Information and Communication Technology

Transcription

1 Information Technology (IT) Robust growth of Indian IT companies The robust growth achieved by the top 6 Indian IT services companies, namely, Satyam, Wipro, Infosys, TCS, Cognizant and HCL Technologies (referred to as SWITCH) over the last five years have caught international attention. According to a study by research firm Gartner, in the year 2006, the SWITCH companies, have increased their global market share to 1.9 per cent of the total $672 billion IT services market from a mere of 0.5 per cent of the $554 billion market in V Information and Communication Technology Ranking Year 2006 Table 5.1: Top 10 Global IT Services Companies Ranking Year 2001 Name of the Company Market Share In Year 2006 (per cent) 1 1 IBM EDS Fujitsu Accenture NA HP CSC Lockheed Martin NA Capgemini ADP NA Northrop Grumman 1.30 Total market share of Top 10 companies worldwide is TCS Infosys Wipro Cognizant Satyam HCL Tech 0.20 Total market share of Top 6 Indian companies is 1.90 Notes: NA Not available As a result, in the year 2006, the Source: Gartner. ranking positions of the top 6 Indian IT companies were within the top 100, spanning from 35 to 86. In 2001, the ranking positions of these 6 firms spanned from 68 to 212. As indicated in Table 5.1, the total market share of the top-10 global firms is 26 per cent while India s top 6 companies market share is relatively low at around 1.9 per cent. However, the average annual growth rate of the SWITCH companies was around 42 per cent in 2006, compared to a 4.3 per cent growth of the market leader during the same period. For instance, the global number one IT services company, IBM s total revenue stood at $48 billion (7.2 per cent market share), although, its year-on-year growth (in dollar terms) was less than $1 billion. On the other hand, the aggregate revenue of TCS in 2006 increased by over $1.2 billion in spite of a low revenue base of 1/8 th of IBM s size. The Indian firm that improved its market share most was Cognizant. It moved from 212 th rank in 2001 to 73 rd rank in

2 According to Gartner, despite relatively small in size, Indian IT firms are making significant strides to challenge the market leaders positions by continuing to show strong annual revenue growth far exceeding the market norm. Over the next five years, the Indian software sector is projected to double its revenue to $86 billion and generate 10 million new jobs. The research report has predicted that at least two of the Indian IT firms would be in the global top 10 by Emerging BPO Destinations Table 5.2: Top 10 Emerging BPO Hubs Five Indian cities feature among the top 10 Rank City Name Country 1 Chennai India emerging destinations worldwide for outsourcing of IT and 2 Hyderabad India business processes. Chennai, Hyderabad, Pune, Kolkata 3 Pune India 4 Cebu City Philippines and Chandigarh were rated among the top five emerging 5 Kolkata India 6 Ho Chi Minh City Vietnam destinations worldwide in the latest ranking of top 50 7 Colombo Sri Lanka 8 Shanghai China promising outsourcing cities around the globe, according 9 Chandigarh India 10 Beijing China to a study by services globalization and investment Source: Tholons. advisory firm Tholons and media group Global Services. The study ranked Chennai as the top most emerging hub for outsourcing globally, with established expertise in application development and maintenance, finance and accounting, product development, engineering services and testing. Hyderabad was ranked second in the list with relatively low property rentals and favourable government policies, recently attracted investments from BPO majors such as HCL, EXL Services and Genpact. Pune gained prominence among outsourcing hubs owing to lower operating costs and attrition rates compared to other metro cities. Coimbatore has been ranked at 21 st position in the list of 50 emerging BPO destinations around the globe. The study lists Bangalore, New Delhi NCR, Manila NCR (Philippines), Mumbai and Dublin as the top 5 cities that have established themselves as prime outsourcing cities by servicing the global corporate world for over a decade. In the recent past, the rising rupee along with wage inflation and increased taxation concerns has started to show their impact on the Indian ITeS and BPO industry. Moreover, the 38

