Computer Software / Services and ITeS Exports

Computer Software / Services and ITeS Exports

Computer Software / Services and ITeS Exports OVERVIEW In recent times, Software development and information technology enabled services (ITeS) including business process outsourcing (BPO)/ knowledge process outsourcing services (KPO) industry in India has emerged as one of the most dynamic and vibrant sectors in India's economy. With a small beginning in early 80s, it has now grown into a broad based comprehensive industry. The government of India has announced promotion of IT as one of the top priorities of the country. India has embarked on a policy agenda, which aims to restructure its economy with enhanced global participation. The foreign Director Investment (FDI) to supplement domestic investment for achieving a quantum jump in growth rate is now an integral part of Government of India policy initiatives imparting greater transparency to business procedures and integration with the global market place are seen as the hallmark of new industrial, trade and fiscal policies. Today, India's competence in IT, more significantly in computer software and information technology enabled services recognized globally. Indian IT firms and IT processionals have won world-wide recognition in terms of their technical competence, domain knowledge, experience and expertise for offering quality IT services, and their exposure to working on various platforms and systems. PRESENCE OF GLOBAL IT PLAYERS IN INDIA There are a large number of multi-national IT enterprises operating in India in sectors such as: Integrated Chip Design, System software, communication software, R&D Centres, Technology Support sector, captive support sector, BPO Sector etc reaping the cost and quality advantages. These multinational include Siemens/Philips, Intel, Texas Instruments etc. (Chip Design); Siemens, Motorola, Lucent Technologies, Sony, Nortel etc. (Communication Software); Google, Yahoo etc. (R&D Centres); Axa Business Services, Swiss Shared Services, Siemens Shared Services etc. (BPO Sector); Accenture, DELL, HSBC, GE Capital, Fidelity (Captive Support Sector), Hewlett Packard, IBM, CISCO, Oracle, Microsoft, SAP, NOKIA, Vodafone etc. 035

SPECTRUM OF IT SERVICES/ ITES FROM INDIA India has already established her brand equity in the global IT market. Indian IT software and services firms offer software product/packages; a wide spectrum of IT services including system management and maintenance, consultancy services, system integration, chip design, E-Governance, E-Commerce, IT enabled services covering banking/financial /insurance sector. Their IT enabled services also include CAD/CAM Multimedia, animation work, BPO (Business Process Outsourcing) assignments, Call centre related assignments, as well as Knowledge Process Outsourcing (KPO) / Legal process Outsourcing (LPO), medical lab, diagnostic and dental services, medical transcription services, e-publishing data conversion or digitization, type-setting, copy editing, content and design, graphics etc. The software industry is not only growing exponentially, it is moving up the value chain. It is evolving, from the initial staffing to software development - where it is currently the world's major supplier of engineers - to integration and IT business consulting. STRENGTHS OF INDIAN IT INDUSTRY One of the largest pool of technically qualified high class IT manpower Enormous skilled human resource compared to developed countries leading to lower manpower cost nearly one tenth of those in developed nations, thus giving India a comparative advantage. Offers a wide range of services from support / data processing to sophisticated software systems etc. Rich experience of working with large global companies and enjoy high credibility Expertise on a wide variety of platforms Accommodating nature of Indian IT workforce QUALITY OF INDIAN IT EXPERTISE Today the world recognises India as a source of high quality IT manpower. Over 75 percent of world wide SEI CMM level 5 certified companies are Indian. The Capability Maturity Model (CMM) for Software describes the principles and practices underlying software process maturity and is intended to help software organizations improve the maturity of their software processes in terms of an evolutionary path from ad hoc, chaotic processes to mature, disciplined software processes. Over 300 Indian computer software and services have already obtained ISO 9000 or CMM level 2 certification. It is because of this high quality of Indian IT sector that the majority of multinational companies in IT have either their software development or research center in India. One third of the e-commerce start-ups 036

