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IT enabled services: Strong growth - Views on News from Equitymaster
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  • Jun 4, 2001

    IT enabled services: Strong growth

    Though the software sector seems to have hit a speed breaker due to the economic slowdown in the US the IT enabled services sector continues to grow unfazed. For FY01, according to figures released by Nasscom, IT enabled services sector grew by 70% to clock revenues of Rs 41 bn (US $ 881 m). The sector employed 70,000 people. For FY01 the projected figures was Rs 40 bn in revenues (66% growth rate) and the sector was expected to create 68,000 jobs. Thus, the sector has performed better than expectations. The industry was a small Rs 24 bn in size in FY00 employing just 45, 000 people. Thanks to its higher growth rate the share of IT enabled services increased from 6.5% of the software and service revenues in FY99 to 10.6% in FY01.

    The segment (within the sector) that has shown the fastest growth rate is that of customer interaction services (call centres and customer support centres). The segment has grown by 112% in FY01. By year 2003 the market for call centres is expected to be Rs 2,790 bn (US$ 60 bn). Therefore, considering the small size of the Indian industry similar growth rates could be expected in the future.

    Other segments that have shown strong growth rates include content development, animation, engineering and design. Revenues from these segments almost doubled to Rs 16 bn (US $ 344 m). Remote education, data search, market research, network, consultancy and management together grossed Rs 1.4 bn (US $ 30 bn) a growth of 27%. The transcription business posted a comparatively sober growth of 33% to grow to a size of Rs 1.6 bn (US $ 34 m). The back office segment grew by 42% to clock revenues of Rs 13 bn (US $ 290 m).

    The big five markets
    US$ bn  
    Human resource 44
    Customer interaction 33
    Finance and accounting 15
    Data search,
    integration and analysis
    Remote education 15

    With a tough economic environment companies will look to cut costs and therefore outsourcing will be an obvious option. Therefore, the IT enabled services industry in India could gain.

    But the going will not be easy as the value proposition that India has to offer is still low cost of services and this is not very difficult to imitate. With countries like China, which have a larger wealth of human resources the threat looms large. Therefore, the imperative is now on the corporates to create strong brands. As for the government the job is to improve the infrastructure in terms of bandwidth and power. Slowly, as the Indian corporates provides high end IT enabled services like data storage they will get more and more power and bandwidth hungry. A shortage of any of these two commodities could hurt the low cost proposition, which once lost would be very difficult to regain. Therefore, its time for the IT enabled services sector to aspire for a value proposition that is more than low cost.



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