Traditional Markets
SEGMENTS
The size of the revenue streams are regarded as the best criteria to asses the success of revenue models. Revenue models themselves address the market segments they expect to service. Revenue stream classification is therefore a good surrogate to identify market segments that generate them.
Most IT majors report revenue streams in more ways than one. Typically the client’s industry class or vertical domain identifies the market segment by industry. The service offering identifies the market segment by type of service provided. The revenue streams are also classified by geographies. Technology is also used to segment revenue streams.
Geographies |
Industry Classes |
USA |
Manufacturing |
Europe |
Banking and Finance |
India |
Insurance |
Rest of the World |
Telecom |
Retail |
|
Technologies |
Service Offerings |
Distributed systems |
Development |
Mainframes |
Maintenance |
Internet |
Y2K |
Telecom systems |
Re-engineering |
Traditionally the Indian IT industry has provided on-site manpower requirements that evolved into offshore development centres as the gap of cost between the two narrowed. Most of the business has come from the USA, Europe and rest of the world. Manufacturing, banking, finance and insurance, telecom, and retail have been the major industry classes’ serviced by the Indian IT industry.
The Indian IT industry has provided development, maintenance, Y2K, and re-engineering services to these clients. The Indian IT industry has been supporting their clients on distributed systems, mainframes, internet, and proprietary telecom systems.
SIZE
The size of the Indian IT market has grown through its focus on geographic segments servicing the USA, Europe and the rest of the world. Offshore development centres servicing more of the same industry classes has driven the growth.
|
Annual turnover |
No of Companies |
Percent of Companies |
Above Rs.1000 crore |
5 |
1% |
|
Rs.500 crore - Rs.1000 crore |
7 |
1% |
Rs.250 crore - Rs.500 crore |
14 |
2% |
Rs.100 crore - Rs.250 crore |
28 |
3% |
Rs.50 crore - Rs.100 crore |
25 |
3% |
Rs.10 crore - Rs.50 crore |
193 |
24% |
Below Rs.10 crore |
544 |
67% |
Historical evidence suggests radical shifts in technologies and offerings had to happen to enable the Indian IT industry to its phenomenal growth rates. These technologies, developed and promoted by the geographical segments IT industry serviced, have always created significant costs and posed high risks to the Indian IT industry.
A consequence of centring the industry around technologies from other geographical segments has been the gaps in skills between those needed and those provided for by the IT manpower training industry.
STRUCTURE
The Indian IT industry’s size is heavily skewed to the small. Although they successfully emulate the revenue models of their larger counterparts, these smaller units have been unsuccessful in emulating their growth strategies.
Less than 4 percent of the Indian IT industry makes for the bulk of its revenues. Together the traditional IT markets contribute to less than 2 percent of the Gross Domestic Product of India. Of this less than 0.5 percent contribution is from servicing traditional domestic IT markets and 1.5 percent from traditional exports.
NEW SEGMENTS
Since the mid ‘90’s the units providing business support enabled by IT were included in the IT industry as IT enabled services (ITES).
The ITES in India has been offering to its overseas clients customer interaction services (including call centres), back office operations/revenue accounting/ data entry/data conversion (including finance and accounting/HR services, transcription/ translation services), content development, and other services including research.
|
ITES |
No of Companies | Percent of Companies |
|
Customer Care |
103 |
13% |
Web Sales |
100 |
13% |
Billing services |
81 |
11% |
Database marketing |
80 |
10% |
Accounting Transactions |
76 |
10% |
Document Management |
75 |
10% |
Transcription |
75 |
10% |
Telesales |
70 |
9% |
Benefits Administration |
32 |
4% |
Tax Processing |
30 |
4% |
HR Admin |
26 |
3% |
Biotech Research |
15 |
2% |
The ITES has grown through American companies outsourcing their routine operations to cheaper service providers. Most ITES is as yet at the lower end of the business value chain as indicated by table 2.
STRENGTHS
The Indian IT industry’s biggest strength is its large and mobilised manpower produced by an organised technology education industry.
WEAKNESS
Indian IT industry has been developing manpower based on technology skills that has short lifetimes. This places a high cost to have a rapid and continuous turnover or upgradation of human skills deployed in the industry.
Indian IT industry is centred on technology that is not indigenous. This means that its human resource and technology industry is extremely vulnerable to the changes in technologies and standards as well as the costs to access these technologies or standards. Access, costs, and experience with technology limit the rapid deployment of new technology solutions and leave the industry to make offerings that are at the lower end of the technology spectrum.
The Indian IT industry is focused on industry classes that have had traditional IT spending. Many of these have questioned or begun to question the return on investment (ROI) on IT spending. This threatens to slow down the growth of the Indian IT industry.
The Indian IT industry is also very service offering focused. It has focused on development, maintenance, Y2K and to a very small extent re-engineering. These service offerings are firstly at the low end of the value chain. Secondly most of the service offerings in these categories are time-bound or of a fixed-volume. The offerings are therefore very vulnerable to changes with time.
OPPORTUNITY
The Indian IT industry has an enormous opportunity to discover needs based IT markets. Focusing on the information needs of the Indian society, the Indian IT industry can leverage itself and boost the entire Indian economy in the process.
The Open Source and Free Software movements offer enormous opportunity to the Indian IT industry to develop address the societal needs. These movements not being centred on revenues for a product have greater potential to address and create research, development, products and services around the needs of society.
From a mere 0.4 computers per 1000 people in 1990 China has moved upto 19 computers per 1000 people in 2000. During the same period India has moved up from 0.3 computers per 1000 people to a mere 6.0 computers per 1000 people. In 2001 China had 5 million computers against 6 million in India. China therefore has a much higher computer penetration of 19.3 computers per 1000 against 5.8 computers per 1000 in India, a drop from the 2000 numbers. In 2001 8.9 million computers were sold in China against 1.8 million in India. China also boasts of higher teledensities: moving from 6 phones per 1000 people in 1990 to 111 phones per 1000 people. India moved from 6 phones per 1000 in 1990 to a mere 32 phones per 1000 in 2000. Although a late entrant China has already surpassed India in its information technology, especially computer and telecommunications initiatives. Chinese IT spending is 1.1 percent of its GDP: more than twice the Indian figure of 0.5 percent. China’s per capita GDP is 854$ in comparison to 450$ of India putting the per capita IT spending of China at 8.9$ more than thrice that of India’s 2.4$. China’s success is attributed to its focus on homegrown technology for home use. The Chinese software exports were traditionally very small in comparison to its Indian counterparts. China focused on local solutions to the extent that it used local language for computing from the outset. The Chinese have experimented with technology, reduced development costs and innovated every product cycle. The Chinese were able to grow their per capita GDP faster, perhaps as a result of the use of IT for Chinese society rather than the rest of the world. (Source: Based on presentation by Dr. F.C. Kohli) |
THREATS
The Indian IT industry is largely servicing markets outside India. In a post September 11 scenario the global economies are even less resilient than before. Not only are similar scenarios likely to disrupt new contracts but also disrupt operations.
Even without terrorism or wars the bulk of the industry depends on the US and Europe. socio-economic or political crisis in these locations makes the entire Indian IT industry extremely vulnerable.
The comfort of established revenue models place a huge threat in the ability of the Indian IT industry to chart new grounds, take new opportunities and undertake good business risks in building new revenue models.
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