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IT Services in Developing Nations
Mark Tegtmeyer
Stephanie Schmitt
Aarti Dinesh
Vijay Gummadi
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Overview
• IT & Globalization
Offshoring
Country Comparison
• Why India
Demographics & Advantage
Culture & Education
IT Parks/Government Support
Piracy
• Indian Infrastructure
Telecommunications/Power/Roads
IT Industry
Major IT Suppliers
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As we approach the twenty first century,
globalization of markets and strategies,
and the increasing mobility of capital and
know-how characterize the business and
economic process worldwide. The
movers and shakers behind this change
are the innovative global information and
communication technologies with
implications on trade and business.
Source: Sherif Famel, Maha Hussein “The emergence of e-commerce in a developing nation.”
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Offshoring of US Business
Considerations in offshoring business
processes revolve around strategic
business decisions.
Many nations have developed around
other nations’ decisions to offshore
business processes.
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What is Compared?
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Business conditions
Physical infrastructure
IT infrastructure
Financial institutions
Government support
Labor characteristics
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Business Conditions
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Lasting cost savings and advantages
Matching functions
Goals, objectives and metrics
Reliability
Relationship maintanence
Start up and sunk costs
Rising competition and wages
Scalable
Favorable contract terms
International access – for both parties
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Physical Infrastructure
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Power and backup
Technological exploitation
Telecommunications
International transportation access
Urban transportation
Access to supported information
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IT Infrastructure
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International bandwidth
Telecom capabilities
Common infrastructure
Disaster recovery capabilities
Business continuity capabilities
Technical certification
Network storage
Security management
Future-proof technology
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Financial Institutions
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Strong banking institutions
International banking relationships
Stable currency markets
Venture capital
Ownership mechanisms
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Government Support
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Regulatory compliance
Statutory guidelines
Software piracy
Copying processes
Criminal safeguards
International relationships
Taxation
Local government issues
Stable political arenas
Independence and lasting self control
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Labor Characteristics
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Training Experts and keeping them
Adequate employment pools
Domain knowledge
Employee turnover
Diversity of skills
Dual training
Strikes/ boycotts/ interruptions
24x7 support
Quality of service
Cultural understanding
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If you analyse the responsibility of
the current-day CIO of a large
corporation, his task is nothing but
like the spaghetti nightmare, which
he has to unbundle.
Source: Steve Faris, Vice-President, Asia Pacific, BEA Systems
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IT & Globalization
• IT has dramatically impacted developing
nations in recent years
• Led to rapid globalization
• Enabled developing countries to become a more
active force in global society
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• Biggest impact on developing
countries has been offshoring
• US companies are now focusing on
what they are best at and
outsourcing everything else
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Offshoring
• Relocating business processes to an
overseas country
• Human capital is most important
aspect to attract offshore business
• Telecommunication infrastructure
• Government support
• Tax & development incentives
• Technology parks
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Problems with Offshoring
• Language Barriers
• Cultural Differences
• Work Ethic
• Coding Documentation
• How Meetings are Conducted
• Control
• SLA’s
• Support Costs
• Telecommunication & Travel
Source: www.american.edu/initeb/js5518a/Pitfalls.html
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Source: Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation,” McGraw Hill, New York, 2006
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Global Outsourcing Country Comparison: INDIA
• By far, handles majority of outsourcing
work
• Exports $12.2 billion in IT services each
year
• Government agencies designed to make
India an IT “superpower”
• Original problems were poor
communication & problematic government
policies & procedures
• Want to achieve $60 billion US dollars in
software exports by 2008
Source: www.outsource2india.com/why_india/articles/india_outsourcing.asp
Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation,” McGraw Hill, New York, 2006
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India Continued
• Of 23 firms worldwide to be CMM-5 rated in
software development, 15 of them are Indian
firms
• India is #1 offshore destination due to:
• Offshore Experience
• Huge English-speaking & college-educated
population
• Government support (Ministry of Information
Technology)
• McKinsey report suggests that if work is
contracted to India, there is a cost savings of
40-60%, quality improvement of 3-8% and
productivity increases of 20-150%
Source: www.american.edu/initeb/js5518a/Country-analysis-india.html
www.samachar.in/biz/featarchives/2612003.html
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Global Outsourcing Country Comparison: CHINA
• Immature market – similar to India
10-15 years ago
• High piracy rates – upwards of 90%
• Large pool of workers, but small
amount of experienced managers
• Most programmers are capable of low
level coding and
maintenance of existing
systems
Source: www.american.edu/initeb/js5518a/Countryanalysis-china.html
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China Continued
• Reputation for reliability and
credibility has not been achieved yet
• Do not have quality control systems
India has
• Only one Chinese company is CMM-5
certified
• Being used by India & Japan
• Biggest problem: How to make US
and European customers trust and
choose Chinese companies over
Indian firms
Source: www.american.edu/initeb/js5518a/Country-analysis-china.html
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Global Outsourcing Country Comparison:
PHILIPPINES
• Strengths are in areas of human
resources and call center operations
• Highly westernized country – 3rd
largest English speaking nation (US
protectorate for 50 years)
• Lacks size and scale of India in terms
of landscape and human capital –
has roughly 30 software companies
in comparison to 800 in India
• None of the software companies
have CMM-5 certification
Source: www.american.edu/initeb/js5518a/Country-analysis-philippines.html
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India
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Why India Beckons?????
