IT Services in Developing Nations Mark Tegtmeyer Stephanie

IT Services in Developing Nations Mark Tegtmeyer Stephanie Schmitt Aarti Dinesh Vijay Gummadi 1

Overview • IT & Globalization Offshoring Country Comparison • Why India Demographics & Advantage Culture & Education IT Parks/Government Support Piracy • Indian Infrastructure Telecommunications/Power/Roads IT Industry Major IT Suppliers 2

As we approach the twenty first century, globalization of markets and strategies, and the increasing mobility of capital and know-how characterize the business and economic process worldwide. The movers and shakers behind this change are the innovative global information and communication technologies with implications on trade and business. Source: Sherif Famel, Maha Hussein “The emergence of e-commerce in a developing nation. ” 3

Offshoring of US Business Considerations in offshoring business processes revolve around strategic business decisions. Many nations have developed around other nations’ decisions to offshore business processes. 4

What is Compared? • • • Business conditions Physical infrastructure IT infrastructure Financial institutions Government support Labor characteristics 5

Business Conditions • • • Lasting cost savings and advantages Matching functions Goals, objectives and metrics Reliability Relationship maintanence Start up and sunk costs Rising competition and wages Scalable Favorable contract terms International access – for both parties 6

Physical Infrastructure • • • Power and backup Technological exploitation Telecommunications International transportation access Urban transportation Access to supported information 7

IT Infrastructure • • • International bandwidth Telecom capabilities Common infrastructure Disaster recovery capabilities Business continuity capabilities Technical certification Network storage Security management Future-proof technology 8

Financial Institutions • • • Strong banking institutions International banking relationships Stable currency markets Venture capital Ownership mechanisms 9

Government Support • • • Regulatory compliance Statutory guidelines Software piracy Copying processes Criminal safeguards International relationships Taxation Local government issues Stable political arenas Independence and lasting self control 10

Labor Characteristics • • • Training Experts and keeping them Adequate employment pools Domain knowledge Employee turnover Diversity of skills Dual training Strikes/ boycotts/ interruptions 24 x 7 support Quality of service Cultural understanding 11

If you analyse the responsibility of the current-day CIO of a large corporation, his task is nothing but like the spaghetti nightmare, which he has to unbundle. Source: Steve Faris, Vice-President, Asia Pacific, BEA Systems 12

IT & Globalization • IT has dramatically impacted developing nations in recent years • Led to rapid globalization • Enabled developing countries to become a more active force in global society 13

• Biggest impact on developing countries has been offshoring • US companies are now focusing on what they are best at and outsourcing everything else 14

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Offshoring • Relocating business processes to an overseas country • Human capital is most important aspect to attract offshore business • Telecommunication infrastructure • Government support • Tax & development incentives • Technology parks 16

Problems with Offshoring • Language Barriers • Cultural Differences • Work Ethic • Coding Documentation • How Meetings are Conducted • Control • SLA’s • Support Costs • Telecommunication & Travel Source: www. american. edu/initeb/js 5518 a/Pitfalls. html 17

Source: Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation, ” Mc. Graw Hill, New York, 2006 18

Global Outsourcing Country Comparison: INDIA • By far, handles majority of outsourcing work • Exports $12. 2 billion in IT services each year • Government agencies designed to make India an IT “superpower” • Original problems were poor communication & problematic government policies & procedures • Want to achieve $60 billion US dollars in software exports by 2008 Source: www. outsource 2 india. com/why_india/articles/india_outsourcing. asp Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation, ” Mc. Graw Hill, New York, 2006 19

India Continued • Of 23 firms worldwide to be CMM-5 rated in software development, 15 of them are Indian firms • India is #1 offshore destination due to: • Offshore Experience • Huge English-speaking & college-educated population • Government support (Ministry of Information Technology) • Mc. Kinsey report suggests that if work is contracted to India, there is a cost savings of 40 -60%, quality improvement of 3 -8% and productivity increases of 20 -150% Source: www. american. edu/initeb/js 5518 a/Country-analysis-india. html www. samachar. in/biz/featarchives/2612003. html 20

