The year 2006 saw a significant increase in venture capital activities, especially in the IT and BPO segments.
INDIA IS hugely visible on the world map, thanks to the IT professionals. Thanks also to the rapid strides made by the IT and ITeS (IT-enabled Services) sectors in the last decade, the Indian economy has come under intense world attention. This growth has had a spiralling effect on the economy. Given the current trends, the industry is bullish on the future. Yet, the industry senses a change in the landscape and realises the need to adapt to the situation.
The IT and ITeS/BPO (business process outsourcing) sectors have recorded a buoyant growth of over 30 per cent and the trend is expected to continue in the future. The growth was not just confined to large organisations, says a National Association of Software and Service Companies (Nasscom) report. The year that has just ended has indeed seen widespread growth, encompassing both the big and the small players. The IT sector is witnessing some clear trends among the big players. The year 2006 saw a sharp separation between Tier I and Tier II players. While the big six players — TCS, Infosys, Wipro, Cognizant, Satyam and HCL Technologies — grew above the industry average, almost all the Tier II players, such as Patni, iGate, Mastek, Polaris and others, grew below the industry average.
The ITeS/BPO sector continued to maintain a significant growth. There was a shift towards non-voice processes. And, there was a visible movement towards knowledge process outsourcing (KPO) and value-added services.
The year 2006 also saw signs of consolidation in the marketplace. On the IT services side, EDS had acquired MPhasis and Cap Gemini bought over Kanbay. On the BPO front, RR Donnelly annexed Office Tiger.
Venture capital
The year also saw a significant increase in venture capital activities, especially in the IT and BPO segments. According to a study by business intelligence firm Evalueserve, 44 venture capital firms had already raised funds to invest in Indian start-ups, while another 21 were in the process of doing so during 2006-07.
The year that has just gone by saw some frenzied hiring by Tier I players. The top six IT services companies alone reported a net addition of one lakh professionals. With the bulk of the engineering professionals being mopped up by the Tier I players, there was little left for Tier II players who have started visiting Tier III and Tier IV engineering institutions. It was a double whammy for Tier II players as their attrition climbed above 20 per cent in 2006 and their ability to hire from campuses was also challenged. Even for Tier I players, the attrition climbed up in each of the last six quarters.
Shiva Ramani, Chief Executive Officer of SlashSupport, feels that Tier II cities can be tapped with improvement in the infrastructure and telecom connectivity, which should be the next wave.
With the dawn of 2007, the IT and ITeS/BPO industry should be prepared for the challenges and successes. On the brighter side, the industry will see more and more third party Indian IT-BPO companies and MNCs graduate towards sophisticated and complex services such as knowledge process outsourcing, remote infrastructure management, offshore product development and design and engineering services. On the competition front, the country will have to keep a close watch on China, the Philippines, Mexico, Canada and Malaysia.
"The growth for the IT industry in 2007 would largely be driven by three broad phenomena — expanded range of new services, including the BPO and IT infrastructure services; industries beyond financial services such as pharmaceutical, telecommunications, manufacturing, retail, media and entertainment strategically adopting offshoring; and European companies embracing offshoring in a major way," according to R. Chandrasekaran, President and Managing Director, Cognizant.
"Global development centres will also see a marked increase. Indian and MNC companies will leverage development centres outside India in a big way in areas such as China, Malaysia, the Philippines, Eastern Europe and Latin America to service global customers locally and The industry's move towards lower volume and higher value offerings as opposed to entry-level back-office services, will gain momentum during 2007, making for a more evolved and mature IT-BPO environment.
The China factor
The major challenge for India during 2007 is expected to come from China, especially in the IT segment.
Today, nations are competing in the global market and quality cannot be compromised. China has invested heavily in education and want to compete in the global arena. The other major factor is that the Indian government's spending on IT is far lower than the Chinese government.
SHANTHI KANNAN
In Chennai
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