in the Silicon Valley continue to be lead by Indian. Over half of the Fortune 500 companies are outsourcing their software requirements to India. High quality of IT services has put Indian companies in worlds Top 100 Outsourcing companies such as Infosys, Wipro Technologies, Tata Consultancy Services, ACS Genpact, Neusoft, HCL, Igate, Mindtree, Tech Mahindra, Mastek, ITC, HCL Technologies, Zensar Technologies, Patni computers MANPOWER EMPLOYED AND EDUCATIONAL INSTITUTIONS Software is a knowledge driven industry. It requires a team of highly skilled professionals for its success. Today, the Indian IT Services and ITES sector employs over 25 lakh knowledge professionals. Almost all major IT players in the world have set up subsidiaries or collaborations in India. The major attraction being an "abundance of technically qualified and cheap software manpower". This may have been the case before the start of the growth phase, but now there is, in fact, an acute shortage of qualified and trained manpower. This is getting reflected in the spiraling salaries (one of the highest average starting salary today), and more importantly, a frequent job-hopping culture. India, today have 7 Indian Institute of Technologies (IITs) and over 300 other Regional Engineering colleges / private colleges imparting IT education. As per a study approximately 5,00,000 people are needed every year to meet the growth targets of the software industry. However, the total production from education and training institutions today is only about a third of this. PRODUCTION Production of Computer Software and Services during the year 2010-11 is estimated to be Rs. 341200 crore (US$ 74.89 billion) registering a growth of 11 percent (15 percent in US$ terms) over the year 2009-10 when the total production of Computer software / Services was estimated to be Rs. 308150 crore (US$64.95 billion). Production of Computer Software / Services has been growing at an annual average growth rate of 20.44 percent ( 19.75 percent in US$ terms) during the past five years. 357000 306000 255000 204000 153000 102000 COMPUTER SOFTWARE / SERVICES PRODUCTION 2005-06 TO 2010-11 51000 134600 183000 222010 42312 55144 30404 285064 308150 341200 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 US$ MLN. 61984 64956 RS. CR. 74890 037

SHARE IN GDP Computer Software / Services production accounts for a share of 4.33 percent in India's GDP at current prices during the year 2010-11. DOMESTIC SOFTWARE AND SERVICES INDUSTRY. During the year 2010-11 India's domestic computer software / services market is estimated to be Rs. 78700 crore (US$ 17274 million) registering a growth of 18.88 percent ( 23.79 percent in US$ terms) over the year 2009-10 when the domestic software / services industry was estimated at Rs. 66200 crore (US$ 13954 million). Share of Export & Domestic Segments in Computer Software / Services Production SEGMENT Export Export Growth in 2010-11 2009-10 2010-11Over 2009-10 (%age) US$ MLN. RS. CR. US$ MLN. RS. CR. US$ MLN.RS. CR. Software 57616 262500 51001 241950 12.97 8.49 for export Domestic 17274 78700 13954 66200 23.79 18.88 TOTAL 74890 341200 64956 308150 15.29 10.73 1 US$ = Rs. 45.56 47.44 EXPORT OF COMPUTER SOFTWARE / SERVICES INCLUDING ITES / BPO Out of the total production of computer software / services 76.93 percent is exported and only 23.07 percent is consumed by the domestic market. 81 80 79 78.05 78 78.01 77 76 75 Export of Computer Software / Services (including ITES / BPO) registered a growth of 8.49 percent (12.97 percent in US$ terms) during the year 2010-11 over the year 2009-10. In value terms, export of this sector during 2010-11 is estimated to be Rs. 262500 crore (US$ 57.61 billion) up from Rs. 241950 crore ( US$ 51 billion) estimated in the year 2009-10. GROWTH IN EXPORTS OF COMPUTER SOFTWARE & SERVICES (INCLUDING ITES) 2005-2006 TO 2010-2011 270000 225000 180000 135000 90000 45000 0 GROWTH IN %AGE SHARE OF EXPORT IN PRODUCTION OF SOFTWARE / SERVICES 2004-2005 TO 2010-11 105000 23718 79.78 146000 33757 2005-06 2006-07 2007-08 2008-09 2009-2010 2010-11 US$ Mln. 78.83 175000 79.92 227834 43467 49540 51001 57616 Rs. Cr. 78.52 241950 76.93 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 % age share 262500 Annual Growth rate during 2005-06 to 2010-11 : Rupee term = 20.11% US$ term = 19.42 % 038

