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Nasscom is Cool, ITeS-BPO is Hot

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DQI Bureau
New Update

For some years now, the annual Nasscom event has been an expression of hope

and a show of power for the Indian IT services industry and, in that sense,

Nasscom 2003 continued the tradition. Amidst the global economic slowdown and

cuts in technology spending, Nasscom and McKinsey revised the 2008 target figure

from $87 billion to $77 billion.

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What emerged out of the insightful sessions drives homes an interesting

point. If it all started with Nasscom 2000–the first annual conference, post

the release of the original Nasscom-McKinsey report–it is in Nasscom 2003 that

it has finally come out of the overbearing shadows of IT.

Of

course, it is business process outsourcing (BPO) that we are talking about. As

the flavor of Nasscom 2003 in Mumbai very clearly turned out to be BPO, for the

first time, participant after participant–including John Barnsley of Inaltus

and Phaneesh Murthy of Primentor–openly stated what many had been murmuring of

late. This set the stage for the dominant theme of Nasscom 2003–ITeS-BPO.

Almost all the sessions in this track were well attended, clearly signifying the

interest level in BPO activity. The line-up of speakers for this track was

particularly good.

POINTS

TO PONDER...
n The

worldwide market of $21 billion in 2001 in embedded software offers

a huge opportunity for Indian companies. The embedded software and

system market is expected to grow at a healthy 16% CAGR in the next

three years
n As

per the recent Nasscom research on IT services scenario, Indian

vendors can tap the systems integration market, which is expected to

reach $142 billion in 2005. India currently has a market share of

0.5% in the global market, which can reach 2-3% by 2008
n The

study further forecast opportunity in the Enterprise Application

Integration market, which is expected to grow significantly from an

estimated $6 billion in 2001, to $18 billion in 2005
n Worldwide

ITeS-BPO spending for 2006 is projected to be $165 billion for

Sales, $163 billion for Legal, $123 billion for Engineering and

R&D and $308 billion
n The

ITeS-BPO segment is expected to grow in FY 2003 by 60%, blistering

by today’s standards, to reach $2.4 billion
n IT

industry to offer 1.1 million jobs by 2008
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According to John Barnsley, the chairman of specialized financial and

accounting BPO company Inaltus, "Enterprises need to understand that though

IT plays a major role in BPO, the business has to be led by process experts, not

by technology. What you need is strong operational capability and deep market

knowledge. Process expertise and domain expertise, in other words."

"I see Indian BPO companies attaining greater global heights than even

the IT companies," he observed. "In fact, one reason why BPO has

become so popular today is that the IT-centric ERP implementations have failed

to significantly reduce process costs," he said.

While the views of Barnsley–a legal/tax expert–are understandable, what

was even more noteworthy was that his views were echoed, in even stronger terms,

by someone who was, till a few months back, one of the most important

personalities in the Indian IT industry–Phaneesh Murthy. Phaneesh, who was

probably speaking for the first time in a platform in India after founding the

BPO consulting company Primentor, was harsh on his former industry.

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"IT

companies have become so used to the revenue model of labor arbitrage that they

have not invested enough to keep improving their processes. That is not going to

work in BPO," he observed. Social cost to the client after getting jobs

removed from the US would be significant. The decision to outsource offshore is

going to be tougher in the future. That is something the Indian companies’

should keep in mind.

While he outlined several positives of India like time zone difference, free

market entrepreneurial spirit etc, he was categorical that the model of simple

manpower replacement from US would not work. The companies need to focus on

process improvement and even drastically different business models. "None

of the Indian BPO companies that I know of is ready to do something about

addressing this highly significant social cost to the client," he said

replying to a question.

The only positive view for the IT companies came from Sid Khanna of Accenture,

who observed IT will play a significant role in BPO and will drive it to a great

extent. Equally thought provoking was McKinsey’s research on the shape and

size the ITeS-BPO industry would take over the coming years. The research

pointed out that while the total software and services exports generated Rs

34,000 crore in the April to December 2002 period, the ITeS-BPO component

accounted for Rs 8,200 crore with an encouraging growth of 61% over last year.

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“A significant opportunity exists for Indian ITeS vendors in new areas such as sales, legal, engineering, R&D and logistics”

Kiran Karnik



chairman, Nasscom

Says Arun Kumar, chairman, Nasscom, " A growth of 20 % in IT services

and 61 % in the ITeS-BPO segment in the April—Dec 2002 period reflects the

continued growth that the sector is able to maintain despite a much larger

base". He added, " Software exports which accounted for 4.9% of

country’s overall exports in 1997 is expected to increase to 20.4% in

2003-03".

