The IT industry in the Indian emerging market

Maria Chiara Franco

FRA14374370 2nd November 2015

International Business Environment BUS020N533A

Background and Business Environment

FACTS and FIGURES

• The IT industry is the 5th contributor to the Indianeconomy. It accounts of 9% of the national GDP andnot only generates more employment but rises theexport earnings (Rawat, 2014).

• The city of Bangalore is also known as “the newSilicon Valley” (Cavusgil, 2008).

• 36% of the total industry revenue comes from the topsix firms in India (Ibef, 2015).

• It Indian industry has attracted $17.575 billion of FDIbetween April 200 and May 2015 (Ibef, 2015).

The development of technology and internet-basedservices have promoted an explosion of opportunitiesfor many countries around the world (Mehta & Rao,2015). Furthermore, since IT is one of the leadingindustry in India, it seemed interesting to me analysingthe impact it has in an emerging market.

(Ibef, 2015)

(Ibef, 2015)

Characteristics of an emerging market

The phrase “emerging markets” is controversial since as a label it lacks precision (Manktelow, 2014). This is why there are different shades of definitions.

The term “emerging markets” is used todescribe the markets of Asia, LatinAmerica, Eastern Europe, the Middle Eastand Africa, since these are the mostinteresting to business leaders as currentor prospective sources of opportunity(Manketelow, 2014).

The emerging markets categoryis formed when there is acombination of the so callednewly industrilised countrieswith those with the potential ofbecoming one. (Wild, 2010).

(Brambles, 2015)

KEY FEATURES• Young and growing middle class• Industrialisation / modernisation• Rise of exports levels• Liberalised market• Economic growth• Political and economic reforms

INDIA• The middle class is rapidly growing

and it is a matter of time until itbecomes larger than the USpopulation (Wild, 2010).

• Reforms and liberalisation in 1991(Manketelow, 2014).

• FDI worth $17.575bn only in the ITindustry (Ibef, 2015).

DEFINITIONSEmerging markets are the BRIC countries:Brazil, India, China and Russia. They arecharacterised by a rapid economic growthas well as the presence of bothindustrialisation and modernisation(Cavusgil, 2008).

Opportunities in the IT industry

• India is a source destination. It is the nineth largesteconomy in the world (Rawat, 2014), the fourth largestworld base to set up new businesses and mostimportantly the world’s largest sourcing destination forthe IT industry (Ibef, 2015).

• Being a target market, India is a good country to exportto. In fact, out of $87bn revenue in 2008, $50bn camefrom exports (Pramath, 2015). The IT industry is alsoexpected to generate $151.6bn by 2018 (Ibef, 2015).

• India is the second most populous country in the world(The Economic Times, 2011). Its population ischaracterised by an emerging middle class (Manketelow,2014) with technical skills and the possibility to improvethe professional once (Zajączkowski, 2015).

• Its low cost manufacturing market has attractedinvestments of multinational technology companiessuch as IBM (Manketelow, 2014) as well as Microsoft(Microsoft, 2015). (The Economic Times, 2011)

(Pramath, 2015)

Threats and Challenges in the IT industry

• The competition in India within the IT industry is intimidating. In fact, the country is also known as the world services hub(Iashmi, 2012) thanks to the competitive advantage of the skilled workers that make the Indian IT service the bulwark ofthe industry (Pramath, 2015). Furthermore, it was the first nation to develop software export with 30 companies trading ITservices overseas (Aggarwal, 2008).

• Corruption and political instability are still widely present in the Indianmarket. The Transparency International’s Corruption Perception Indexhas ranked India as the 92nd Country out of 159 in 2005 (Ansari, 2009).Politicians with their nationalist sentiment are an obstacle for foreigncompanies trying to do business in India (Manketelow, 2014).

• There is a huge underinvestment in infrastructures. India ischaracterised by underdeveloped roads, airports and otherinefficiencies such as the power generation. This add costs tocompanies who plan to operate in India (Ansari, 2009).