EXPORT OF IT SOFTWARE / SERVICES Export of IT Software / Services estimated at Rs. 187000 crore (US$ 41.04 billion) during 2010-11 registered a growth of 7.75 percent (12.2 percent in US$ terms) over the year 2009-10 when the export of IT software and services was estimated at Rs. 173550 crore (US$ 36.58 billion). During the year 2010-11, export of ITES/BPO registered a growth of 10.38 percent (14.93 percent in US$ terms) over the year 2009-10. In value terms, export of ITES/BPO is estimated to be Rs. 75500 crore (US$ 16.57 billion) up from Rs. 68400 crore (US$ 14.41 billion) estimated in the year 2009-10. GROWTH IN EXPORTS OF IT-ENABLED SERVICES 2006-07 TO 2010-2011 ITES / BPO EXPORT 80000 70000 63006 68400 75500 India today with its English speaking skilled manpower, high quality of services, very high productivity and a conducive policy environment with strong government support is the most preferred destination for ITES. India is a popular choice for customers seeking outsourced services because it is able to offer a 24X7 service and reduction in turnaround times by leveraging time zone differences. While customers are initially attracted by low costs, they stay on and expand because of the quality and productivity that India offers. India will remain a popular offshore Country. Outsourcing to India is turning out to be a blessing for the top companies. India' s edge in quality and cost benefit is what is drawing organizations towards her. The level of excellence India has attained in this field has not come overnight. Government policies, infrastructure, large number of people who can speak fluent English, who can adapt to western accents, have all played a pivotal role in India's success. 60000 50000 40000 30000 20000 10000 0 41000 9480 12295 49500 US$ Mln. 13700 Export of Computer Software / Services & IT-enabled Services Export 2010-11 SEGMENT Export Export Growth in 2010-11 2009-10 2010-11Over 2009-10(%age) US$ MLN. RS. CR. US$ MLN. RS. CR. US$ MLN.RS. CR. Computer 41045 187000 36583 173550 12.20 7.75 Software & Services ITES 16572 75500 14418 68400 14.93 10.38 TOTAL 57616 262500 51001 241950 12.97 8.49 1 US$=Rs. 45.56 47.44 14418 2006-07 2007-08 2008-09 2009-10 2010-11 Rs. Cr. 16572 039

INDIA'S ITES-BPO SUPPORTING OTHER LANGUAGES. The Indian BPO industry is now tapping global markets. After acquiring businesses from major English-speaking markets, especially Britain and the US, the Indian BPO companies are now looking towards non-english speaking markets to tap their potential in these unexplored terrains. A large number of companies from non- English speaking European countries too are eyeing the Indian BPO industry for outsourcing their work, leading to a spur in the demand for persons proficient in foreign languages. Today all the major ITES-BPO companies are offering multi language support and thus expanding the horizon of their services to the global markets. INDIA THE MOST PREFERRED ITES-BPO DESTINATION 040 Two million students graduate each year Strong domestic IT services industry to support IT led BPO. Largest SEI CMM companies worldwide US will continue to be the source of major business opportunities in ITES, followed by Europe. However, Asia Pacific is expected to the region with maximum growth potential. Major verticals, which are expected to grow substantially, include finance and accounting, sales and marketing, logistics, purchasing, administration and legal services. The growth Indian ITES market has shown that it has immense potential for sustained employment generation. The ITES segment, which employed about 40,000 people in late 1990s, presently employs more than 25,00,000 people. Job creation in the ITES sector has a multiplier effect on employment generation in the economy. Since a single job created directly in ITES segment results in additional three jobs indirectly in the related services such as security, transport and catering etc, the ITES segment has the potential 122,000 Engineers every year to create at least 3.1 million jobs by 2013. English speaking and IT savvy Cost reduction upto 50 per cent Wage Differential. Lower Infrastructure Costs INDIA'S SHARE IN WORLD SOFTWARE / SERVICES MARKET Favourable time lag: 12 hours with US & 5 World software and services market is hours with Europe dominated by USA with the share of 39 Overnight turnarounds possible. percent followed by Japan with the share of 12 Resources with experience of industrial, financial and legal systems similar to the west. percent. World total Software / Services market during the year 2010-11 is estimated to be US$ 960 billion. India's share in the world market

