India: Why the West Should Pay Attention to India's Growing ITAttention to India s Growing IT Market

Bhavish SoodResearch Director

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India's IT Landscape Today

Domestic IT Industry Demand

Domestic IT Industry Supply

International Branding and Innovation

• IT spending is a relatively small percentage of the economy

• A skilled IT labor shortage

• Almost exclusive focus on offshore IT services industry

• Foreign vendors dominate

• Highly successful international brand recognition by IT services and outsourcing companiesA skilled IT labor shortage

is due to IT services export industry

• IT services and outsourcing are relatively expensive to

Foreign vendors dominate OS, software infrastructure and business applications

• Foreign IT services vendors dominate domestic market

• Strong understanding of international marketing and capital requirements among large and midsize exportersa e e at e y e pe s e to

obtain• Piracy and IP protection

issues persist; early stages of domestic

do ate do est c a et• Liberalization of FDI limits

is boosting domestic telecom services and networking availability

• Emerging links between academia and industry

• Outsourcing is a key source of innovation in applications

IP generation• Digital chasm between rich

and poor, and urban and rural regions

g y ppand process management for "Type A" enterprises

Drivers and Inhibitors to Continued IT Progress in Indiag

InhibitorsDrivers• Cost advantage

declines/disappears• Widening digital and economic

di id

• Rapid growth of economy • Primary Education revamp• Reverse brain drain

divide• Geopolitical/terrorism concerns• IP rights decline

• "High quality" labor pool• Improved IP protection

ecosystem• Political instability• Oil spikes• Shortage of qualified/trained

• More than 25 Indiancompanies in F500

• Physical infrastructure improvespeople

• Competition fromemerging economies

• IT-friendly government policies• FDI-friendly policies, especially

in the infrastructure structure

2

Key Issues

1. What is the state of IT technology adoption and how big are IT opportunities in India?how big are IT opportunities in India?

2. What are the biggest business and IT priorities for Indian CIOs?for Indian CIOs?

3. What are the most-promising technologies and vertical segments in India?vertical segments in India?

4. How do we exploit the best growth opportunities in the Indian IT market in the next five years?in the Indian IT market in the next five years?

IT Software MarketOpportunities• The Indian market is still growing and is the fourth-

largest software market in Asia after China

India Enterprise Software Markets Forecast (2008-2015)

largest software market in Asia, after China, Australia and South Korea.

• Government policies promote and support open-source solutions in e-governance.

• Operating systems, middleware, ERP, database 4 04.55.0

CAGR = 13.6%

US$Billions

p g y , , ,management system (DBMS) and application development (AD) tools are gaining most of the attention from buyers.

• High-tech parks and SEZs support the software industry's development

2.53.03.54.0

industry s development.• The availability of venture capital is growing.

Threats• Software piracy is still a very serious issue in India, 0.5

1.01.52.0

p y yespecially in the consumer and SMB markets.

• The price-sensitive culture elongates the sales cycles and, in some cases, leads to selection of products not suitable for requirements.

• Poor infrastructure exists across the country

0.0

Infrastr ct re Soft are • Poor infrastructure exists across the country (although government focus is increasing).

Infrastructure SoftwareEnterprise Applications Software

IT Services Market

Market Opportunity and Observations• Government initiatives under NePG, and

India's IT Services Market

Millions of Dollars ,APDRP.

• The average size of deals in IT services now ranges from $25 million to $30 million.

• Very large deals (more than $100 million)700,000

800,000

900,000

1,000,000Millions of Dollars

• Very large deals (more than $100 million) that originate mostly from the government and public sector undertakings (PSUs).

• MNC IT services vendors have increased focus on India300,000

400,000

500,000

600,000

focus on India • Growing demand for shift to cloud

computing delivery model• Top talent still with outsourcing industry

0

100,000

200,000

2008 2009 2010 2011 2012 2013 2014 2015

• Industrial houses setting up captives/own IT services firms

• Declining staff augmentation opportunities and growing demand for solutions

Product Support TotalHardware Maintenance and Support TotalProcess Management TotalIT Management TotalDevelopment and Integration Total and growing demand for solutionsConsulting Total

IT Hardware MarketMarket Situation:• Servers: In the next few years, x86-based servers will be biggest driver for the server market in India. Blade adoption will be

a key enabler of this growth. Virtualization will be another driver of growth in the x86 market in India.a key enabler of this growth. Virtualization will be another driver of growth in the x86 market in India. • Printer market: Almost 96% of the market is monochrome. There's limited uptake of color printing due to costs.