• Population- 1,080,264,388 (July 2005 est.)
• Largest democracy in the world
• Middle class expanding by 30 - 40 million every year
• GDP growth set to continue at 6-8% ;GDP per capita (PPP):
$3,400 (2005 est.) 1
• GDP (purchasing power parity): 3.678 Trillion (2005 est.)
Source: www.american.edu and www.cia.gov
http://www.rediff.com/news/2004/feb/04inter.htm
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Why India Beckons????? (Cont’d.)
• Geographical advantage – 24/7 operations
• “The Indian Economy work when the Indian
government sleeps”- abc news- Good morning
America
• Low-cost, high quality
• Acceleration of the privatization process and
restructuring of public enterprises
• Language
• Hindi is the national language and primary tongue
of 30% of the people; there are 14 other official
languages
• Proficiency in English: The “Times of India” sells
more copies than the “USA Today”
Source: http://www.blr.stpi.in/indiaglance_advantages.htm
http://www.embassyofindiajakarta.org/content.php?sid=172
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Trained Labor Force
•Well-organized educational system, with internationally recognized
excellence in some areas of higher education
•World's 3rd largest brain bank - Availability of around 2.5
million technical professionals
•Well developed R&D infrastructure and technical and marketing
services
•India has spent US$ 19 billion in 2000-01, putting it among the top ten
countries with the highest R&D spend.
Source: http://www.embassyofindiajakarta.org
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Major Cities and Culture
• Bangalore- World IT Hub
• Hyderabad, Kolkata,Noida,Puna, Mumbai, Gurgeon,
Kanpur, Chennai, Delhi.
• A tremendously diverse and heterogeneous multi-lingual,
multi-ethnic and multi-racial country - don’t believe the
stereotypes
• Family oriented society- Believe in the concept of Joint
family and arranged marriages
• Major income disparities and contrasts
• Indian Cinema is a window to 3hrs of Blissful entertainment.
India most the largest movie Industry in the world.
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Trivia:
Demopgraphics as per religion:
Hindu
Jains
Muslim
Buddhist
Christian
Others
Sikh
Source: http://www.cia.gov/cia/publications/factbook
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Glimpse of Indian Culture &
People
Hindu Ritual
Festival of Rakhi
Holi - festival of color
Muslim- Secular country
Sikhs culture
Sacred Animal
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Government Laws and RegulationIT Pro
• Reduced import duty on computer software from a high 114 percent to
nil
• Conducive foreign investment environment that provides freedom of
entry, investment, location, choice of technology, import and export
• Deduction under sections 10A/ 10B of Income tax Act, 1961 (“IT Act”)
in respect of profits derived from export of computer software
• Dividends from Indian companies tax free in the hands of the
shareholders
• Corporate tax rate for the domestic companies reduced to 30 percent
from existing rate of 35 percent
Source: www.nasscom.org
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Government Tax Laws and
Regulation- IT Pro (Cont’d.)
