Financial Daily from THE HINDU group of publications
Tuesday, Dec 13, 2005
Financial Daily from THE HINDU group of publications Tuesday, Dec 13, 2005 |
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Exports & Imports Info-Tech - Outsourcing 'Services, BPO exports to touch $60 b by 2010' — Quality talent, infrastructure key to retaining offshore edge Our Bureau
(From left): Mr Kiran Karnik, President, Nasscom; Mr Jayant Sinha, Partner, McKinsey & Company; Mr Ramadorai, CEO, Tata Consultancy Services & Chairman, Nasscom; Mr B. Ramalinga Raju, Chairman, Satyam Computer Services Ltd and Vice-Chairman of Nasscom; and Mr Noshir Kaka, Partner, McKinsey & Company, in the Capital on Monday. — Kamal Narang
New Delhi , Dec. 12 THE country's software services and BPO exports are projected to touch $60 billion by 2010 on the back of over 25 per cent year-on-year growth, though the country would have to address critical issues such as a potential shortage of 0.5 million qualified workforce and ramp up the existing infrastructure to sustain its edge over competing low-cost destinations, including China. As per the Nasscom-Mckinsey Report 2005, while the total opportunity available to offshore-centric players in IT and BPO space stands at about $300 billion, only about $110 billion would actually be offshored by 2010.
India has the potential to capture over 50 per cent of the $110-billion pie by 2010 and innovation by the industry could generate an additional $15-20 billion export revenues in 5-10 years. "Our industry is in a strong position to leverage the global software opportunity and establish India as the premier IT destination in the world," Mr S. Ramadorai, Chairman of Nasscom, said at a conference here. The report said that offshore and BPO industry can power India's economic growth, accounting for seven per cent of the GDP, and about 44 per cent of export growth by 2010. It would also create 2.3 million direct jobs and over 6.5 million indirect jobs in the same period. The projection, however, does not take into account the revenues from product software exports. Elaborating on the findings of the report, Mr Noshir Kaka, Principal of McKinsey & Company, said a mere 10 per cent of the $300-billion global addressable market had been tapped so far, thus, putting the current offshore market size at $30 billion. "The addressable global market for offshore IT is $150-180 billion. Going forward, the more traditional IT outsourcing service lines such as hardware and software maintenance, network administration and help desk services would account for 45 per cent of the total addressable market for offshoring and will drive the next wave of growth," the report said. He said that the addressable market for BPO industry could grow over 10 times from about $11.5 billion to $120-150 billion, fuelled by traditional industries such as retail and banking and cross industry functions such as HR and Finance and Accounting. With 28 per cent of the IT and BPO talent amongst 28 low-cost countries, India now accounts for 65 per cent of the global industry in offshore IT, and 46 per cent of the global BPO industry. In absolute numbers, the IT services exports are pegged at $12 billion, while the BPO exports stand at $5.2 billion. Maintaining competitiveness: India's ability to maintain its edge and market share over competing locations would depend on addressing critical issues such as slowdown in demand growth, skills shortage, particularly in the BPO sector, bottlenecks in infrastructure and rising pressure on existing service lines, the report noted. For instance, against a requirement of 2.3 million-strong IT and BPO workforce by 2010, the report indicates a shortfall of nearly 0.5 million qualified employees, bulk of it in the BPO industry. "At present, only 25 per cent technical graduates and 10-15 per cent of the general college graduates are suitable for employment in offshore IT and BPO industry. India lacks workers who are fluent in French, German, Japanese and Spanish, making China and Eastern Europe more attractive offshore destinations for Japanese and Western European companies," the report said. The gap can be bridged by setting up focused education zones to improve education; decentralising higher education in stages and shifting to a demand-based funding system, it added. Mr Kaka said that rising wages were not a `matter of concern' as India was still the lowest cost source for suitable talent, ahead of rivals such as China. "Moreover, every country wanting to capture the market will see similar inflation in wages," he added. On infrastructure, the report said that between now and 2010, IT and BPO industries would have to employ an additional workforce of one million workers near five Tier-1 cities and about 600,000 workers across other towns. "Thus, the IT and BPO sector needs at least five new `Gurgaon-plus' and 5-7 new `Pune-plus' integrated townships," Mr Kaka said. Releasing the report, the Communications and IT Minister, Mr Dayanidhi Maran, said that HR would become key to sustaining the industry's growth. Then and Now: According to Nasscom, while the industry is well on track to achieve the targets set out by the preceding reports of 1999 and 2002 — of $50 billion in IT and BPO exports by 2008 — the Nasscom-McKinsey report 2005 is not about "revisiting" the previous reports. "We have built this report from the scratch on landscape for the industry," the Nasscom President, Mr Kiran Karnik, said at a conference here.
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