The markets seem to be too preoccupied with the software story. May be because software companies have shown performances that are every shareholders dream come true. Doubling toplines and bottomlines every year that too at operating margins as high as 30%. But there is one industry that not many have been talking about other than Mr. Devang Mehta. It is the IT enabled services industry. The industry was a small Rs 24 bn in size in FY00 employing just 45, 000 people. But for FY01 the projected figure is Rs 40 bn (66% growth rate) and employing 68,000 people. The size of this industry is just 10% of the Rs 390 bn software industry. Interesting? But wait till you hear the 2008 projections, the size of the industry is expected to be Rs 810 bn employing 1.1 m Indians.
But why will the industry grow so fast? For that let us understand what the IT enabled services industry is all about. The IT enabled services industry provides services like back office or helpdesk via the Internet. This is possible because for services like these, the physical location of the service provider is immaterial (thanks to the Internet). Suppose a company feels that it is maintaining a payroll management system is not a part of its core activities and it should outsource the job. If this company is based in the US it can send the data to a company in India through the Internet and get its work done.
The IT enabled services spectrum
Back office operations, Revenue accounting, other ancillary operations
Insurance claims processing
Content development / animation
Network consultancy and management
Date search and analysis
Engineering and design
But why India? Well for the same reasons that led to the boom in the software industry, to get the advantage cheap (very cheap) skilled (not very skilled) manpower companies all over the world are outsourcing these services to India. The skill set requirement here are quite simple: ability to operate computers and knowledge of the Queens language. Currently, an area in this industry that is rapidly growing is the business of call centers. Companies have set up their call centers in India that serve to customers from all over the world.
Due to the fact that the skill set requirement are not high for this particular industry compared to the software industry (wherein the companies and programmers are almost breathless keeping pace with the technology developments), therefore the costs are low. Hence, the operating margins for the industry might be as high as the software industry. Again the companies need not worry about attrition and rising wage costs as the industry is certainly not very knowledge intensive except for certain areas like data search, integration and analysis.
The hurdles for this industry are the Internet infrastructure in the country. Due do bandwidth shortage many of the services cannot be provided as efficiently as required. The second problem facing this industry is the power scenario in India. These two issues have to be addressed immediately for the rapid growth of the IT enabled services industry in India.
The big five markets
Human resource services
Customer interaction services
Finance and accounting
Data search, integration and analysis
The industry has a lot of players notable ones being Wipro, Global Tele, Silverline, Tata Infotech, NIIT, Aptech and a whole lot of others. Some software companies like Mphasis are eyeing the market through their subsidiaries. Msource, an Mphasis subsidiary, is making a foothold in the call centre business.
One thing that is certainly against this industry is the fact that it is mostly based on cost advantage and not knowledge. Therefore, the competition from other countries like China is clear but in the future. Till then it is the time to create brands and establish credibility for quality service. That should make life difficult for the competition.
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