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Corporate strategy is a direction by which an organization achieves and sustains success. TheÂ development of a corporate strategy involves establishing the purpose and scope of the organization's activities and the nature of the business, the environment in which it operates its position in the marketplace and the competition it faces. (www.Ventureline.com)
India's IT industry is considered as one the most successful and profitable industry in the world as it is the indentified as the powerhouse for developing computer softwares. IT industry is known for its increased productivity and therefore is a key driver of global economic growth. Around 2.2 million people have been employed in the IT industry of India. Information Technology industry in India has grown at an average annual rate of 30% in the last ten years and has grew from US$150 million in 1991-92 to US$69.4 billion in the year 2009. IT industry's contribution to India's GDP has crossed 7% in the year 2009 with a annual growing rate of 28% per annum. The 35% of total exports from India will be from IT and 225 billion US Dollars worth of market capitalization from IT shares (source: Ministry of Information Technology - Govt. of India)
Indian IT industry can be divided into
IT Services are classified as consulting, systems integration, IT outsourcing, managed services, hosting services, training and support/maintenance. It contributes to 57 per cent of the total software and services exports and is estimated at USD 26.9 billion, with a growth of nearly 16.5%.(
Research & Development and Software Products
With an increase in the number of software product businesses as well as the growth of the existing companies, R&D, and software products exports segment is expected to grow by 14.4% to touch USD 7.3 billion, which highlights the strong focus on improving IP driven service capabilities in India. Indian software product companies revenues are expected to account for 21 per cent of total software product revenues in year 2009(source: Economy watch)
Â Business Process Outsourcing
BPO service portfolio was strengthened by vertical specialization and global delivery capabilities. The revenue from the domestic markets is US$12.8 billion in 2009.It is the fastest growing segment in the IT industry with a growth rate of 40% in 2009. The growth is led by the BFSI, Telecom and Airline industries. More than 80% of services are being delivered globally from India. The sector concentrates more on enhancing service delivery efficiently and productively.
The domestic hardware segment had a growth rate of 17% in the year 2009 while the exports remained steady. Almost all the top international brands have their manufacturing plant in India and supply globally. Due to the rise in the number of IT companies, sales of desktops, laptops, servers, routers, etc have been on the rise in recent years. The export market, dominates the IT industry accounting for 75% of the revenue.
Top Ten IT Companies in India
(in Rs mill)
INFOSYS TECHNOLOGIES LIMITED
SATYAM COMPUTER SERVICES LIMITED
I-FLEX SOLUTIONS LIMITED
TATA INFOTECH LIMITED
MPHASIS BFL LIMITED
PESTEL Analysis of IT Industry in India
The government of India has set up a separate Ministry for Information Technology as they consider IT as their major powerhouse. Their support and policies have been the major strength for IT industries in India. For a developing country like India with huge population, the biggest benefit is that it generates huge revenues to the country and employment opportunities. The government has initiated National e-Governance Plan in the year 2006. The government has taken number of steps for promotion of IT industry like Special Incentive Package Scheme (SIPS).
The global economic crisis sharply reduced the demand for IT services as clients tried to cut cost. So the growth rate slowed down in the 2009-2010 with only an increase of 13%. India has 51% market share of the offshoring market. Information technology industry of India has been attracting considerable amount of foreign direct investment in the recent years. The worth of the IT industry in India was 5.7 billion US dollars in the financial year 1999-2000 and since then it has grown at an extreme rate to be worth 69.4 billion US dollars in the 2009. In India Information Technology has been best as far as rate of growth is concerned and has played a major role in drawing foreign funds into the domestic market.
India is well known as the home of IT professionals with necessary skills and expertise who could meet the demands and expectations of the global IT industry. The salary paid for the workforce comparatively lower than the developed nations which make the Indian IT services highly cost efficient and services like BPO have significantly expanded creating a huge job market. The countries like US and UK choose Indian IT industry to outsource because of the huge pool of English knowledge IT professionals. The industry has facilitated social development, contributing over 50 million US $ towards Corporate Social Responsibility activities in 2008-2009.
