscribers forecasted in Asia Pacific.

The research firm said open source and offshore IT services would continue to grow, with confidence growing in government circles about the capabilities of open source software.

"We believe 60 percent of large and mid-size government agencies in Asia Pacific will use open source software for applications in their core business processes by 2010," said Chohan.

"That compares with less than 15 percent today," he said. The agency, however, warned IT vendors to take competition from China seriously with at least three Chinese IT companies set to become significant global competitors by 2010.

Gartner predicted a dramatic uptake in global outsourcing of IT services in the coming years.

"When compared with the total IT services market, less than three percent of spending is attributable to outsourced services in 2004," said Chohan.

"By 2007, the globally sourced component of IT services spending will be about $50 billion, or seven percent of the total IT services," he added.

On the downside, however, experts warn if India does not improve its physical infrastructure, it would lag behind its competitors in the ICT sector.

"We need to focus on air connectivity, power and roads. Unless we improve this we may lag behind our competitors," said Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom), told reporters.

Karnik said while India was doing well and IT exports this fiscal year were likely to touch $16 billion, the infrastructure remained a bottleneck.

Referring to the increased competition from the Philippines, China, Russia and Eastern Europe, he said these countries were improving the infrastructure to attract more IT players.

The year 2004 started on a cautious note with protest against outsourcing of jobs gaining momentum in the US, India's prime software export destination, ahead of the high-stakes presidential election.

The Indian IT sector heaved a sigh of relief in November on re-election of US President George W. Bush for the second term, saying political opposition to outsourcing in the US would now die down on its own.

Investors see Bush's victory as a positive sign for the Indian businesses and especially for scores of technology companies that handle the back office operations for big US corporations.

Outsourcing and loss of American jobs had been hot-button issues in the US presidential election that was held Nov 2.

Democratic presidential candidate John Kerry, who had made off-shoring of US jobs overseas a key election campaign topic, had said he wanted to plug loopholes that gave American firms incentives to ship jobs out of the country.

In a major development in the telecom sector in 2004, the numbers of mobile phone subscribers in India exceeded the fixed-line users at the end of October.

At the end of last month, the mobile phone users base swelled to 44.51 million as compared to 43.96 million fixed-line users, said the Telecom Regulatory Authority of India (TRAI).

Industry analysts attribute the mobile boom to a growing economy, a strong middle-class and the increasing affordability of phones.

A sharp plunge in the price of handsets has also fuelled stronger growth. A basic handset is available for 3,000 ($60) today, down from 12,000 ($250) until recently.

With a million users being added to the mobile telephony market every month, 2005 may also see some handset manufacturers also set up shop in the country - Alcatel and Nokia among the global players evincing interest in the area.

Source: IANS
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