• Rates of tax applicable on non-residents/ foreign companies earning
royalties/ fees for technical services reduced
• STPI registration
 Income tax holiday – 90% till 2010
 Customs and excise duty exemption – 100%
 Central Sales Tax reimbursement
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Fiscal benefits under other policies
 Exemptions from stamp duty
 Minimum floor rate on sales tax
 Exemptions from octroi duty
 Exemptions from electricity duty
 Reduction in property tax
• Service tax – exemption
• IPR (Intellectual Property Rights ) laws in place
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Location attractiveness of Key Indian States for IT-ITES
Source: www.nasscom.org
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Virtual Tour of a Tech Park
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Piracy
• Magnitude of Piracy rates
• Statistical Inference of Piracy
• Impact of Piracy in developing
nations and IT Globally
• Bill Gates optimistic forecast on
piracy
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Piracy rates world wide and the losses thereof :
Dollar Losses by Region ($M)
Piracy Rates by Region (%)
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Worlwide
Latin America
63
66
Latin America
61
61
Rest of Eurpoe
56
58
Middle East/ Africa
53
53
Asia Pacific
37
35
European Union
North America
23
22
Rest of
Europe
Middle east/
Africa
Asia Pacific
European
union
North
America
2003
2004
1262
1546
1937
2313
1018
1239
7553
7897
9786
12151
7243
7897
2003
2004
Source: Second annual BSA and IDC Global Software Piracy study
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Cost Impact of Piracy in Developing Nations
20 Countries with the Highest
Piracy Rates
Ranking (2004) Software
Piracy Losses
Source: Second annual BSA and IDC Global Software Piracy study
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Estimate calculation of Piracy rates
Source: Second annual BSA and IDC Global Software Piracy study
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Infrastructure Scenario
Overview
Credit for India's rapid growth in IT software
and ITES/BPO domains must go in part to the
availability of a robust infrastructure
Telecom
Power
Roads
Civil Aviation
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Telecommunications
.Total number of telephone connections grew by
34.34% to reach 124.78 million by the end of December
2005.
.Total number of mobile telephony grew by 58.17% to
touch 75.94 million by the end of December 2005.
. Mobile tariffs in India are the lowest in the world. On
average about 3 million subscribers were added every
month during 2005 – 2006.
. By the end of December 2005 Internet subscribers
base grew 22.94% to reach 6.70 million and the
Broadband connections grew by 1821.28% to reach
0.903 subscribers .
Source: http://www.trai.gov.in/Report%20%20Dec-05%20Part%201.pdf
http://www.trai.gov.in/report31jan06.pdf
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Power
.India is the worlds 6
th
largest power generator
.Installed capacity of 124,311 MW as of January 2006.
Plans to add 100,000 MW capacity by year 2012
.Thermal power accounts for 66.4% of the capacity,
Hydroelectric power accounts for over 25% of capacity,
nuclear plants and non-conventional plants account
for 2.7 and 4.9 percent respectively.
.Power consumption has been having a compounded
annual growth rate of 9%.
.Demand has always been higher that supply.
Source: http://www.nasscom.org/artdisplay.asp?cat_id=403
http://powermin.nic.in/JSP_SERVLETS/internal.jsp
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Roads
.India has the second largest road network in the
world totaling more that 3.3 million Km.
.The traffic on the roads is growing at 7 to 10 percent
and vehicle population is growing 12% annually.
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National highways account for only 2% of the total
road network in terms of length and carry around 40%
of the total traffic.
. National Highway Development Project
.Started in 1999, is one of the highway projects in the world.
Source: Ernst & Young, Doing Business in India. http://www.ey.com/global/content.nsf/India/Home
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Civil Aviation
.India is one of the fastest growing markets in the
world for both passenger and cargo traffic, second
only to china.
.The entry of no-frills flights which are 30 to 35 percent
cheaper that the regular flights, has changed the
profile of the air passengers.
.Domestic and international traffic grew by 24.2
percent and 18percent respectively, in April-December,
2005.
.Indian aviation market is estimated to grow to 45
million passengers by 2010.
. Top six air ports are
Bangalore, Chennai, Hyderabad, Mumbai, New
Delhi and Kolkata
Source: http://indiabudget.nic.in/es2005-06/chapt2006/chap98.pdf
http://news.bbc.co.uk/2/hi/south_asia/4626810.stm
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IT - ITES Industry
. The Indian IT-ITES industry is broadly categorized
into IT services and software, ITES - BPO and
Hardware segment.
. Aggregate revenue for FY 2004-2005 is expected to
be around $28 billion.
. Sector growing at 31% is expected to account for
4.1% of the national GDP during FY 2004-2005.
. North America and Europe remained key export
markets contributing around 69% and 23%
respectively to the overall IT-ITES export revenue
during FY2004-2005
Source: http://www.nasscom.org/artdisplay.asp?cat_id=794
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Tata Consultancy Services Ltd
Overview
. Established 1968
. Over 59,000 Associates
. FY 2004 revenues of USD 1.56 bn, FY 2005 revenue of USD 2.24 bn
. First company in the world to receive an integrated Enterprise wide
CMMI Level 5 and PCMM Level 5 assessment
. Global presence – Operations in 47 countries, 160 offices across the
globe.