The growth in the IT industry is due to the technological advances which are driving demand in the market. Now with the availability of advanced communication technologies, it has become easy for the companies to spread the business globally. The MNC's are keenly concentrating on higher value service like research and development so that they keep on improving the technological in their products and services so that they stay alive in the market. The technological developments achieved by Indian companies have made India one of the IT HUB in the world.
IT industries in India have started focusing on bringing environmental changes with the help of technology. Some companies have been able to achieve them in their products and the people have started using them. lot of organizations have approached the IT companies to come up with technological advancements against pollution to reduce global warming and to save natural resources. These advancements have brought lot of changes in the society and the environment.
The Ministry of IT, Govt. Of India have a set of rules and regulations which all the IT companies have to follow and should form their company policies accordingly. The Information Technology (Amendment) Act, 2008 a legal framework for transactions carried out electronically has been enforced to address the needs if National Cyber Security which will instil confidence of the users and investors.
Porter Five forces for IT Industry in India
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Rivalry among Existing Competitors
Threat of Substitutes
Threat of new entrants:
The threat of new entrants is high as the cost of starting an IT company is low and it is easy to get the license from the government. Hence the number of technology parks has been increasing with the encouragement of the Government. There are also large number of venture capitalist who are ready to fund for new start-ups which creates an opportunity for the employees to jump to a better company.
2) Rivalry among competitors
With the increase in the growth rate of IT professionals, the number of IT companies is on the rise where the employees are ready to work for long hours with low salaries which allow the companies cut cost and invest in new technologies so that they could compete in the market. It's always been about who launches the product or software first among the competitors which is like a race against time for a high prize money.
3) Bargaining power of buyers:
Since there are so many IT companies in India there are lot of options for the clients to choose the company. So it is very important to build brand image and recognition in the market which would attract clients and consumers. The clients now days look for small and medium companies to cut cost and complete the project before the deadline.
4) Bargaining power of suppliers
IT has always been a cost center in a business. There are many competitive suppliers in the market to provide alternate service so the power of the suppliers is low.
5) Threat of substitutes
IT industry in India is currently on a high growth rate because of highly skilled labour, government policies and low cost of labour. But countries like China and European countries have started similar opportunities, so it is very important for the Indian industry to be innovative and move into different sectors to keep out of the competition.
Drivers for Change
Indian IT industries are now implementing new technologies in their work process so that they can complete more number of projects within the annual year. They give proper training to their employees to implement this change. More companies are now focusing and spending on R &D to develop new softwares or products. Few IT services companies have also ventured in building software products for the betterment of the company.
With the competition among the top companies increasing, the companies wish to get high budget projects from their clients so that their revenue increases by a huge margin as well as their name in the market.
Socio - Cultural changes
The BPO sector attracted lot of interest among the youth during the IT boom in India and lot of IT professionals wished to work in those companies. But slowly the rate has decreased due to the odd timings and the quality of work. Now days people show less interest to work in these companies. Knowing this the companies are slowly moving from business process outsourcing to knowledge process outsourcing.
Life Cycle Model for IT Industry in India
The IT industry in India is still in the growth stage with lot of new companies coming up in the market and earning huge amount of revenue to the country. With the fall in the recession the companies did lot of cost cutting operations to earn profit and now with things getting stable worldwide the companies will again start investing and show a steady growth as always. The chart below shows the increase in the revenue in the past five years and would surely take few years to reach the mature stage of the industry life cycle.
IT Growth Rate (in Rs. Crore)
Engineering Services Outsourcing (ESO) - the next frontier for India
Although the growth rate of Information Technology Outsourcing and Business Process Outsourcing (BPO) is growing from strength to strength, a new opportunity is opening for India which is Engineering Service Outsourcing (ESO).It can be considered as a huge market with a global spending estimated at $750 billion per year and it's expected to increase to more than $1 trillion by 2020.
