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NASSCOM, the
premier trade body and 'voice' of the IT software and
service industry in India in association with IDC India,
the Indian operation of the worldwide research and advisory
major IDC, today released 'Study on the Domestic Services
(IT-ITES) Market Opportunity'. This report is a part of
NASSCOM's initiative to stimulate the domestic IT sector.
Against the backdrop of the increased interest in the
domestic IT services market by major IT vendors that has
been fuelled by high value deals (SBI-TCS, Bharti-IBM,
Bank of Baroda-HP, Dabur-Accenture to name a few), NASSCOM
commissioned IDC India to conduct a base line research
study.
It is estimated that in-house spending on IT services
(including training costs, salaries of in-house IT staff
and associated overheads) still accounts for more than
half of the corporate IT spend in India, while the outsourced
/ vendor addressed spends account for just 45 percent
of the total. Another key highlight is that the Domestic
ITES-BPO market is expected to cross Rs. 6,600 Crore in
2006.
Commenting on the findings of the study on the domestic
IT services market, Kiran Karnik, President, NASSCOM,
said "NASSCOM is very keen on promoting the domestic
IT Market. Increasing use of IT within the country will
help to enhance the competitiveness of the Indian economy
and of the companies and sectors that use IT. Globalization
is forcing Indian businesses to be more competitive and
towards this they are using IT as enabler to efficiency.
The liberalization of Indian economic policy, competition
in key sectors and progressive moves towards further integrating
India with the global economy will be key drivers of greater
IT adoption in the country. We believe high maturity IT
user segments like Banking, Insurance, Telecom, Automobile
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spending on IT services to integrate
businesses with IT."
"The creation of an environment which facilitates
domestic businesses including the reduction if the tax
burden, coupled with the right funding options will
lead to heightened interest in this small but high growth
market segment" added Mr. Karnik, speaking about
the findings on the domestic ITES-BPO market.
The study found that though IT services form 27% of
the total domestic IT spending, its share is significantly
higher in segments like BFSI, Telecom, Automotive and
the Manufacturing segment.
In terms of split by industry vertical spending, BFSI,
Manufacturing and Communications accounted for 77% of
the overall spend on IT services in 2004. On the one
hand the mature user segments are increasing spending
on IT services by moving towards holistic IT services
contracts, while on the other hand emerging segments
like Healthcare, the Government and Small & Medium
Businesses are also deploying IT services as a means
of productivity enhancement, competitive advantage and
value addition.
In order to bring the user-side perspective into the
picture, IDC also surveyed user organisations . The
top 3 concerns from this survey are
1. Price (15.7%)
2. Quality of service (9%)
3. Lack of people with suitable skill
set (9%).While price was the topmost concern, from a
base of 394 respondents 44.7% felt that though prices
are high, but they justify the services being offered.
"The key to growth of the domestic IT services
market is how much of the potential or total spending
by businesses can be tapped by IT
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service providers.
To do this successfully, vendors need to directly address the
key pain points of CIOs which hover around availability of appropriate
skills and financial justification for outsourcing important
functions to a set of third party service providers", stated
Kapil Dev Singh, Country Manager, IDC India.
Commenting on the Domestic ITES-BPO market, he added "The
ITES-BPO space has been associated only with export, but there
is huge opportunity waiting to be tapped as globalisation demands
higher efficiencies and competitiveness from Indian businesses.
Unlike the IT services exports market where price arbitrage
plays an important role, the domestic market will be driven
more by access to specialist skills and helping businesses to
free up their scarce resources for focusing on core business
areas.
In terms of opportunities by segments, the 'Study on the Domestic
Services (IT-ITES) Market Opportunity' maps them on the basis
of two parameters - readiness of a segment to outsource and
attractiveness in terms of market potential. Banks and Telecom
are high on both, whereas Insurance and the Government are high
on attractiveness but low on readiness to outsource. The right
efforts on releasing the hidden potential in these segments
will fuel growth beyond the projected period of 2004-07.
Challenges faced and way forward
* A significant portion of the domestic corporate IT spends
still lies in-house, predominantly driven by a perceived lack
of focus by service providers on the domestic market and a perceived
absence of value generated by outsourcing.
* IT services vendors should be able to assist the CIOs to focus
on generating business value from IT investments, by offering
total solutions and end-to-end services.
* Verticalised solutions are becoming increasingly important,
and IT service vendors need to develop domain skills and offerings.
* Service providers need to extend strong end-to-end service
capabilities to domestic customers, as the IT services market
moves to high-value, annuity engagements.
* The development of the domestic IT services market will need
to become more broad-based. To achieve sustained development,
new verticals will need to be penetrated as it is not sufficient
to increase business from only the currently addressed verticals.
* Domestic market needs a favorable policy environment to achieve
its potential. |