during the year 2010-11 is estimated to be 7.8 percent as compared to 6.83 percent estimated in the year 2009-10. GROWTH IN NUMBER OF COUNTRIES FOR INDIA'S COMPUTER SOFTWARE/ SERVICES EXPORT 2002-03 TO 2010-11 WORLD MARKET OF COMPUTER SOFTWARE / SERVICES : 2010-11 Total estimated world market = US$ 960 billion 190 180 170 182 165 7.8 1.2 39 160 150 140 130 133 122 133 146 125 154 145 120 34 110 100 2002-032003-04 2004-052005-06 2006-07 2007-08 2008-09 2009-10 2010-11 6 12 USA (39%) JAPAN (12%) CHINA (6%) EUROPE (34%) INDIA (7.8%) OTHERS (1.2%) NUMBER OF COUNTRIES OF EXPORT The preference of India as a preferred IT destination for software outsourcing and ITES / BPO is revealed from the total number of countries to which India is exporting its software and services. On an average India has been exporting Computer Software / Services to over 147 countries in the past five years. During the year 2010-11 India Exported Computer Software / Services to 145 countries of the world MAJOR COUNTRIES OF EXPORT USA remains the top destination for India's export of Computer software / services during the year 2010-11 as well. USA accounts for a share of over 51.63 percent in India's total export of computer software / services. In value terms, export of software / services to USA during the year 2010-11 is estimated to be Rs. 135522 crore (US$ 29.74 billion) as compared to Rs. 133094 crore (US$ 28 billion) estimated in the year 2009-10. Percentage share of USA has come down from 55 percent in 2009-10 to 51.63 percent in 2010-11. Percentage share of export to UK has increased from 12.11 percent in 2009-10 to 21.44 percent in 2010-11. UK remains the 2nd top destination for India's export of computer software / services during the year 2010-11 as well. Canada has emerged as the top 3rd destination followed by Germany and 041

Netherlands. The other major countries of export for India's software export are Australia, Finland, Mauritius, Singapore and Japan. Together, the top 10 countries accounts for MAJOR DESTINATIONS FOR SOFTWARE AND SERVICES EXPORTS DURING 2010-11 87.64 percent of India's total software and North America remains the top destination for services export. The share of top 10 countries India's Computer Software / Services Export has increased from 86.89% in 2009-10. The during 2010-11 as well. Export to this region remaining 135 countries accounts for a share registered a growth of 7.46% (11.89% in US$ of 12.36 percent. terms) during 2010-11 over 2009-10. In value Major Countries for Computer Software Exports during 2010-11 Value : Rs. Cr. (US$ Mln.) COUNTRY NAME COMPUTER %AGE OF SOFTWARE SECTORAL VALUE TOTAL UNITED STATES OF AMERICA 135522.00 51.63 (29746) UNITED KINGDOM 56286.00 21.44 (12354) CANADA 11478.00 4.37 (2519) GERMAN F REP 5577.00 2.12 (1224) NETHERLANDS 4614.00 1.76 (1013) AUSTRALIA 4210.00 1.60 (924) FINLAND 3645.00 1.39 (800) MAURITIUS 3045.00 1.16 (668) SINGAPORE 3025.00 1.15 (664) JAPAN 2640.00 1.01 (579) OTHERS 32458.00 12.36 (7124) TOTAL 262500.00 100.00 (57616) terms, export of computer software / services to North America increased from Rs. 136800 crore ( US$ 28836 million ) estimated in 2009-10 to Rs. 147000 crore (US$ 32265 million) estimated in 2010-11. EU, South Asian Countries, Middle East Countries, Oceanic countries and Far East countries remains the 2nd, 3rd, 4th, 5th, and 6th top destination respectively during the year 2010-11 as well. Export to Middle East countries registered a high growth of 27% (32% in US$ terms) during 2010-11. 042