Remanufacturers are penetrating the high growth SMB market with cost savings of 30% to 70% on official supplies. • Storage markets: The Indian market will benefit from a limited burden of legacy storage platforms, which will enable it to

adopt newer disk-based technologies. Client computing: The PC market is expected to grow faster in the consumer segments Increasing awareness of alternate• Client computing: The PC market is expected to grow faster in the consumer segments. Increasing awareness of alternate PC technologies, such as hosted virtual desktops, server-based computing and blade PCs in the enterprise segment.

Market Opportunity:• Server vendors: Invest in your virtualization ecosystem and channels that can help drive midmarket adoption. Public

cloud computing providers are an emerging marketcloud computing providers are an emerging market. • Printer market: Managing print services is growing due to awareness of green IT and large outsourcing deals. • Storage: Demand is increasing due to growing penetration of storage in newer verticals, especially government and

manufacturing, and replacement buying from the traditional buyers of storage.• Client computing: PC market to grow more in Tier 2 and Tier 3 cities. Media tablets are beginning to see demand. • Cross Segments:• Infrastructure upgrade and expansion• Data center consolidation and transformation• Managed print service (MPS) and commercial printing • Cloud computing

The Top 10 CIO Technology Priorities For Indian CIOs in 2011 Country= IndiaCountry= India

CIO Technology PrioritiesPlease indicate your top three priorities for 2011Please indicate your top three priorities for 2011Cloud Computing 1Mobile Technologies 2Virtualization 3Virtualization 3Enterprise Resource Planning (ERP) 4Enterprise Applications 5B i P M t (BPM) 6Business Process Management (BPM) 6IT Management 7Networking, Voice and Data Communications 8B i I t lli (BI) 9Business Intelligence (BI) 9Analytics 10

Note: In the survey, respondents identified their top three issues (not in any order). These priorities are ordered based on h f d h i l d d h i i h i h

7

the percentage of respondents that included the issue in their top three.

Top Technologies and Adoption Status

Managed Print ServicesSolar Photovoltaic Technology

BPMS Cloud ComputingOpen-Source Development Tools in India

Mobile OTA Payment

F&A BPOUnified Communications

Knowledge Process OutsourcingManaged Print Services

Video Telepresencex86 Server Virtualization

IEEE 802.3at

IT Outsourcing for Infrastructure Services

Thi P i i i

Entity Resolution and Analysis

Cloud-Driven Business andIT Services

Fabric-Based ComputingKPO-Market Analytics

Navigation Solutions

Thin ProvisioningData DeduplicationSOA

SaaS in IndiaMini-notebooks

IP TelephonySCM in India

Blade Servers

ERP In India

T h l Peak of T h f Pl t fAs of July 2010

Data Center Bridging Business Intelligence PlatformsWAN Optimization Controllers

IP Telephony

Technology Trigger

Peak ofInflated

Expectations

Trough of Disillusionment Slope of Enlightenment Plateau of

Productivity

timeYears to mainstream adoption:less than 2 years

2 to 5 years 5 to 10 years

more than 10 years

obsoletebefore plateau

"Hyper Cycle for ICT in India, 2010" (July 2010)

The Appeal of Cloud Computing Will Increase Over The Next Five Years

When do you estimate your organization will support: (1) More than half of your transactions on a cloud infrastructure, and (2) more than half of your transactions by applications leased using a software as a service (SaaS) model?

69 6770

80Percentage of Respondents

pp g ( )

67

50

60

70

19 1920

30

40

6 6311

0

10

20

2010 2011 2015 2016 2020 N

9

2010 2011-2015 2016-2020 NeverCloud Infrastructure SaaS

The Appeal of SaaS Is Increasing in India

2011

2010

BR

IC

2011

2010

2011

Bra

zil

B

2010

2011

2010

iaC

hina

2011

2010

2011

ussi

aIn

di

0 10 20 30 40 50 60 70 80 90 100

2011R

Percentage of RespondentsO P i H t d S S/ASP

10

On-Premises Hosted SaaS/ASP

We Expect Communications, Financial Services and Government to Lead IT Spending in 2011g

1 007

End-User IT Spending for 2011 in Millions of Dollars

6,562

1,392

2,0591,461 1,007

Banking & Securities

Communications, Media & Services

Ed ti

7 159

Education

Government

Healthcare Providers

Insurance

8,302

7,159 Insurance

Manufacturing & Natural Resources

Retail

Transportation

1,0435,459

1,0221,678

Utilities

Wholesale Trade

11

The $37.1 billion total is expected to grow more than 14% in 2011.