3 rupee appreciation impacts BPO companies more than it does IT companies as a bulk of expenses for BPO companies remains in India; while software export companies have some expenses in dollar terms. However, the ITeS and BPO companies expect to gain from the US Fed s larger than expected 0.5 per cent cut in the benchmark interest rate. BPO firms believe that it will boost the US economy, thus bringing in more business for the ITeS and BPO companies. IT firms expanding its base Indian IT companies are on an expansion overdrive in the Baltic Sea Region (BSR). The region has close proximity to major European Union members and Russia, as well as the presence of many telecom giants and handset manufacturers. Several Indian IT companies, namely, TCS, Infosys, Wipro, Mindtree Consulting, Infotech and Sasken which have started their operations in this region with a small base, are now expanding their base rapidly, both organically and inorganically. For instance, Wipro opened its first software development centre in Finland in In June 2006, the company acquired Saraware Oy for $35.2 million (around Rs 145 crore). Today, Wipro has about 300 employees in Finland. Acquisitions Mumbai-based BPO Firstsource Solutions Ltd had acquired MedAssist Holding Inc of the US for $330 million. The acquisition is the largest in the BPO sphere so far. Earlier this month, Infosys BPO acquired Philips BPO centres under a multi year outsourcing contract worth $250 million. MedAssist provides revenue-cycle management to the US healthcare industry. The company s revenue has been $99 million for the year ended December 31, 2006 and has employed about 1,400 people in the US. Hero Group has acquired Scotland s biggest call centre firm Telecom Service Centers (TSC) for an estimated $81 million. Following the deal, TSC, which has more than 3,000 employees, will be merged with Hero ITeS a call centre subsidiary of Hero Group. The new entity will be known as TSC Hero. 39

4 KPO Expansion India may become home to 65 per cent of the knowledge processing outsourcing (KPO) professionals in the world by However, if the high attrition rate continues unabated, other low-cost destinations such as China, Poland, Philippines and Russia might get a larger share of the global KPO market in a few years. As per a recent study by Evalueserve, the Indian KPO market will grow to $11.2 million to employ 2,55,000 professionals by 2011, against the global industry which is expected to grow to $16.7 billion, employing 3,50,000 professionals. At present, KPO in India is a $3.05 billion industry employing 75,400 people. Fab Policy Norms In a bid to attract investments worth billions of dollars and put India on the global semiconductor map, the central government has issued guidelines for the special incentive package to set up semi-conductor fabrication and other micro and nano-technology industries in India, which will enable companies to roll out their investment plans. The guidelines define the fab unit, eco-system unit, state-of-the-art technology, net present value (NPV), financial closure, capital expenditure and threshold limit for companies to apply for the special incentive package. The companies would now have the choice to decide whether they want incentive in the form of equity participation or capital subsidy in the form of investment grant and interest subsidy. Under the package, a company investing a minimum of $550 million for a fab unit and $220 million for other products such as micro and nanotechnology products, would be eligible for government incentives up to 20 per cent of the capital expenditure during the first 10 years if the unit is located in SEZ and 25 per cent if it is located outside SEZ. Investors will have to submit proposals with a feasibility report, to an appraisal committee after paying a nonrefundable application fee of Rs 25 lakh. Only technologically sound projects would be eligible for the package. Companies such as Videocon, SemIndia and Hindustan Semiconductor have announced plans to set up fab units in India and have been awaiting the guidelines. The guidelines, which operationalise the policy, comes days after the world s largest chipmaker, Intel, blamed government delays for its decision to overlook India for setting up a chip manufacturing unit. 40

5 Fab companies moving to Tier-II cities The Indian IT industry is witnessing second round of migration to Tier-II cities. After the IT, ITeS, BPO, KPO and IT, MNC companies moved out of Tier-I cities (Bangalore, Hyderabad, Mumbai) and now it is the turn of semiconductor companies to follow suit. Unlike IT companies, which require a large workforce, an average semiconductor design firm needs 150 engineers. However, finding the right talent in Tier-I cities has become a difficult task, considering the attrition rate and rising salaries. The choice of semiconductor companies stretches from Manipal in coastal Karnataka, Mysore, Goa, Coimbatore in Tamil Nadu to Ahemdabad. For instance, embedded systems solutions provider einfochips has chosen Ahmedabad as its location, employing 600 engineers. The India Semiconductor Association (ISA) expects more companies to set up operations in Tier-II cities. Expansion Consulting and outsourcing major Accenture which at present has 35,000 employees in India is planning to further scale up the operations in India by bringing its entire gamut of global services into the country as well as hiring more people here. Telecommunication Telecom Subscribers As per the latest report of Telecom Regulatory Authority of India (TRAI), the subscriber base for telephony services continued to maintain its growth during August with around 8.31 million new mobile subscribers being added. This is the highest ever growth in any single calendar month. According to industry experts, August s growth in subscriber numbers is a global record. 41