REGION WISE EXPORT OF COMPUTER SOFTWARE/SERVICES EXPORTS (2010-11 vs 2009-10) Value : Rs. Cr (US$ Mln.) 2010-2011 2009-2010 Variation(%) Destination Value %age of Value %age of In value In %age Sectoral Sectoral terms Share Total Total terms NORTH AMERICA 147000 56.00 136800 56.54 7.46-6.73 (32265) (28836.42) (11.89) EUROPE (EU COUNTRIES) 81800 31.16 75800 31.33 7.92-6.34 (17954) (15978.08) (12.37) SINGAPORE,HONGKONG 8400 3.20 8000 3.31 5.00-8.87 & OTHER SOUTH ASIAN (1844) (1686.34) (9.33) COUNTRIES MIDDLE EAST COUNTRIES 7875 3.00 6200 2.56 27.02 10.24 (1728) (1306.91) (32.26) AUSTRIALIA & OTHER 4463 1.70 4100 1.69 8.85-5.52 OCEANIC COUNTRIES (980) (864.25) (13.35) JAPAN KOREA & OTHER 3413 1.30 3100 1.28 10.10-4.44 FAR EAST COUNTRIES (749) (653.46) (14.64) AFRICAN COUNTRIES 3150 1.20 2700 1.12 16.67 1.26 (691) (569.14) (21.48) EUROPE (NON EU COUNTRIES) 2888 1.10 2700 1.12 6.96-7.16 (634) (569.14) (11.38) LATIN AMERICA 2625 1.00 2300 0.95 14.13-0.94 (576) (484.82) (18.84) RUSSIA & C.I.S. COUNTRIES 886 0.34 250 0.10 254.40 207.60 (194) (52.70) (269.02) TOTAL 262500 100.00 241950 100.00 8.49 (57616) (51001) (12.97) Average Exchange Rate 1US$ 45.56 45.99 MAJOR DESTINATIONS OF EXPORTS FOR COMPUTER SOFTWARE / SERVICES DURING 2010-2011 56.00% 31.16% NORTH AMERICA (56.00) EUROPE (EU COUNT.) (31.16) SGP,HKG & S.A. (3.20) MIDDLE EAST (3.0) 0.34% 1.00% 1.10% 1.20% 1.70% 1.30% 3.20% 3.00% AUSTRALIA & OCEANIC (1.70) JAPAN, KOREA & F.E.(1.30) AFRICAN COUNTRIES (1.20) EUROPE (NON EU COUNT)(1.10) LATIN AMERICA (1.0) 043

