How can Bhubaneswar become an IT hub

India's IT Sector - Growing Investment Opportunities

India has a prominent status for its IT service outsourcing capabilities. About 67 percent of the global outsourcing market is served by India.

Investors are particularly attracted by qualified, fluent English-speaking skilled workers, a high-quality infrastructure (connections to other countries, business centers and educational institutions) and a supportive government policy.

Furthermore, India is developing beyond the legacy of the pure outsourcing nation into a nation of value creation. India offers cost-effective technologies for global customers and opens up new vertical entanglements in business areas such as systems integration, consulting services and technology-based business services, better known as SMAC.

While leading multinational Indian corporations such as Tata Consultancy Services, Infotech, Wipro, Cognizant and Infosys dominate the IT sector, the country is also home to a large number of small and medium-sized enterprises (SMEs) which generate over 30 percent of India's IT exports.

While SME service companies usually serve their own, focused IT niche segment, the larger multinational companies (MNCs) usually serve a wide range of services in several verticals, including infrastructure management and business promotion. India's multinational companies are present in more than 60 countries and generate around 70 percent of India's total IT export revenues.

According to the National Association of Software and Services Companies (NASSCOM), India's IT exports will exceed $ 330 billion by 2019-2020. This would represent about 14 percent of projected global IT spending, provided India can hold its current share of the global offshore IT market.

The following explains what makes India an attractive destination for investment and why now is the right time for overseas SMEs to enter the market.

Advantage India - talent acquisition, extensive job market

India has a strong mix of young and well-trained professionals. Government agencies, such as the Indian Institute of Technology (IIT), the Indian Institute of Management (IIM), and the Indian School of Economics (ISB), are known to provide highly skilled STEM (Science, Technology, Engineering, Math) talents with a range of different management skills.

These skilled workers not only offer their companies comparatively cheap labor, but also allow the industry to take advantage of growing domestic and global opportunities for digital transformation, while at the same time maintaining high productivity rates. In 2016, it is estimated that more than six million graduates became gainfully employed, of which more than half have the skills necessary to work in the IT industry.

Global quality standards

India's IT retailers follow internationally established procedures and have adapted to different global quality standards:

  • The maturity model (CMM), which assesses the extent to which a company is able to introduce a commissioned software project;
  • The organization for international standards (ISO 9000) which applies quality guarantees for the design, development, production, installation and maintenance of software;
  • Total Quality Management (TQM);
  • Six Sigma Quality certification; and
  • The Customer Operations Performance Center (COPC) 2000® certificate, which proves that a company is able to deliver quality software development on time.

In fact, more than 75 percent of CMM certified companies are from India. India also has the largest number of ISO-9000 certified companies in the world.

Low service and labor costs

The quality and cost of services are two key variables that make India the most popular procurement market in the world.

Depending on the type of service, India can offer companies a cost saving of between 40 and 60 percent compared to leading software markets in the USA. For example, hiring a software developer in the US costs around 50-150USD per hour (depending on the software being developed), while the same hiring in India would only cost 15-45USD.

This flexibility of prices is particularly interesting for small and medium-sized companies in the industry, as they can work more efficiently at competitive prices and thus receive higher profit margins on their end products.

New IT centers in emerging Tier II and Tier III cities

As infrastructure improves across the country, IT companies are expanding into cities such as Ahmedabad and Surat (Gujarat state), Bhubaneshwar (Orissa state), Chandigarh and Ludhiana (Punjab state), Coimbatore (Tamil Nadu state), Jaipur (Rajasthan State), Kochi and Thiruvananthapuram 9Kerla State), Mangalore (Karnataka Saat) and Nagpur (Maharashtra State) to also cover the cities of lower rank.

Low labor costs, affordable real estate, as well as the introduction of software technology parks (STPI) and special economic zones (SEZs) make these cities particularly attractive for IT companies.

The lower tier cities have become domestic centers and a hub-spoke model has emerged in which Tier-I cities serve as hubs and Tier-II and Tier-III as spokes. The model allows organizations to diversify their operations towards Tier II and Tier III cities while maintaining high quality business customers in Tier 1 cities.

Government support, digital infrastructure

The Indian government has adopted a framework of guidelines that offers the IT outsourcing industry some advantages. This includes national strategies, financial incentives and infrastructure development that complement the local incentives for the IT sector.

Currently, US $ 20 billion is flowing from the government's “Digital India” campaign, among other things, into investments to improve the Internet infrastructure, the establishment of online payment systems and the development of an electronic administration system for the government.

Meanwhile, the "Startup India" campaign supports technology startups that are considered critical to the growth and development of SMAC skills in the technology industry. SMAC stands for social media, mobility, data analysis and cloud computing. India's more than 4,000 startups are at the forefront of innovation in this rapidly evolving IT landscape.

The state offers financial incentives to IT companies in India. These incentives are offered for Export Oriented Units (EOUs), STPIs and SEZs. The government is also offering a reduction in the tax rate on license fees and fees for technical services from 25 to 10 percent.

In addition to establishing software technology parks, the Federal State Wide Area Networks (SWANs) plan has established networks spread across all 29 states and six union territories. They have a minimum bandwidth of two Mbps at a total cost of $ 512.69 million.

Time to invest in India

For overseas SMEs looking for an affordable IT destination, now is the right time to invest in India. The sector is in the midst of an exciting tide as new technologies become habitual and create further demand to accommodate increased service skills.

Once the Indian IT sector has consolidated its businesses, training and infrastructure along the SMAC line, it will be able to compete with multinational corporations as a full IT service provider rather than just a maintenance provider or back-end support provider. According to NASSCOM, the sector showed a growth focus in high-end services, with growth of 10.5 percent in 2017.

As a result, new niche segments are emerging that accelerate the expansion of the entire IT sector in India and serve new digital solutions as well as technology verticals for various industries such as healthcare, finance, transport and production. Looking at the Indian economy as a whole, organizations now spend 45 percent of their IT budget on optimizing their existing IT infrastructure, developing well-trained specialists and renewing digital processes in order to make their company more adaptable and resilient.

However, this discontinuity in research and development, which is necessary to upgrade to the next level of development, leads to necessary and temporary layoffs in this sector.

Foreign companies offering back-end services (outsourcing) can use excess manpower in the Indian market effectively and at competitive prices.

Meanwhile, India's IT ecosystem, including the associated education and training sectors, will continue to evolve and provide foreign market participants with the upper edge they need in the global market.

India Briefing is published by Asia Briefing, which is produced by Dezan Shira & Associates. With offices in China, Hong Kong, India, Indonesia, Singapore, Russia and Vietnam, the company supports investors in Asia. For editorial questions, please contact us here. For a free subscription to our products, please click here.

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