• India is part of the Regional Comprehensive Economic Partnership (RCEP) trade bloc. This comprises 16 countries amongwhich India (Parashar, 2013). RCEP was launched by the countries’ Leaders in 2012 with the purpose of benefit all themembers involved (mfat.gov, 2015). It is set to become the world most important free trade bloc (Parashar, 2013).Therefore, trading with India is going to be more expensive for the countries that are not part of the bloc.

References

Aggarwal, A., (2008) Emerging Markets: India’s Role in the Globalization of IT in Communication of the ACM, 51 (7) 17 – 19. Available at: http://cacm.acm.org/magazines/2008/7/5381-emerging-markets-indias-role-in-the-globalization-of-it/fulltext (Accessed: 28/10/15).

Ansari, T., (2nd November, 2009) Challenges of doing business in India in The Metropolitan Corporate Counsel. Available at: http://www.metrocorpcounsel.com/articles/11896/challenges-doing-business-india (Accessed: 28/10/15).

Brambles, (2015), Emerging markets, Available at: http://www.bramblesreview.com/2011/growthinitiatives/geography/interactivemap/EmergingMarkets.aspx (Accessed: 26/10/15).

Cavusgil, S.T., Knight, G., Riesenberger, J.R., (2008) International Business: Strategy, Management, and the New Realities, New Jersey: PearsonEducation.

Iashmi, P., Kumar, S., (2012) Economic Growth and Impact of Service’s Sector in India in IJBMER, 3 (5) 627 – 632. Available at: http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?sid=ef1b688f-a94e-4acf-950f-ffe4ec4b884a%40sessionmgr4003&vid=1&hid=4113(Accessed: 28/10/15).

Ibef, (2015), IT & ITeS Industry in India, Available at: http://www.ibef.org/industry/information-technology-india.aspx (Accessed: 26/10/15).

Manktelow, A., (2014) Guide to emerging markets. The business outlook, opportunities and obstacles, London: Profile Books.

Mehta, Y., Rao, U.S., (2015) ‘Strategic Opportunities for Indian IT Companies: A Study’ in The IUP Journal of Business Strategy, 20 (1) 22 - 39.

Microsoft, (2015) Microsoft India, Available at: http://www.microsoft.com/en-in/about/about-microsoft/microsoft-in-india.aspx (Accessed: 27/10/15).

Parashar, S., (8th July 2013) India becomes part of regional trading bloc despite Chinese opposition in The Times of India. Available at: http://timesofindia.indiatimes.com/india/India-becomes-part-of-regional-trading-bloc-despite-Chinese-opposition/articleshow/20963479.cms(Accessed: 28/10/15).

References

Pramath, R. (2000), ‘A Software Subcontinent’, in The Mckinsey Quarterly, 2 (1), Available at: https://www.questia.com/library/journal/1G1-62799325/a-software-subcontinent (Accessed: 27/10/15).

Rawat, D., (20th March 2014) ‘Top Ten Industries that Contribute to Indian Economy’. ListDose. Available at: http://listdose.com/top-10-industries-that-contribute-to-indian-economy/ (Accessed: 26/10/15).

The Economic Times, (4th April 2011) Census of India 2011: Salient features & indicators. The Economic Times. Available at: http://economictimes.indiatimes.com/census-of-india-2011-salient-features-indicators/slideshow/7863162.cms (Accessed: 27/10/15).

Wild, J.J., Wild, K.L., Han, J.C.Y., (2010) International Business: the challenges of globalisation, New Jersey: Pearson Education.

Zajączkowski, J., Schottli, J., Thapa M., (2015) India in the Contemporary World: Polity, Economy and International Relations, Routledge. Available at: https://books.google.co.uk/books?id=NvEvCgAAQBAJ&printsec=frontcover&hl=it&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false(Accessed: 27/10/15).

Mfat, (2015) Regional Comprehensive Economic Partnership (RCEP), Available at: http://www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/RCEP/ (Accessed: 28/10/15).