Outsourcing seen at $300 billion

Nasscom-McKinsey report projects 10-fold growth for sector by 2010.

The Indian information technology (consulting, software solutions and research and development) and BPO industry can see almost 10-fold growth, from $17.3 billion now to $166.5 billion, by 2010.

According to a report released by Nasscom and McKinsey today, Indian companies will maintain their share of 46 per cent in the global BPO market and 65 per cent in the IT outsourcing market till 2010, even as the combined market is estimated to grow 10-fold from $30 billion at present to $300 billion by 2010.

The report projected that the BPO business would grow from $11.6 billion at present to $150 billion by 2010, while IT outsourcing would go up from $18.4 billion to $150 billion in the next five years.

"The next five years will see a huge increase in the global outsourcing potential. India's share in the total market will remain steady and the country will, thus, capture a significant proportion of the total market opportunity," said Noshir Kaka, partner, McKinsey & Co.

He added that the estimates were conservative and faster innovation could spur further growth. While the increase in the global market potential for the BPO sector would be driven largely by traditional industries and finance and accounting, the IT industry would grow on the back of newer technologies and R&D, the report said.

The 10-page document warned of four threats that the Indian IT industry could face in the coming years. These range from poor infrastructure and a shortage of skilled manpower to political opposition in developed countries like the US and a possible slowdown in demand.

The report also said Indian companies needed to stay ahead of competition from low-cost destinations like South Africa, China and east European countries.

It said India's offshore industries had grown three-fold from $4 billion in 2000 to $ 12.8 billion in 2004. On the other hand, services exports grew 60 per cent from $16 billion in 2000 to $25 billion in 2004.

Kaka said in a presentation that Indian companies had cornered a very small slice of the outsourcing pie in several verticals. For instance, the penetration in the banking services business was estimated at 10 per cent, while only 9 per cent of the potential auto manufacturing business had been tapped. This gives Indian companies a vast opportunity to grow in these sectors.

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SWOT

Strengths

Abundant manpower

Operational excellence

Conducive business environment

Weakness

Manpower shortage

Local infrastructure

Political opposition from developed countries

Opportunities

$69 billion ITES business by 2010

$97.5 billion IT (consulting, software solutions) market by 2010

Threat

Competition from other low-cost destinations

Slowdown of demand