Thought Leadership

International - India's technology landscape

Seeing the Big Picture

India’s rise to the technology forefront began in the 1990s when a wave of software arbitrage played a key role in the growth of some of India’s most respected names in IT, including Infosys, Wipro and TCS. The subsequent Y2K hysteria propelled India’s reputation as a technology powerhouse even further. And in the new millennium, the outsourcing boom catapulted India onto the global stage, albeit with its fair share of negative publicity.

There is more to the fabric of India’s technology market than the growth timeline or even the popular perception of India as a cost-effective, extremely skilled resource base of software developers. Those are just two parts of a much bigger picture.

An emerging hardware hub?
While India’s software prowess is well known, the country is emerging as a hardware manufacturing base. For years, companies cited a lack of critical domestic volumes to justify electronic product assembly or manufacturing in India, but recent developments point to promising changes. In October 2005, a group of 10 nonresident Indian entrepreneurs announced plans to set up a U.S. $3 billion chip-manufacturing plant in a technology partnership with AMD. Intel soon followed with a $1 billion plus investment that does not preclude setting up a chip-testing facility. In addition, Nokia, Flextronics, Dell, Elcoteq, LG and Samsung have all announced plans to tap India as a base to manufacture or assemble locally.

From BPO to KPO
Once seen as the world’s back office for low end business process outsourcing (BPO), India is positioning itself as a “cyber guru,” capable of delivering advanced knowledge process outsourcing (KPO). According to National Association of Software and Services Companies (NASSCOM), financial process outsourcing is already witnessing explosive growth with many of the leading financial institutions already outsourcing knowledge-intensive operations such as risk assessment, equity research, data mining and modeling and market research. Evalueserve, a business intelligence, market research and IP firm, estimates that India can capture 71 percent of the global KPO market by 2010, up from 56 percent in 2005.

Wired and wireless
Probably the sector that has seen the most rapid and significant change in technology is India’s mobile telephony and mobile computing sector. According to the Cellular Operators Association of India (COAI), India’s subscriber base grew from 5.4 million cellular subscribers in December 2001 to over 58.5 million in Dec 2005¹.

The consumer segment is rapidly gaining importance, driven by adoption of mobile services. Gartner had predicted an increased contribution towards spending for telecommunication services, from 35 percent in 2002 to 43 percent in 2005 of the total spent in telecom by the consumer segment². By 2008 they predict the consumer segment will account for more than half of telecommunications spending. Declining Average Revenue Per User (ARPU) on voice calls has forced operators to look to alternate revenue streams with better margins. And value-added data services seem to be the first choice for operators.

Then there’s mobile computing. Interestingly, though PC penetration in India is still low at about 4.5 million units³, laptop sales have been growing dramatically when compared to desktop PCs. That’s not to say there isn’t a market for desktop PCs, which still see strong demand in tier one and tier two cities. According to the latest Manufacturers’ Association for Information Technology (MAIT) and Indian Market Research Bureau (IMRB) study⁴, sales growth in smaller towns and cities continued undiminished in the first half of fiscal 2005-06. Together, these cities accounted for 70 percent of total PC sales, registering a growth of over 44 percent. However, according to IDC, India's notebook market recorded the strongest YTY growth among Asia Pacific countries at 167 percent in Q3 2005, more than triple the region's growth of 54 percent during the period.

Rising income levels among India’s growing middle class have shattered status symbol image attributes previously associated with a laptop and corporate India. Laptops are gradually being seen as a necessity, much the same ways as a vehicle or a mobile telephone are already being seen as “must-haves” across consumer segments.

Fastest growing market
According to IDC’s predictions, India is poised to be the fastest-growing domestic IT market in the Asia Pacific region in 2006. It is predicted that it will continue to grow at 19 percent, while China will follow at 12 percent.

The future is very exciting, and in just five years, the Indian IT industry may have little resemblance to that of today, yielding extraordinary benefits with network security, convergence, IP telephony, software as services and instant messaging all maturing. Utility computing and wireless LANs will also become more established while India may even begin to experience the value of RFID tags, grid computing, Web conferencing and real-time infrastructure during the next three to five years.

¹Cellular Operators Association of India (COAI)

²Gartner press release, Dec 2005; Gartner says Indian enterprises will spend U.S. $22.88bn on information communications and technology in 2005

³IDC

⁴Manufacturers’ Association for Information Technology (MAIT)

For more information, contact Joshy Mathews in Text 100's Bangalore office.