. First and Largest
. Software R& D center in India
. Software Exporter in India
. Indian software company to $2 billion mark in revenues.
Source: http://tcs.com/investors/downloads/TCS%20IR%20Presentation-Jan%202006.pdf
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Business Areas served by TCS
. Banking
. Financial Services
. Insurance
. Telecom
. Manufacturing
. Media and Entertainment
. Retail and Consumer goods
. Transportation
. Healthcare and life sciences
. Energy & Utilities
. S-Governance
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International Recognition
.UK 2005
. Top Ten ICT Employer
. Investor in People
. Hungary 2005 – Hewitt Best Employers Survey 2005
. Ranked 16th in the large company category
. American Society for Training and Development 2005
. Ranked 9th in ASTD best Awards program
Vision
.Global Top 10 by 2010
Source: http://tcs.com/investors/downloads/TCS%20IR%20Presentation-Jan%202006.pdf
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Infosys Technologies Limited
Overview
. Established 1981
. Over 49,000 employees
. Revenues for LTM Sep 2005 USD 2.09 billion
. Attained SEI-CMM Level 5 in 1999
. Global presence – 36 sales offices in 17 countries
and 37 global development centers
. Execution excellence drove 95% repeat business in
FY 2005
Source: http://www.infosys.com/investor/pdfs/IR_Presentation.pdf
http://www.infosys.com/about/quick_facts.asp
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Industries served by Infosys
.Aerospace and Defense
.Automotive
.Banking and Capital Markets
.Communication services
.Consumer package goods
.Discrete manufacturing
.Energy
.Healthcare
.High technology
.Hospitality and Leisure
.Insurance
.Life sciences
.Media and Entertainment
.Retail
.Transportation services
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Infosys in News
.Infosys ranks No. 10 on the BusinessWeek IT
100 (June 2005)
.Infosys wins “India’s Best Managed Company
Award” based on a study conducted by
Business Today and A.T. Kearney (March 27,
2005)
.Wired Magazine has ranked Infosys
Technologies at No. 9 on its ‘Wired 40’ list for
2005
Source: http://www.infosys.com/about/awards.asp
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Wipro Technologies Limited
Overview
. Established 1980
. Over 50,000 employees
. Revenues during FY2005-2006 USD 1.813 bn
. Currently serves over 412 clients in 35 countries
through global delivery centers in 38 locations
.1st company outside the USA to receive IEEE award
.Wipro is the worlds largest independent R&D house
.Worlds 1st IT company to use Six Sigma
Source: http://wipro.com/aboutus/fact_file.htm
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Industries Served by Wipro
. Automotive
. Avionics
. Computing Industry
. Consumer Electronics
. Energy & Utilities
. Finance
. Government
. Insurance
. Manufacturing
. Media & Entertainment
. Retail
. Telecom
. Travel & Transport
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Analyst Reports
. Wipro is best suited for large – scale
global SAP projects: Forrester
.Wipro has the strongest IMS offering among the
offshore firms: Forrester
.4th largest in the world in terms of market
capitalization in IT services
Source: www.wipro.com
60
Testimonials
Jack Welch
General Electric
John Chambers,
CISCO Systems
"A truly global company will be one that
uses the intellect and resources of every
corner of the world. India is a developed
country as far as intellectual capital is
concerned. The opening of (offshore)
development centers mark a new level of
commitment by GE in India."
"We are expanding our presence in India to
take advantage of the ample research and
development talent available...our Global
Development Centre is a critical component of
our future success."
Bill Gates,
Microsoft
Michael Dell,
Dell Computers
"Three years ago, during my visit to India, the
country was emerging as an IT superpower. Today,
the country is handling the most sophisticated
projects in the world...I am impressed with the
talent we have in our India Development Centre
and the quality of software being developed.“
"India can become a major part of Dell's
operations and a major source of the human
capital that Dell takes on as a company...and we
are looking for further opportunities to take
advantage of skilled labor."
Source: http://www.nasscom.org/artdisplay.asp?cat_id=27
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Conclusion
. The world is transforming into a global village.
. Developing nations like China and India will continue
to play a major role in the world economy.
. Companies should go into developing countries not
only for low cost labor but to trap the huge local
market.
The Indian Perspective
.The IT-ITES industry bound to grow by leaps and
bounces.
. Efforts should be made to further reduce
unwanted bureaucracy and invest heavily in
infrastructure.
62
IT Services in Developing Nations
Mark Tegtmeyer
Stephanie Schmitt
Aarti Dinesh
Vijay Gummadi
63