Global Outsourcing Country Comparison: CHINA • Immature market – similar to India 10 -15 years ago • High piracy rates – upwards of 90% • Large pool of workers, but small amount of experienced managers • Most programmers are capable of low level coding and maintenance of existing systems Source: www. american. edu/initeb/js 5518 a/Countryanalysis-china. html 21

China Continued • Reputation for reliability and credibility has not been achieved yet • Do not have quality control systems India has • Only one Chinese company is CMM-5 certified • Being used by India & Japan • Biggest problem: How to make US and European customers trust and choose Chinese companies over Indian firms Source: www. american. edu/initeb/js 5518 a/Country-analysis-china. html 22

Global Outsourcing Country Comparison: PHILIPPINES • Strengths are in areas of human resources and call center operations • Highly westernized country – 3 rd largest English speaking nation (US protectorate for 50 years) • Lacks size and scale of India in terms of landscape and human capital – has roughly 30 software companies in comparison to 800 in India • None of the software companies have CMM-5 certification Source: www. american. edu/initeb/js 5518 a/Country-analysis-philippines. html 23

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India 26

Why India Beckons? ? ? • Population- 1, 080, 264, 388 (July 2005 est. ) • Largest democracy in the world • Middle class expanding by 30 - 40 million every year • GDP growth set to continue at 6 -8% ; GDP per capita (PPP): $3, 400 (2005 est. ) 1 • GDP (purchasing power parity): 3. 678 Trillion (2005 est. ) Source: www. american. edu and www. cia. gov http: //www. rediff. com/news/2004/feb/04 inter. htm 27

Why India Beckons? ? ? (Cont’d. ) • Geographical advantage – 24/7 operations • “The Indian Economy work when the Indian government sleeps”- abc news- Good morning America • Low-cost, high quality • Acceleration of the privatization process and restructuring of public enterprises • Language • Hindi is the national language and primary tongue of 30% of the people; there are 14 other official languages • Proficiency in English: The “Times of India” sells more copies than the “USA Today” Source: http: //www. blr. stpi. in/indiaglance_advantages. htm http: //www. embassyofindiajakarta. org/content. php? sid=172 28

Trained Labor Force • Well-organized educational system, with internationally recognized excellence in some areas of higher education • World's 3 rd largest brain bank - Availability of around 2. 5 million technical professionals • Well developed R&D infrastructure and technical and marketing services • India has spent US$ 19 billion in 2000 -01, putting it among the top ten countries with the highest R&D spend. Source: http: //www. embassyofindiajakarta. org 29

Major Cities and Culture • Bangalore- World IT Hub • Hyderabad, Kolkata, Noida, Puna, Mumbai, Gurgeon, Kanpur, Chennai, Delhi. • A tremendously diverse and heterogeneous multi-lingual, multi-ethnic and multi-racial country - don’t believe the stereotypes • Family oriented society- Believe in the concept of Joint family and arranged marriages • Major income disparities and contrasts • Indian Cinema is a window to 3 hrs of Blissful entertainment. India most the largest movie Industry in the world. 30

Trivia: Source: http: //www. cia. gov/cia/publications/factbook 31

Glimpse of Indian Culture & People Hindu Ritual Festival of Rakhi Holi - festival of color Muslim- Secular country Sikhs culture Sacred Animal 32

Government Laws and Regulation- IT Pro • Reduced import duty on computer software from a high 114 percent to nil • Conducive foreign investment environment that provides freedom of entry, investment, location, choice of technology, import and export • Deduction under sections 10 A/ 10 B of Income tax Act, 1961 (“IT Act”) in respect of profits derived from export of computer software • Dividends from Indian companies tax free in the hands of the shareholders • Corporate tax rate for the domestic companies reduced to 30 percent from existing rate of 35 percent Source: www. nasscom. org 33

Government Tax Laws and Regulation- IT Pro (Cont’d. ) • Rates of tax applicable on non-residents/ foreign companies earning royalties/ fees for technical services reduced • STPI registration § Income tax holiday – 90% till 2010 § Customs and excise duty exemption – 100% § Central Sales Tax reimbursement § Fiscal benefits under other policies § Exemptions from stamp duty § Minimum floor rate on sales tax § Exemptions from octroi duty § Exemptions from electricity duty § Reduction in property tax • Service tax – exemption • IPR (Intellectual Property Rights ) laws in place 34