"Thrust Areas" of India's 11th Five-Year Plan (2007-2011)( )

Box 3.2Thrust Areas of the Eleventh Plan

Sectors Thrust AreasEd ti Q lit d ti i P i Ed ti E i f S d Ed ti j h i d ti fEducation Quality upgradation in Primary Education, Expansion of Secondary Education, major emphasis on upgradation of

Higher Education including Technical Education, ICT throughout education system.Health, Nutrition, DrinkingWater, and Sanitation

Major upgradation of rural health infrastructure, Medical education, Nutritional support to children and pregnant and lactating women through ICDS, health insurance based urban health facilities, health care for elderly, achieving sustainability, improvement in service levels and moving towards universal access to safe and clean drinking water.

Agriculture and Irrigation Ensuring Food Security, Supporting State-specific agriculture strategy and programmes, Better seed production, F d i lt h E t i D l t f d k tFocused agriculture research, Extension, Development of modern markets.

Rural Development, LandResources and Panchayati Raj

Universalization and improvement in programme delivery of NREGP, Integrated Watershed management including management of underground water level.

Social Justice and Empowerment Special attention to the needs of SCs, STs and minorities and other excluded groups through pre and post-metric scholarship, Hostels for boys/girls, Income and employment generation opportunities, Multi-sectoral development programmes for minorities in minority concentration districts.

Physical Infrastructure Emphasis on the public-private partnership in investment, Initiate policies to ensure time-bound creation of world-

S Pl i C i i G t f I di

y p p p p p , pclass infrastructure, especially in remote and inaccessible rural areas and NE, Hinterland connectivity through improved rail and road infrastructure.

Energy Electrification of all villages and extending free household connections to all 2.3 core BPL households through RGGVY, Nuclear power development.

Scientific Departments Development of satellite launch capabilities to SGLV-Mk-III, Development of new energy systems, viz. advance heavy water reactor and nanotechnology.

Source: Planning Commission Government of India

Sectoral Growth in Recent Plans(% per annum)

SectorEight Plan (1992-96)

Ninth Plan (1997-2001)

Tenth Plan (2002-06)

Eleventh Plan (2007-11)

1. Agriculture 4.72 2.44 2.30 4.02 I d t 7 29 4 29 9 17 10 11

12

2. Industry 7.29 4.29 9.17 10-113. Services 7.28 7.87 9.30 9-114. Total 6.54 5.52 7.74 9.0

Government Creates Policy Initiatives and Is a Large Market in Itselfg

• Government infrastructure projects will drive IT strongly, in conjunction with the expansion of the financial services and manufacturing subsectors.

• India's National e-Governance Plan (NeGP) 1 Common Services Centers (CSCs)1. Common Services Centers (CSCs). 2. State Wide-Area Networks (SWANs). 3. State Data Centers (SDCs). 4. E-Districts.

• Restructured Accelerated Power Development and Reforms Programme (R-APDRP)

• Crime and Criminal Network• NatGrid

TRAI' P l f I di ' N ti l B db d N t k• TRAI's Proposal for India's National Broadband Network

13

Emerging New Focus — FSI

Banking

IT Opportunity Industry Development Trends

1 Business intelligence and data warehousing due to theBanking • Financial inclusion a big priority for government

banks, and private banks have started to focus on it.

• No-frills banking accounts and Kissan credit cards Financial Inclusion Technology Fund

1. Business intelligence and data warehousing due to the Central Bank’s ADP notification and 18 month deadline

2. CRM, customer segmentation and data quality for KYC norms

3. Business process management (both banks and insurance companies) to improve efficiencies in acards. Financial Inclusion Technology Fund.

• Accelerate developing online business and new business (e.g., trust services, high-end banking services, mobile payment, etc.).

