Is India still hot for offshoring?

The country started with a cost advantage, moved to quality and now to innovation.

Is India still hot for offshoring? This is the question that hopefully should get a satisfactory answer at the 3-day Nasscom 2006 event, beginning today at Grand Hyatt, Mumbai. Why this topic? It's simple. Rising employment in the IT-ITES sector is cutting into profit margins.

Nasscom data reveal that while revenue from software services will rise by 29.6 per cent in FY06, employment will go up at a higher pace of 34.01 per cent. This means that revenue per thousand employees will be lower at $44 million in FY06 from revenue of $45.5 million achieved in FY05.

"This year, we will be addressing various stakeholders in the IT community - Nasscom members, international customers, the analyst community, the Indian government and global thought leaders," says Nasscom Vice-President Sangeeta Gupta.

She adds that India will be "reinventing and extending its leadership" in the IT-ITES sector.

"We started with a cost-advantage. Then, moved towards quality with many IT companies achieving the SEI-CMM levels. Now, the stress is on innovation," says Gupta, adding "There's also a strong business element to the event".

A lot is still being said about the great India edge in the IT services and BPO sectors. India, according to Nasscom figures, is continuing its run as a leader in the IT-ITES domains, and despite increasing competition, it has managed to sustain its market share in the global arena.

The Indian IT-ITES sector continues to record strong growth and is estimated to grow by 28 per cent in FY06. The service exports growth is estimated at 32 per cent.

Earlier, Chairman Nasscom and CEO & MD TCS S Ramadorai told the press that "The Indian IT-ITES sector continues to chart double-digit growth and is expected to exceed $36 billion in annual revenue in FY06. Out of this, software and services exports are estimated to grow by 32 per cent, to reach $23.4 billion in FY06. Indian IT-ITES is well on track to achieve the targets that the industry aspires to achieve by the end of the decade."

Corroborating this sentiment, President Nasscom Kiran Karnik added that "2005 offered a steady growth for the industry. Along with increased presence of Indian IT companies across the globe, we saw new services lines emerging and the industry reached the next level in services offered. Mergers and acquisitions by Indian players was also a key trend. Despite growth seen so far, it is estimated that less than 10 per cent of the addressable market for globally sourced IT-ITES has been captured till date, indicating significant headroom for growth."

As global sourcing matures and demand for multi-country delivery capability increases, newer destinations are being explored. However, India continues to offer and deliver the best bundle of benefits, says Nasscom.

The future holds significant opportunity for India - larger than the aggressive targets set by the industry for itself.

Key stakeholders have initiated efforts to ensure that Indian IT-ITES sector achieves its full potential. Successful execution will be the key.

Incidentally, during NASSCOM 2005, when President, Abdul Kalam delivered the keynote speech at the conference, he did so through video conferencing.

He had exhorted the Indian software, services and BPO segments to improve their share in global markets and achieve an export target of around $200 billion by 2008. This year, Kalam will be present in person and that should be an added attraction.