Location attractiveness of Key Indian States for IT-ITES Source: www. nasscom. org 35

Virtual Tour of a Tech Park 36

Piracy • Magnitude of Piracy rates • Statistical Inference of Piracy • Impact of Piracy in developing nations and IT Globally • Bill Gates optimistic forecast on piracy 37

Piracy rates world wide and the losses thereof : Source: Second annual BSA and IDC Global Software Piracy study 38

Cost Impact of Piracy in Developing Nations 20 Countries with the Highest Piracy Rates Ranking (2004) Software Piracy Losses Source: Second annual BSA and IDC Global Software Piracy study 39

Estimate calculation of Piracy rates Source: Second annual BSA and IDC Global Software Piracy study 40

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Infrastructure Scenario Overview Credit for India's rapid growth in IT software and ITES/BPO domains must go in part to the availability of a robust infrastructure Telecom Power Roads Civil Aviation 42

Telecommunications. Total number of telephone connections grew by 34. 34% to reach 124. 78 million by the end of December 2005. . Total number of mobile telephony grew by 58. 17% to touch 75. 94 million by the end of December 2005. . Mobile tariffs in India are the lowest in the world. On average about 3 million subscribers were added every month during 2005 – 2006. . By the end of December 2005 Internet subscribers base grew 22. 94% to reach 6. 70 million and the Broadband connections grew by 1821. 28% to reach 0. 903 subscribers. Source: http: //www. trai. gov. in/Report%20%20 Dec-05%20 Part%201. pdf http: //www. trai. gov. in/report 31 jan 06. pdf 43

Power. India is the worlds 6 th largest power generator . Installed capacity of 124, 311 MW as of January 2006. Plans to add 100, 000 MW capacity by year 2012 . Thermal power accounts for 66. 4% of the capacity, Hydroelectric power accounts for over 25% of capacity, nuclear plants and non-conventional plants account for 2. 7 and 4. 9 percent respectively. . Power consumption has been having a compounded annual growth rate of 9%. . Demand has always been higher that supply. Source: http: //www. nasscom. org/artdisplay. asp? cat_id=403 http: //powermin. nic. in/JSP_SERVLETS/internal. jsp 44

Roads . India has the second largest road network in the world totaling more that 3. 3 million Km. . The traffic on the roads is growing at 7 to 10 percent and vehicle population is growing 12% annually. . National highways account for only 2% of the total road network in terms of length and carry around 40% of the total traffic. . National Highway Development Project. Started in 1999, is one of the highway projects in the world. Source: Ernst & Young, Doing Business in India. http: //www. ey. com/global/content. nsf/India/Home 45

Civil Aviation. India is one of the fastest growing markets in the world for both passenger and cargo traffic, second only to china. . The entry of no-frills flights which are 30 to 35 percent cheaper that the regular flights, has changed the profile of the air passengers. . Domestic and international traffic grew by 24. 2 percent and 18 percent respectively, in April-December, 2005. . Indian aviation market is estimated to grow to 45 million passengers by 2010. . Top six air ports are Bangalore, Chennai, Hyderabad, Mumbai, New Delhi and Kolkata Source: http: //indiabudget. nic. in/es 2005 -06/chapt 2006/chap 98. pdf http: //news. bbc. co. uk/2/hi/south_asia/4626810. stm 46

IT - ITES Industry . The Indian IT-ITES industry is broadly categorized into IT services and software, ITES - BPO and Hardware segment. . Aggregate revenue for FY 2004 -2005 is expected to be around $28 billion. . Sector growing at 31% is expected to account for 4. 1% of the national GDP during FY 2004 -2005. . North America and Europe remained key export markets contributing around 69% and 23% respectively to the overall IT-ITES export revenue during FY 2004 -2005 Source: http: //www. nasscom. org/artdisplay. asp? cat_id=794 47

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Tata Consultancy Services Ltd Overview. Established 1968 . Over 59, 000 Associates. FY 2004 revenues of USD 1. 56 bn, FY 2005 revenue of USD 2. 24 bn. First company in the world to receive an integrated Enterprise wide CMMI Level 5 and PCMM Level 5 assessment . Global presence – Operations in 47 countries, 160 offices across the globe. . First and Largest. Software R& D center in India. Software Exporter in Indian software company to $2 billion mark in revenues. Source: http: //tcs. com/investors/downloads/TCS%20 IR%20 Presentation-Jan%202006. pdf 52