• Rise and fall of microfinance.

insurance companies) to improve efficiencies in a hypercompetitive market

4. Risk management and migration from legacy claims and policy management solution

5. Mobile banking

Securities: • Expand domestic finance market and upgrade the

capacity of futures and stocks exchanges.• Commodity exchanges are becoming popular. Insurance 200 000

300,000400,000500,000600,000

Insurance• Still a state-controlled market, but bancassurance

is gaining popularity.• Microinsurance products are gaining visibility in the

market. H lth i j f f IRDA

0100,000200,000

2006 2007 2008 2009 2010Total Earnings Total ExpensesProvisions and Contingencies Profit / Loss

14

• Health care insurance major focus area of IRDA and government. Profitability of commercial banks in India from 2005 to 2009

Source: RBI

Provisions and Contingencies Profit / Loss

Emerging New Focus — Telecom

TOMS: Upgrade to 3G and auctioning of broadband811 6 million mobile phone subscribers as

IT Opportunity Industry Development Trends

TOMS: Upgrade to 3G and auctioning of broadband licensing will lead to a wave of OSS and BSS investments. Infrastructure: Huge investment in infrastructure and lots of DCs being planned by Telcos. Software: CRM customer segmentation and churn

• 811.6 million mobile phone subscribers as of March 2011.

• Mobile number portability introduced in 2011.

• Auction of 3G and broadband licenses took Software: CRM, customer segmentation and churn analysis

Auction of 3G and broadband licenses took place in 2011.

• National Optical Fibre Agency (NOFA) to build a 13 billion, 2.5-million kilometer national fiber network as a vehicle to advance broadband networking in India

Broadband RevenueMillions of Dollarsadvance broadband networking in India.

• Expanding network coverage into rural areas.

• TRAI thinking of a public cloud computing regulatory framework 1.5

2.0

2.5Millions of Dollars

regulatory framework.• Entry-level mobile devices will continue to

drive sales. Smartphone growth will outpace overall market growth.

0 0

0.5

1.0

15

0.02008 2009 2010 2011 2012 2013 2014 2015

Emerging Focus — Manufacturing

Technologies on the radar of manufacturing CIOs• New industrial parks propel growth but are

IT Opportunity Industry Development Trends

Technologies on the radar of manufacturing CIOsBI/BA/CPM software, quality management systems, MES, SCM, CRMSupplier relationship/dealer management/sales force automation Warranty analytics

• New industrial parks propel growth but are caught in land acquisition issues.

• Slowly becoming a hub for small-car exports for manufacturers, such as Hyundai and Maruti Suzuki. Warranty analytics

Cloud computing, unified communications, green IT, security, virtualization

• Nokia's Chennai Manufacturing Facility is 50% export-oriented.

• Well-developed, globally competitive auto ancillary industry. World's second-largest manufacturer of two wheelers

Chart I.3: Growth in Index of Industrial Production (Y o Y)manufacturer of two wheelers.

• Indian biotech industry is expected to touch $15 billion by 2015.

• Already one of the world's largest manufacturers of generic pharmaceuticals.

6.24.4

5.46.4 6.0

2 5 2 1

8.37.2

10.69.6 10.3

11.7

468

101214Percent

Production (Y-o-Y)

manufacturers of generic pharmaceuticals. 1.7

0.1

2.5

-0.2

1.0 0.2 0.3 1.12.1

-2024

08-0

9 A

pril

May Jun

Jul

Aug

Sep Oct

Nov

Dec Jan

Feb

Mar

09-1

0 A

prM

ay Jun

Jul

Aug

Sep Oct

Nov

16

Source: Reserve Bank of India

200

20

Look for Innovations Outside Your Core Industry While Building Your GTMy g

PNB ATM on Wheels Source dare.co.in

Tata Nano Source: Kyodo

Maharaja MacMac Aloo Tikki

17

Parting Thought: Do Not Underestimate Cultural Differences While Building Your India GTM Plansg

18

Recommendations

Define specific target markets, allocate needed resources, and exploit the phenomenal growth of IT in the marketand exploit the phenomenal growth of IT in the market. Extend your reach in consumer markets by improving your profiling of them, paying special attention to the large " i " iddl l"emerging" middle classes. Focus sales attention on identifying large opportunities in government financial services and manufacturinggovernment, financial services and manufacturing. Invest more with your channel partners. Convert them from "generalists" to "specific industry product specialists" with d d bilitiadvanced capabilities.

Engage with the Indian Big 4’s (TCS, Infosys, WIPRO and HCL)HCL)