Â ESO market size estimate by research firms
Research company Report released Market size potential estimates
ValueNotes 2006 US $1 billion by 2010 (Indian ESO market)
CRISIL Research 2008 US $7.5 billion by 2012-13 (Indian ESO market)
Frost & Sullivan 2008 US $40 billion by 2015 (Indian ESO market)
Nasscom and Booz Allen Hamilton 2009 US $50 billion by 2020 (Indian ESO market)
Source: ValueNotes Research
Indian 's are well known for their engineering talent who are suitable for ESO and ITO/BPO work when compared to other countries like China and Russia who are likely take this kind of work. The outsourcing boom has also created extensive experience in forging strong client partnerships, in building strong, technically focused organizations and in competing in the fast-changing global market.
Few challenges India might face to succeed are although they train employees for BPO and ESO, not all are equipped with the required skill set to succeed in the market and the in sufficient physical infrastructures are likely to hamper growth as well. It is difficult to succeed without significantly enhancing manufacturing capabilities which is not easily accomplished according to the infrastructural constraints. To achieve this success India needs to take steps to address the gaps. To make full value of this opportunity India must develop high class infrastructure in a number of cities within few years and have to improve the standards of engineering education. This is one serious investment which has to be planned well by the Ministry of Information Technology, government and corporate leaders else ESO will be a missed opportunity for India.
Â Â Scenario 2
Threat for IT industries in India as the Indian rupees eases against US dollar
The growth of Indian economy depends more on the IT sector and all the money transactions are done on the basis of dollar. So as the value of dollar decline it will surely affect the major part of IT sector and there by Indian economy. It is very important that the It companies get prepared for the downfall in the revenues and work out different strategies in investing in high budget projects. Indian IT outsourcing companies will be the most affected in this crisis they will be in a state panic as outsourcing to India will not be cost-effective anymore which will cause the outsourcing trend to reverse sharply. This will lead to a large layoff of employees and will lead to a massive setback to IT company stock prices, which are already in decline. It means that the jobs outsourced from US will become very low as they will try to outsource it in their own country with the salaries sharply increasing in India and declination of US dollar thereby creating more employment opportunities for their country. This is an important issue which as to be seriously dealt as it has the capabilities to post a threat to the IT industries in India.
High Attrition Rate in IT- BPO - Challenge for Human Resource
In the year 2009 the attrition rate for BPOs in India was 23.5 % compared to 15 % in the general market. The attrition rate for voice-based BPO's is around 55-60 % and 15-20 % for the non-voice based processes. It is also that that the outsourcing industry is expected to face a shortage of 2,62,000 professionals by 2012. (Nasscom, 2010 The attrition rates have become the major threat and the biggest challenge for the HR professionals of this sector and are focusing on their strategies to tackle the disruption caused due to the shortage of the skilled manpower as well as the unplanned exists. It also increases costs and affects productivity of the Company
The reasons for employees to leave a BPO company are:
Repetitive nature of work and the average number of calls
Physical strains because of long and odd working hours
No growth opportunity/lack of promotion
For higher Salary
For Higher education
No personal life
Problems with co workers and managers
Policies and procedures
Conducive work culture or environment
Handling abusive calls
To sustain its growth and position the human resource professionals have to re-formulate their strategies to check the problem of the attrition rate without losing their cost-effectiveness. They have to offer employees a higher rate of performance-based incentives if they are going to retain talent. In future BPOs should be in a position that even if there is high attrition rate, it can be adjusted in the recruitment process this would create a synergy between the work life, growth opportunities, and the requirements of the job to control the attrition in the organizations. They can sponsor the employee for post-graduate education programs which will hold the employee in the organization.
Hence it can be concluded that the threat for IT industries in India as the Indian rupees eases against US dollar is the most likely scenario for the future of the industry. As such companies should engage in greater financial hedging so fast to overcome or minimize this financial risk. The company also has to refine its current financial strategies to overcome this downfall. As most the transactions in the IT industry is done in dollars, the decline of dollar rate will badly affect the IT sector and there by the Indian economy.