McKinsey-Nasscom report says India will maintain its lead.
December 13, 2005
The Indian information technology and business process outsourcing industry is poised to grow ten-fold by 2010, according to a report released Tuesday.
While Indian companies will continue to maintain their 46 percent share of the global business processing outsourcing (BPO) market and 65 percent share of the IT outsourcing market through 2010, the combined market is estimated to grow from the current level of $30 billion to $300 billion by 2010.
These two sectors of the Indian economy will earn $60 billion in exports by March 2010, an increase from 3 percent of gross domestic product to about 7 percent, according to a report by the Indian software trade association Nasscom and global consulting firm McKinsey.
The 2005 report, the third by the two organizations in the last six years, projects that the BPO industry will grow from $11.6 billion today to $150 billion by 2010, while IT outsourcing will increase from $18.4 billion to $150 billion over the next five years.
The Indian industry is in a strong position to leverage the global software opportunity, but extensive innovation by industry stakeholders could further accelerate growth in export revenues.
“Sustaining industry leadership will require Indian players to continue driving the frontiers of operational excellence,” said Subramanian Ramadorai, chairman of Nasscom and chief executive of Tata Consultancy Services.
Nasscom and McKinsey have jointly developed a BPO benchmarking framework called Process360 to help providers identify key operational gaps by analyzing 14 different operational areas.
Growing Employment
The projected growth of the Indian IT and BPO industry will directly employ approximately 2.3 million people, provide indirect employment to another 6.5 million workers, and pay for a massive infrastructure build-out by 2010, according to McKinsey partner Noshir Kaka.
The IT and BPO industry could account for over 44 percent of
Highlighting businesses that had not seen significant penetration by Indian companies but could nonetheless become potential growth areas, Mr. Kaka said Indian companies had captured a tiny segment of the outsourcing pie in several verticals.
Indian companies only garnered 10 percent of the market in the banking-services business and only 9 percent of the auto manufacturing business.
Stumbling Blocks
However, this phenomenal growth is not going to be a cakewalk, warned industry experts.
According to Jayant Sinha, another McKinsey partner, three key issues could prove to be stumbling blocks if they are not addressed systematically.
“First, the skills and quality of the workforce need to be improved, since only 25 percent of technical graduates and 10 to 15 percent of general college graduates are suitable for employment in the offshore IT and BPO industries respectively,” he noted.
“Second, as margins come under pressure, companies must be able to continuously improve operational excellence, in addition to innovating and developing new service lines,” added Mr. Sinha.
Urban infrastructure also needs immediate attention, as offshoring companies deal with bottlenecks ranging from power to cafeterias. Further growth will have to come from entirely new business districts outside of Tier I and Tier II cities, said Mr. Sinha.
The report also explains threats that the Indian IT industry could possibly face in the near future, including political opposition in Western countries like the
The report states that Indian companies need to stay ahead of competition from other low-cost destinations such as
