A McKinsey-NASSCOM study reports India will maintain its lead in the field of information technology and business process off-shoring / outsourcing, an industry that is poised to grow ten-fold by the year 2010.

According to it, Indian firms will continue to maintain 46% of the global business process outsourcing (BPO) market and 65% of its share in IT outsourcing market through 2010. A combined market that experts estimate will grow from its current levels of $30-billion to $300-billion by 2010.

The report by NASSCOM, the Indian software trade association and McKinsey, global consulting firm says both these sectors of the Indian economy will earn $60-billion in exports by March 2010, increasing to 7% of gross domestic product from 3%.

Their 2005 report, the third by the two organizations in the last six years, projects the Indian BPO industry will grow from today’s $11.6-billion to $150-billion by 2010, while IT outsourcing will increase from $18.4-billion to $150-billion over the next five years.

There is no doubt, the Indian industry is in a strong position to leverage the global software opportunity, and extensive innovation by industry stakeholders will further accelerate growth in export revenues.

“Sustaining industry leadership will require Indian players to continue driving the frontiers of operational excellence,” said Subramanian Ramadorai, Chairman of NASSCOM and Chief Executive of Tata Consultancy Services.

Together, NASSCOM and McKinsey have developed a BPO benchmarking framework called Process360 to help providers identify key operational gaps by analyzing 14-different operational areas.

Growing Employment

Projected growth of the Indian IT and BPO industry will see approximately 2.3-million people employed directly, as well as, provide indirect employment to another 6.5-million workers, including paying for a massive infrastructure build-out by 2010, according to Noshir Kaka, a McKinseypartner.

The IT and BPO industry could account for over 44% of India’s export growth over the next five years. Mr. Kaka also highlighted businesses that had not seen significant penetration by Indian companies, but nonetheless, could become potential growth areas, as Indian companies had already captured a tiny segment of the outsourcing pie in several verticals.

So far, Indian companies have only 10% of the market in banking-services and 9% in the auto manufacturing business, which means the potential remains high in these market segments.

While, India’s prospects look bright, there may be a few stumbling blocks warn industry experts. According to Jayant Sinha, another McKinsey partner, three key issues need to be addressed systematically to prevent them from becoming obstacles in the path of India’s success story.

Firstly, he believes continuous efforts will have to be maintained to increase and improve the skills and quality of India’s workforce.

Secondly, Indian firms must continuously improve operational excellence as margins come under pressure, in addition to innovating and developing new service lines.

Thirdly, urban infrastructure needs immediate attention, as off-shoring companies deal with bottlenecks ranging from power to cafeterias. Further, growth will have to come from entirely new business districts outside of Tier I and Tier II cities, said Mr. Sinha.

The study feels the Indian IT industry faces the threat of political opposition from western countries led by USA, which could perhaps, lead to a slowdown in demand. As well, the report states Indian firms will have to endeavour to stay ahead of competition from other low-cost destinations; all hungering to get a taste of the success that is coming India’s way.

While, China, Eastern Europe and South Africa may try to take away India’s lucrative business, it will not be easy for them as India is already well established and has built up a strong reputation in the field. Besides, aging populations and lack of English language skills will ensure that India retains its lead for a long time. Relatively inexperienced, they will not be able to take the lead, as India with considerable experience behind it stays ahead in the game!

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