The Nasscom survey reveals that the markets that the Indian IT Services and

ITeS-BPO segment are targeting is expanding. In the IT services arena, Indian

vendors are getting into new service lines such as IT and network consulting,

packaged software installation and support and systems integration. In the

ITeS-BPO segment, apart from consolidating their presence in traditional areas

such as customer care, finance and HR, Indian vendors are moving up the value

chain by addressing segments such as engineering design, animation, and R&D

services.

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Nasscom’s survey also indicates that BFSI vertical continues to be the

biggest vertical with a share of 36% during April-December, 2002 of software and

service exports. The manufacturing vertical is expected to increase its share to

14% in 2002-03. Apart from growth in traditional services, new verticals such as

healthcare, retail, and utilities in the IT services sectors, will lead future

growth in exports. The retail sector currently has a share of 4% in 2001-02, is

expected to increase to 5% in 2002-03 and healthcare, which has a share of 3% in

2001-02, is estimated to grow to 5% in 2002-03.

According to the Nasscom survey, in order to counter the impact of the global

economic slowdown, Indian IT software and services companies have worked towards

beefing up their capabilities both externally and internally. In the area of

marketing, Indian companies have looked towards building expertise through

thought leadership, gaining better customer access and key account management

skills. Indian companies have also invested in building global delivery models

to overcome geo-political risks. Companies have also tried to contain costs by

recruiting in line with utilization rates, hiking the proportion of variable

pay, and better management of fixed price contracts. The industry is also

expected to witness a rise in M&A activity as players try to broaden product

offerings and build scale.

Indian vendors have been able to tap a market share of 2% of the global IT

Services market currently and need to tap new service lines in order to capture

a market share of 4.6% of the worldwide IT Services market by 2008. In the

ITeS-BPO segment too, India has a market share of 2% currently and will need to

target new service lines such as Engineering/R&D, logistics and sales to

capture a share of 4.8% by 2008.

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Arun Kumar, Chairman, Nasscom said, " India’s presence in the global

IT Services market is today more focused to custom application development and

application outsourcing, which forms only 10 % of the global IT services market.

Significant potential exists in service lines such as network infrastructure

management; IS outsourcing; IT training and education; hardware support and

installation; and network consulting and integration where Indian vendors have

negligible presence currently."

"With off-shoring becoming more mainstream, Indian IT companies are

expected to penetrate new service lines such as Systems Integration (accounting

for 22% of Global IT services market); Packaged Software Support and

Installation (13%) and IT Outsourcing (18% )" , he further added as per the

recent Nasscom research on the IT services scenario, Indian vendors can tap the

systems integration market, which is expected to reach $142 billion in 2005.

India currently has a market share of 0.5% in the global market, which can reach

2-3% by 2008. To successfully capitalize on this opportunity, Indian companies

will need a build a network of best-of—breed partnerships, attract world-class

talent and develop best-in-class project management skills.

Kiran Karnik said, "Significant opportunity exists for Indian ITeS

vendors in new areas in the ITeS-BPO segment such of Sales, Legal,

Engineering/R&D and Logistics. Worldwide ITeS-BPO spending for 2006 is

projected to be $165 billion for Sales, $163 billion for Legal, $123 billion for

Engineering / R&D and $308 billion for Logistics."

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The strategy gurus–Don Tapscott and Paul Saffo provided insightful

strategies on changing business models. Not to be missed was a short session by

Jnan Dash, database guru and industry veteran, who explained the phenomenon of

web services and its implications for India.

This year saw the participation of many an international CIO from JP Morgan,

The World Bank, Citigroup, Qwest and the like; and not surprisingly they were

the most sought after for press interviews. Despite these, what didn’t come

out clearly was Nasscom’s agenda for the domestic-focused IT services

industry, though as a departure from earlier years there were roundtable

discussions involving CIOs. However, there was more to the sessions than the

statistics. As we spoke to participants on the sidelines–both speakers and the

delegates (who agreed with the above observation of many speakers)–were all

praise for Nasscom. "In fact, it is not for the Indian IT industry that I

am here. It is the Nasscom branding, that has brought me here," said a

delegate from UK whose interest area was process outsourcing. "These guys

are doing a great job. What they need to do is to consciously transform

themselves to a platform of Indian services companies, and not just the IT

industry," observed a speaker.

Well, three and a half-hectic days of conference sessions with

entertainment-packed evenings left the delegates fatigued. While the CEO Fashion

Bytes was good, the entertainment bit for the Gala Dinner night was found

wanting.

