IT IndustryAnalysis Assignment1
Transcript of IT IndustryAnalysis Assignment1
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India Jai Dave
Sector Review – IT(91) 8097670347
03 May 2013
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Sector Overview
IT Industry revenue has grown from 1.2% of GDP in FY1998 to 7.5% of GDP in
FY2012. Indian IT Industry also crossed 100billion USD revenue in FY2012.
IT services exports grew by 19 per cent in FY2012, thus touching the figure of
USD 69 billion USD. It was the fastest growing segment for India in FY2012.
The industry’s share of total Indian exports has risen to 25% in FY2012 from a
meagre 4% in FY1998.
Supply is abundant at lower end of IT services like application development but
at the high end services which require unique skills are still scarce. These high
end services include consultancy, integrating etc. Demand is expected to
remain sluggish as Indian IT industry is export driven and two of its major
buyers viz. US and Europe battling with crisis.
Competition in IT Industry is immense within India due to low barriers of entry
in this industry. Competition in IT Industry is global in nature and have
increased significantly as more and more companies and countries trying to
imitata the Indian offshoring model. As prer NASSCOM, Indian IT companies
will be facing stiff competition from other emerging countries like Hungary,
Romania etc.
A major expense for IT companies is of wages. So, Wage inflation could
increase the cost for the IT companies putting pressure on the bottom line.
Rupee depreciation in the last year helped IT companies as it raised their
revenue. This year the Indian IT companies may not have the same advantageand will have to be hedged against the risk of rupee appreciation.
Government has allowed 100% FDI in electronic hardware and software
development sector. Government had also abolished the the license raj which
attracted more foreign investors. As a result, we have many MNC’s coming to
India and setting up their offices.
Government has recognized the importance and capability of IT sector and has
taken various measures to aid its growth. Telecom sector deregulation and
creation of SEZ’s are two such initiatives. In the FY 2013 budget, government
has shifted its focus towards education and skill development which is
structurally long term positive for the sector. As per NASSCOM, Indian IT sector is expected to generate 130billion USD of
revenue by FY2015. They also forecast the growth of Indian IT/ITES industry to
be around 11-14% in FY2013. It is expected that IT spending will significantly
increase in various segments like automotive and healthcare. The government
will continue to be a major spender keeping its focus on e-governance.
IT sector has been benefiting because of good relations of India with major
powers such as USA, Europe etc. Global IT spending has decreased due to
global recessionary climate. Volatility will be high, especially in the second half
of the FY2013 as election dates would be approaching. The attrition rate which
is very high in IT sector is seeing a decreasing trend since 2008 and they havealso hired less. Indian IT sector, along with skilled and cheap labour also has
demographic advantage. IT sector is also benefited because of lower telecom
tariff.
Competition
Impact of Inflation
Rupee Appreciation
Foreign Investments
Supply and Demand
100billion $ Industry
Increase in Exports
Government Initiatives
Future of the sector
PEST Analysis
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India Sector Review 09 May 2011
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Figure 1
India IT/ ITeS Industry Size (2007-12) and % of GDP
Source: NASSCOM
Figure 2IT’ impact on Indian economy
Source: NASSCOM
22 22 24 29 32 37
4147
50
59
69
76
6.4%6.7% 6.5%
7.1%7.5%
8.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013E
IT Revenues (USD billion) & its ontribution to GDP (%)
Domestic IT/ ITeS Market IT/ ITeS Exports Revenue % of GDP
CAGR for IT Industry is
16.5% for period 2007- 2012
IT’s impact on Indianeconomy
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Figure 3
Growth Drivers for the IT Industry
Source: NASSCOM
Figure 4
Top IT Players in Indian IT Industry
Source: Research, Company reports
•English speaking population in India is more as
compared to the other competing countries.•Apart from that the skilled labor in India is alsocheaper as compared to other countries.
Cheap andskilledlabour
•Most of the known companies in India alwaysfollow to quality conformance standard like CMMand various ISO standards.
Adherenceto Qualitystandards
•The time difference between India and USAgives India the geographic location advantage
UniqueGeographic
location
•Government has realized the importance of ITIndustry and have aided the growth of Industryby Setting up SEZ’s , allowing foreign playersetc.
Supportive
Governmentpolicies
Growth Drivers
The IT Industry can bebroadly classified intofollowing four categories
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Figure 5
Source: Research
Analysis of Porter’s 5forces