6 Category March 2006 August 2006 Table 5.3: Growth of Fixed and Mobile Phones (in million) Additions during April-August 2006 March July August Additions during August Additions during April-August Mobile Fixed Total Source: TRAI ( The gross subscribers base consisting of fixed and mobile users has touched million at the end of August as against million subscribers in July. As a result, in the month of August, the telecom sector has attained an overall tele-density of around per cent as compared to per cent at the end of June. Of the gross subscriber s base, mobile subscribers (GSM, CDMA & WLL (F)) have accounted for million and fixed line subscribers for about million at the end of August. The net addition to mobile and fixed line subscribers in the first four months (April August) of the current financial year has been million as compared to million in the corresponding period of Fixed Line Subscribers The fixed phone subscribers have registered a negative growth of 0.16 million in August. The fixed phone subscriber base has reached million at the end of August as against subscribers in August Internet Services and Broadband Growth During August approximately 90,000 additional broadband connections have been provided taking the total broadband connections in the country to 2.56 million as against 2.34 million in March. 42

7 Vodafone in India Vodafone Essar has decided to launch Vodafone brand in India from September 21, onwards. The brand Hutch will be transitioned to Vodafone across India. The brand change has been unveiled nationally through a high profile campaign covering all important media. Vodafone Essar added 1.68 million users in the month of August, thus taking its total subscriber base to million from million in July. Airtel Bharti Airtel has become the 10 th largest telecom company in the world with a total subscriber base crossing 50 million, including wireline and broadband users. According to data compiled by telecom regulator TRAI, Bharti Airtel accounted for 20.3 per cent market share at the end of August. With this, the company has achieved the distinction of becoming the fastest private telecom company in the world to achieve this landmark in a single country within 143 months of start of operations. Airtel has added the last 25 million users in just 14 months. The company is now targeting to reach the 100-million mark, which it expects in the next two years considering that it is adding 2 million subscribers every month. Recently, the company has received the licence to launch direct-to-home (DTH) services in the country. In the first phase, the company will be investing around Rs 150 crore on infrastructure for which it has chosen Tendberg Television, a subsidiary of Swedish telecom equipment major Ericsson. Re-entry The world s third-largest mobile operator by subscriber base, AT&T of the US, is all set to re-enter the rapidly growing Indian telecom market, subject to new guidelines being framed by the Department of Telecommunications. The company had applied for a unified access service licence (UASL) for 22 circles across the country. AT&T will be partnering the Mahindra group. AT&T exited the Indian mobile services market in July 2005, when it sold its equity in Idea to the Tata and Aditya Birla groups. 43

8 Investment Betting big on the buoyant telecom sector in India, Quipo Infrastructure Equipment will invest Rs 6,750 crore over the next 2 to 3 years to set up nearly 25,000 telecom towers across the country. The company, promoted by infrastructure leasing firm SREI, will make the investment through its telecom subsidiary Quipo Telecom Infrastructure. The company will be setting up new towers primarily in Tier-II cities and has tied up will all major service providers to lease the towers. Refund for DTH equipment TRAI has issued regulations pertaining to the quality of service issues so that interests of DTH subscribers could be protected and the new operators gear up their operations from the very beginning. As per the regulations, the DTH operator will have to formulate schemes to offer the set top box (STB) to its subscribers on outright purchase, hire-purchase and rental basis. TRAI may also prescribe suitable schemes in this regard in future, if necessary. The regulation comes into effect from December 1,. The operator, while formulating scheme for hire-purchase, will make provisions for refund to be given to subscribers if they choose to return the STB. Now, the country s 3.2 million DTH subscribers will be able to ask for refunds on the STB and antenna if they choose to discontinue the service. This is one of the several key directives issued by TRAI to ensure subscribers quality of service. The move to refund subscribers money is likely to increase the financial burden on DTH companies, which already provide a subsidy of Rs 700 1,500 per set top box to its subscribers. FDI cap TRAI has suggested a uniform 74 per cent FDI cap for DTH, cable TV and internetprotocol-television (IPTV) services, in line with the foreign investment cap for telecom services. According to the regulator, since major telecom companies provide several of these services, the FDI levels should be harmonised. 44