Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IT enabled Services: The next hype? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 27, 2001

    IT enabled Services: The next hype?

    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
    Call centres
    Medical transcription
    Back office operations,
    Revenue accounting,
    other ancillary operations
    Insurance claims
    Legal databases
    Content development / animation
    Logistics management
    HR services
    Network consultancy
    and management
    Date search
    and analysis
    Engineering and
    Web services

    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
    US$ bn  
    Human resource
    Customer interaction
    Finance and
    Data search, integration
    and analysis
    Remote education 15

    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.



    Equitymaster requests your view! Post a comment on "IT enabled Services: The next hype? ". Click here!


    More Views on News

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Wipro: A Good Performance (Quarterly Results Update - Detailed)

    May 4, 2017

    Acquisitions and digital services aid growth.

    Wipro: Another Flat Quarter (Quarterly Results Update - Detailed)

    Feb 9, 2017

    Wipro has reported a 1% QoQ decrease in the consolidated topline and a 1.9% QoQ increase in the consolidated bottomline for the quarter ended December 2016.

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 (Close)



    Compare Company With Charts