India: The Road Ahead, KL 2013: Leveraging the Great Indian IT Wave

The People:

Y.B. Dato’ Sri Mustapa Mohamed, Minister of International Trade and Industry, Malaysia.
Mr. Rohit Gandhi, Senior VP (APAC, India, Middle East, Africa), Mahindra Satyam.
Mr. Vinayek Chatterjee, Co-Founder, Feedback Ventures Private Limited.
Dr. B K Modi, Chairman, Spice Global Group.

Y.B. Dato’ Sri Mustapa Mohamed,
Minister of International Trade and Industry,

KL, Mar 26, 2013 – In his presentation on ‘Indian IT – propelling the next wave’, Rohit Gandhi gave local entrepreneurs two tips on doing business in India with respect to the Indian IT industry.

New business model for IT & BPO

The first tip is that the conventional model of offshore and low-cost outsourcing which makes Indian IT great is going on a sunset mode.

The great Indian IT industry of outsourcing & BPO was a US $ 47 billion industry; it was responsible for half of the world’s IT services by market share. By 2010, Indian IT & BPO industry had reached USD 58 billion of exports for Indian – it stood at CAGR exports at 35%, CAGR domestic at 22% - it was also equivalent to exports offset of closed to 65% of India’s cumulative net oil exports over the past decade.

Even though officially, 52% of India’s GDP still comes from IT & BPO industry, according to Gandhi’s presentation, up to 80% of incremental growth potential by year 2020 is not sustainable through existing model which relies purely on existing market that consists of 6 core verticals (Banking, Telcos and etc) from North America, Europe and Japan.

The problem is due to large scale demographic changes in these existing markets largely influenced by one singular factor; North America, Europe and Japan have population which ages faster than others. As a result, these market segments will tend to consume less in the future.

In contrasts to India which its working age population will increase to 67% by 2020 from 63% in 2008; largely driven by high birth rates and average life expectancy ratios, India is fast becoming a country where majority of its working age population will not find jobs in their prime time; given that the 52% of GDP is at risk of shrinkage.

Gandhi proposed that the solution is to focus on new verticals, target SMBs and identify new market geographies which include BRIC and ASEAN. The software house business model which depends on quality-assurance model of CMMi will not guarantee success anymore.

The new approach for delivery satisfaction will rely on domain expertise and cloud platform approach. Domain expertise approach is referring to the fact where developers are equipped with business domain knowledge of customers and have the ability to act as consultants cum developers for a project. This is important because coupled with the platform approach of SaaS+PaaS+IaaS combination, it becomes essentially true that the new business model for IT & BPO industry is really about software developers provide solutions for customers while at the same time running the business together with customers by providing agile support services – the one-off project-based model will become a thing of the past because it is going to be more expensive and less effective – customer requirements and market changes will require greater agility to keep up with.

This trend consequently suggests the birth of a few inevitable scenarios:
  • IT Consultancy businesses will be at risks. Software developers will have to absorb consulting roles by hiring in-house consultants of various domain expertise backgrounds.
  • Enterprises will get to enjoy cheaper solutions because software solutions will adopt the pay-per-use model more aggressively; at the same time, SMBs will get to enjoy enterprise level solution to compete with their enterprise level competitors of the same industry, empowering equality further.
  • Software solution providers who move fast to adopt cloud computing will get the opportunity to capture these markets and rule the industry for a longer period.
  • Software solution providers should adopt cloud computing and become global players to capitalize on this trend, than relying on local markets which may be heavily targeted by International competitors as well.

Industry Adjacency

The second tip is about the phenomenon known as IT-outsourcing adjacency.

Gandhi felt strongly that India will still rely heavily on its IT & BPO industry to maintain its economic growth given that currently it is responsible for 52% of GDP and powered half the world’s IT.

It is commonly observed that for every jobs created for IT & BPO industry, 4 jobs are created adjacently. These adjacent jobs come from adjacent industries such as F & B, housing and infrastructure, transportation and logistics, lifestyle & entertainment, health care, education and etc.

Therefore, this presents a sea of opportunities for Malaysian businesses to participate in the Indian economy since in the near future, many adjacency jobs will be centered around the Indian IT & BPO ecosystem.