COMPUTER SOFTWARE / SERVICES EXPORT CONTRIBUTION OF STATES AND UNION TERRITORIES: 2008-09 TO 2010-11 Region States/union 2008-2009 2009-2010 2010-11 Territories Rs. Cr US$ Mln. %age Total Rs. Cr US$ Mln. %age Total Rs. Cr US$ Mln. %age Total SOUTH KARNATAKA 73150.00 15905.63 32.11 76150.00 16051.85 31.47 77420.00 16992.98 29.49 ANDHRA PRADESH 32300.00 7023.27 14.18 32500.00 6850.76 13.43 34776.00 7633.01 13.25 TAMIL NADU 32800.00 7131.99 14.40 30300.00 6387.02 12.52 44384.00 9741.88 16.91 KERALA 2200.00 478.36 0.97 2510.00 529.09 1.04 2520.00 553.12 0.96 PONDICHERRY 81.00 17.61 0.04 150.00 31.62 0.06 160.00 35.12 0.06 REGION TOTAL 140531.00 30556.86 61.68 141610.00 29850.34 58.53 159260.00 34956.10 60.67 WEST MAHARASHTRA 46500.00 10110.89 20.41 49700.00 10476.39 20.54 58791.00 12904.08 22.40 GUJARAT 1300.00 282.67 0.57 1500.00 316.19 0.62 2971.00 652.11 1.13 GOA 13.00 2.83 0.01 20.00 4.22 0.01 21.00 4.61 0.01 REGION TOTAL 47813.00 10396.39 20.99 51220.00 10796.80 21.17 61783.00 13560.80 23.54 NORTH HARYANA 14500.00 3152.86 6.36 17900.00 3773.19 7.40 15600.00 3424.06 5.94 UTTAR PRADESH 11300.00 2457.06 4.96 14600.00 3077.57 6.03 12000.00 2633.89 4.57 DELHI 5100.00 1108.94 2.24 6000.00 1264.76 2.48 2000.00 438.98 0.76 RAJASTHAN 500.00 108.72 0.22 850.00 179.17 0.35 600.00 131.69 0.23 CHANDIGARH 750.00 163.08 0.33 812.00 171.16 0.34 850.00 186.57 0.32 MADHYA PRADESH 325.00 70.67 0.14 525.00 110.67 0.22 200.00 43.90 0.08 PUNJAB 250.00 54.36 0.11 350.00 73.78 0.14 360.00 79.02 0.14 UTTARANCHAL 21.00 4.57 0.01 175.00 36.89 0.07 86.00 18.88 0.03 JAMMU & KASHMIR 4.00 0.87 0.00 5.00 1.05 0.00 1.00 0.22 0.00 HIMACHAL PRADESH 2.00 0.43 0.00 3.00 0.63 0.00 1.00 0.22 0.00 REGION TOTAL 32752.00 7121.55 14.38 41220.00 8688.87 17.04 31698.00 6957.42 12.08 EAST WEST BENGAL 5500.00 1195.91 2.41 6500.00 1370.15 2.69 8335.00 1829.46 3.18 ORISSA 1230.00 267.45 0.54 1390.00 293.00 0.57 1400.00 307.29 0.53 ASSAM 10.00 2.19 0.00 BIHAR 5.00 1.09 0.00 5.00 1.05 0.00 5.00 1.10 0.00 CHATTISGARH 3.00 0.65 0.00 5.00 1.05 0.00 5.00 1.10 0.00 JHARKHAND 2.00 0.44 0.00 MEGHALAYA 2.00 0.44 0.00 REGION TOTAL 6738.00 1465.10 2.96 7900.00 1665.26 3.27 9759.00 2142.01 3.72 TOTAL 227834.00 49539.90 100.00 241950.00 51001.26 100.00 262500.00 57616.33 100.00 044

ESC MEMBER TOP EXPORTERS 2010-2011 : COMPUTER SOFTWARE SERVICES S.No Company Total Export Web Site During 2010-2011 Value : Rs. Cr (US$ Mln.) Rs. Lacs US$ Mln. 1 TATA CONSULTANCY SERVICES LTD 2428900.00 5119.94 www.tcs.com 2 INFOSYS BPO LTD. 2114100.00 4456.37 www.infosys.com 3 WIPRO LTD 1668100.00 3516.23 www.wipro.com 4 COGNIZANT TECHNOLOGY SOLUTIONS 1558100.00 3284.36 www.cognizant.com INDIA PVT LTD 5 HCL TECHNOLOGIES 1010400.00 2129.85 www.hcltech.com/ 6 IBM INDIA PVT LTD 644200.00 1357.93 www.ibm.com 7 ACCENTURE SERVICES PVT LTD 446400.00 940.98 www.accenture.com 8 TECH MAHINDRA LTD 429700.00 905.78 www.techmahindra.com 9 MPHASIS LTD 387400.00 816.61 www.mphasis.com 10 PATNI COMPUTER SYSTEMS LTD 296100.00 624.16 www.ibm.com/contact/in/en 260000 240000 220000 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 BREAKUP OF DTA / SEZ & STP EXPORTS FOR COMPUTER SOFTWARE / SERVICES DURING 2005-06 TO 2010-11 4035 (933) 100965.00 (22805.64) 1786.43 (413) 144213.57 (33344) 4000 (994) 171000 (42474) 20476 (4452) 207358 (45088) 36445 (7682) Value : Rs. Cr (US$ Mln) 205505 (43319) 57917 (12712) 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 204583 (44904) EPZ/DTA STP 045

BREAKUP OF DTA / SEZ & STP EXPORTS FOR COMPUTER SOFTWARE / SERVICES DURING 2005-06 TO 2010-11 100 90 80 70 3.84 1.22 2.29 8.99 15 22 60 50 40 96.16 98.78 97.71 91.01 85 78 30 20 10 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Value : % age Share in total DTA / SEZ STP 046