Business Areas served by TCS. Banking. Financial Services. Insurance. Telecom. Manufacturing. Media and Entertainment. Retail and Consumer goods. Transportation. Healthcare and life sciences. Energy & Utilities. S-Governance 53

International Recognition. UK 2005. Top Ten ICT Employer. Investor in People . Hungary 2005 – Hewitt Best Employers Survey 2005. Ranked 16 th in the large company category . American Society for Training and Development 2005. Ranked 9 th in ASTD best Awards program Vision. Global Top 10 by 2010 Source: http: //tcs. com/investors/downloads/TCS%20 IR%20 Presentation-Jan%202006. pdf 54

Infosys Technologies Limited Overview . Established 1981. Over 49, 000 employees. Revenues for LTM Sep 2005 USD 2. 09 billion. Attained SEI-CMM Level 5 in 1999. Global presence – 36 sales offices in 17 countries and 37 global development centers . Execution excellence drove 95% repeat business in FY 2005 Source: http: //www. infosys. com/investor/pdfs/IR_Presentation. pdf http: //www. infosys. com/about/quick_facts. asp 55

Industries served by Infosys. Aerospace and Defense. Automotive. Banking and Capital Markets. Communication services. Consumer package goods. Discrete manufacturing. Energy. Healthcare. High technology. Hospitality and Leisure. Insurance. Life sciences. Media and Entertainment. Retail. Transportation services 56

Infosys in News . Infosys ranks No. 10 on the Business. Week IT 100 (June 2005) . Infosys wins “India’s Best Managed Company Award” based on a study conducted by Business Today and A. T. Kearney (March 27, 2005) . Wired Magazine has ranked Infosys Technologies at No. 9 on its ‘Wired 40’ list for 2005 Source: http: //www. infosys. com/about/awards. asp 57

Wipro Technologies Limited Overview. Established 1980. Over 50, 000 employees. Revenues during FY 2005 -2006 USD 1. 813 bn. Currently serves over 412 clients in 35 countries through global delivery centers in 38 locations . 1 st company outside the USA to receive IEEE award. Wipro is the worlds largest independent R&D house. Worlds 1 st IT company to use Six Sigma Source: http: //wipro. com/aboutus/fact_file. htm 58

Industries Served by Wipro. Automotive. Avionics. Computing Industry. Consumer Electronics. Energy & Utilities. Finance. Government. Insurance. Manufacturing. Media & Entertainment. Retail. Telecom. Travel & Transport 59

Analyst Reports . Wipro is best suited for large – scale global SAP projects: Forrester . Wipro has the strongest IMS offering among the offshore firms: Forrester . 4 th largest in the world in terms of market capitalization in IT services Source: www. wipro. com 60

Testimonials Jack Welch General Electric John Chambers, CISCO Systems "A truly global company will be one that uses the intellect and resources of every corner of the world. India is a developed country as far as intellectual capital is concerned. The opening of (offshore) development centers mark a new level of commitment by GE in India. " "We are expanding our presence in India to take advantage of the ample research and development talent available. . . our Global Development Centre is a critical component of our future success. " Bill Gates, Microsoft Michael Dell, Dell Computers "Three years ago, during my visit to India, the country was emerging as an IT superpower. Today, the country is handling the most sophisticated projects in the world. . . I am impressed with the talent we have in our India Development Centre and the quality of software being developed. “ "India can become a major part of Dell's operations and a major source of the human capital that Dell takes on as a company. . . and we are looking for further opportunities to take advantage of skilled labor. " Source: http: //www. nasscom. org/artdisplay. asp? cat_id=27 61

Conclusion. The world is transforming into a global village. . Developing nations like China and India will continue to play a major role in the world economy. . Companies should go into developing countries not only for low cost labor but to trap the huge local market. The Indian Perspective . The IT-ITES industry bound to grow by leaps and bounces. . Efforts should be made to further reduce unwanted bureaucracy and invest heavily in infrastructure. 62

IT Services in Developing Nations Mark Tegtmeyer Stephanie Schmitt Aarti Dinesh Vijay Gummadi 63