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India’s IT sector: Back office of the global village

 

The ITeS industry can be credited with leading India’s transformation from an agrarian to a services economy, repositioning the country as a knowledge hub and boosting economic growth.

 

India’s information technology (IT) industry has become such a global phenomenon that the Indian IT-guy character is a regular in American film and television storylines. Beyond the stereotypes, however, the IT-enabled services (ITeS) industry can be credited with leading India’s transformation from an agrarian to a services economy, repositioning the country as a knowledge hub and helping drive economic growth.

An industry that was once dominated by global giants such as IBM and HP now boasts home-grown companies that have outpaced their global peers, with India’s share of the global IT offshoring market growing from 40-45% to around 55% in the past 10 years. By 2020, industry body National Association of Software and Services Companies (Nasscom) forecasts the IT-BPO industry to account for 10% of India’s GDP, almost a fifth of its exports and about 30 million direct and indirect jobs.

As Subroto Bagchi, founder and former chairman of Mindtree, says, “What makes me really proud of the ITeS industry is the number of jobs it has created. Now, millions of people in India earn more than Rs.5 lakh per annum—often much higher than their parental incomes.”

Finally, success has come based on what one knew, rather than who one knew.

According to Bagchi, “ITeS was perhaps the first industry to capitalize on economic liberalization. Earlier, it used to be much tougher to travel abroad and repatriate funds. Liberalization changed all that.”

 

The Future: 2013 and beyond

 

Indian ITeS firms will have to face up to a vastly different market in the next five to seven years. As chief information officers look to invest more in digitalizing their businesses, IT services firms will need to adapt and create a second engine of growth, while continuing to tap opportunities from applications, infrastructure, ERP and BPO.

This second engine of growth will include taking advantage of offerings in “everything as a service”, cloud, big data, digitalization and Internet of Things. It will also involve selling to stakeholders beyond the chief information officer; for instance, firms might approach the chief marketing officer or the chief operating officer with business-oriented value propositions. And ITeS players will have to cope with a different set of competitors. It is no longer only IBM, TCS, Cognizant, Wipro and the other usual suspects; the new competitive set today includes Amazon Web Services, Dropbox Enterprise and telcos.

Companies that keep innovating and don’t get constrained by an “incumbent” mindset are probably the only ones that will do well in this phase—even if it means cannibalizing their own revenues in the near term.

 

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