Team DQ/CIOL with inputs from the

Nasscom report

Those Interesting Numbers

n $1

billion:
The sum western MNCs could end up

saving in five years by IT outsourcing to India, according to Nasscom.

n $1.2

billion:
The estimated loss that the SQL

Slammer worm caused worldwide in the first five days.

n $11

billion:
The opportunity for the Indian

software industry, even if they manage to grab 40 % of the Chinese software

development market by 2006, according to Gartner.

n 12%:

The growth of PC shipments in India during the

year 2002, according to Gartner Dataquest Asia-Pacific survey.

n $44.9

billion:
The loss posted by AOL for its fourth

quarter.

n $200

million:
The endowment fund that IIT Kharagpur

plans to raise by the year 2020 by roping in some of its alumni who are doing

well for themselves.

n $250

million:
The sum World Bank will lend to India

for a project to improve the quality of technical engineering education.

n 1,500:

The number of people Consulting giant Accenture proposes to hire in India over

the next two years at its Indian centers.

n 2,500:

The number of people who will be employed in Wipro’s software development

center at Kolkata to be operational from June 2004.

Future of Embedded Technologies

The panel discussion on the future of semiconductor design and embedded

software in India, threw light on the prospects that embedded technology and

semiconductor design present for the nation.

The session chaired by Rajiv Mody of Sasken, began with the initial round of

introductions and was kick started by Paul Saffo who highlighted the three

trends in embedded technology–ubiquity, diversity and technology being

comparable to fashion, which depends on changing trends. Sathya Prasad from

Intel opined that with its knowledge base, India would be the ideal place to

impart necessary growth in the field of semiconductor design.

Sasken’s Venkatesh felt that India, in order to achieve the desired

leadership in embedded technologies, would need to first develop technologies,

which would be fundamentally complimentary. According to him, the country would

have to have functional expertise in certain areas and project them as its USP.

Scalability in terms of increasing volumes as well as transferability of skills

is a key factor, he said. However, on a slightly different note, Motorola’s

Soumitra Sana put forward the challenges that embedded technology development

would have to face. These include lack of efficient development tools, lack of

adequate technical support, parallel development of hardware and software across

geographic locations, thus cumulatively resulting in confusion. According to

him, the industry in order to thrive would need to develop simulators. He also

felt that the Government would need to create a conducive environment by giving

shipping and custom clearances.

Manufacturing, Retail & Automation

Signaling a move toward Gen II of automation, the global manufacturing and

retail space is now looking to "make technology a part of its

culture". Speaking at Nasscom 2003, Johnson Controls V-P and chief

information officer Subhash S Valanju said with this new drive, technology would

emerge as the differentiator that would make or break businesses.

"Be it any vertical in the manufacturing and retail space, technology

will be the accelerator that will be a common thread. The strategy is to have

the ability and flexibility to move and collaborate people, processes and

products internally, while participating seamlessly in the overall supply and

services business chain on a global basis," Valanju said.

Stressing that only 20% of the available data in any given enterprise was

structured, with as much as 80% lying dead and unused, Valanju said it would be

‘unstructured data management engines’ that would be in vogue.

"Technologies like grid computing, addressable film, Belt and Tablet PCs,

wireless data centers, RFID TAGS and telematics would be the hot movers of

tomorrow," he added.

The technology of the future would work in layers, Valanju stressed.

"Core technology has to become invisible and be supplemented by many small

technologies for it to generate substantial payoffs," he said. "In

tomorrow’s world, data and its optimal usage will rule–having information

about your customers and suppliers, and analyzing it sensibly, coupled with the

ability to store it well and retrieve it on call–will determine corporate

success."

The Future is ‘Biology’

The Indian IT industry is so used to the talk about the huge potential in the

IT/outsourcing business than we have become smug and refuse to look beyond and

explore other multi-billion opportunities. Indian IT CEOs’ for one have an

inherent advantage given that software is already dominating every aspect of our

lives and they have a very good feel of the same. And then finders are keepers.

And the keeps–a multi-billion dollar opportunity.

So where is the world headed and where’s the much talked about opportunity?

Biology…According to Paul Saffo, "The next big mountain is Biology and

Indian software companies are standing at the foothill of the same and should go

and think of scaling the same." According to Saffo and his research, there

is a change every 30 years with a particular discipline taking dominance

globally. Each wave lays the foundation for the next one and strengthens its own

foundations. According to Saffo, the next wave, which has already started, is

Biology. A quick example is the genome project, which IT helped to complete the

task much ahead of schedule. And this is where Indian CEOs’ need to focus

their attention on. Other interesting area to look into is materials and energy

and their inflection with IT and Biology. And not to forget the service economy.

IT here and real. The next big thing in the service economy would be the

automobile industry, which is going gung ho over IT. And If Indian CEO do not

focus on such trends, it would be another case of ‘India missed the train’.

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