The total revenue potential Indian IT & BPO globally is estimated to worth US $1,500 billion by year 2020. Hence, assuming that 25% of these money will be channeled towards adjacent industries, it is still worth billion of dollars.

When asked about critical success factors, Mr. Chatterjee felt that it is important not to be greedy and always consider the possibility of joint-venture. Chatterjee advised delegates not to do everything by oneself, rather, look into contributing as goods supplier and providing services for local Indian companies.

Invest India

India is a great nation with great history. It is the world’s third largest economy by Purchasing Power Parity and it accounts for 20% of world's consumption. By 2014, up to 25% of the world’s new worker will be Indian.

India’s GDP growth is 7% (sustained since economic reform 1991). It has a high domestic savings of approximately 30% supplemented by foreign inflows (FDI, FI & intra-company transfers); approximately US $ 85 billion in 2011 – 2012 have facilitated economical development.

Its middle class stands at approximately 280 million; expected to reach 567 million by 2025.

It is also the 3rd largest technical and scientific manpower pool in the world today.

On Mar 26th 2013, Malaysia-India Business Council (MIBC) together with Invest India, co-organized the conference & round table ‘India: The Road Ahead’ at KL Convention Centre. It has the valuable support of MITI, the Indian High Commission and Consortium of Indian Industries in Malaysia (CIIM).

This event is officially hosted by Y.B. Dato’ Sri Mustapa Mohamed; Malaysian Minister of International Trade and Industry.

In his luncheon address, the minister applauded the Indian Government’s recent economic reform measures such as allowing FDI in the aviation, pension, insurance and multi-brand retail sectors to be a positive strategy which has benefited Malaysia.

“India’s economic relationship with Malaysia has never been healthier, and there is a realization that there is a huge and unrealized potential for the expansion of trade and investment between the two countries,” said Dato Sri Mustapa.

MIBC has the core objective of promoting and foster bilateral trade, services and investment between Malaysia and India.

On the other hand, Invest India is the government nominated agency for investment facilitation and promotion and is the first reference point for investors. Invest India has been set up as a ‘not-for-profit’ joint venture of Department of Industrial Policy and Promotion (Ministry of Commerce and Industry), State Governments of India and Federation of Indian Chambers of Commerce and Industry (FICCI).

The conference and round table is an exclusive event to enable the Malaysian business and investment community to gain an in-depth look and understanding of the political and economic developments in India and how they would impact on their strategies and plans for the country.

The Delhi-Mumbai Industrial Corridor (DMIC), one of the largest urban infrastructure development projects in the world, currently featuring 1500 km long, high capacity dedicated freight corridor of the western railway as the backbone was also featured during the event.

“Business is about bringing technology & services to improve humanity,” said Dr. Modi.

The one thing I have learned from this conference is that Indian expected its IT & BPO industry to grow even further even though indicators suggest that existing markets seem unlikely to further sustaining incremental growth. As a result of this, it is in the opinion of the speakers that for the benefit of India, rather than reinventing the wheel, India should expand the market segments further and make Indian IT even greater.

Personally, I feel that this strategy makes competing with Indian IT even a harder challenge while collaboration seems the only best option. Malaysian companies will have to work extra hard and fast in order to gain market share globally.

Mr. Rohit Gandhi is the Senior VP of Mahindra Satyam. He has been in the APAC region for the last 15 years. Prior to APAC, Rohit has worked in India in the IT field for 13 years. He has been working in the industry for more than 28 years which include organization like HCL Technologies and Fujitsu. He is an Electronic Engineer by qualification.

Mr. Vinayek Chatterjee co-founded Feedback Ventures Private Limited and currently serves as Chairman. He is a strategic advisor to leading Indian companies, the Government of India, the Ministry of Finance, State Governments, as well as multilateral and bilateral institutions in the areas of infrastructure planning and implementation.

Dr. B K Modi is the head of Spice Global Group. Known as ‘futurepreneur’, he has had 30 years of business leadership behind him. He is a Chemical Engineer and received an MBA from S California and was awarded a Ph. D in Financial Management.


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