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IT Services in Developing Nations

IT Services in Developing Nations. Mark Tegtmeyer Stephanie Schmitt Aarti Dinesh Vijay Gummadi. Overview. IT & Globalization Offshoring Country Comparison Why India Demographics & Advantage Culture & Education IT Parks/Government Support Piracy Indian Infrastructure

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IT Services in Developing Nations

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  1. IT Services in Developing Nations Mark Tegtmeyer Stephanie Schmitt Aarti Dinesh Vijay Gummadi

  2. Overview • IT & Globalization Offshoring Country Comparison • Why India Demographics & Advantage Culture & Education IT Parks/Government Support Piracy • Indian Infrastructure Telecommunications/Power/Roads IT Industry Major IT Suppliers

  3. As we approach the twenty first century, globalization of markets and strategies, and the increasing mobility of capital and know-how characterize the business and economic process worldwide. The movers and shakers behind this change are the innovative global information and communication technologies with implications on trade and business. Source: Sherif Famel, Maha Hussein “The emergence of e-commerce in a developing nation.”

  4. Offshoring of US Business Considerations in offshoring business processes revolve around strategic business decisions. Many nations have developed around other nations’ decisions to offshore business processes.

  5. What is Compared? • Business conditions • Physical infrastructure • IT infrastructure • Financial institutions • Government support • Labor characteristics

  6. Business Conditions • Lasting cost savings and advantages • Matching functions • Goals, objectives and metrics • Reliability • Relationship maintanence • Start up and sunk costs • Rising competition and wages • Scalable • Favorable contract terms • International access – for both parties

  7. Physical Infrastructure • Power and backup • Technological exploitation • Telecommunications • International transportation access • Urban transportation • Access to supported information

  8. IT Infrastructure • International bandwidth • Telecom capabilities • Common infrastructure • Disaster recovery capabilities • Business continuity capabilities • Technical certification • Network storage • Security management • Future-proof technology

  9. Financial Institutions • Strong banking institutions • International banking relationships • Stable currency markets • Venture capital • Ownership mechanisms

  10. Government Support • Regulatory compliance • Statutory guidelines • Software piracy • Copying processes • Criminal safeguards • International relationships • Taxation • Local government issues • Stable political arenas • Independence and lasting self control

  11. Labor Characteristics • Training Experts and keeping them • Adequate employment pools • Domain knowledge • Employee turnover • Diversity of skills • Dual training • Strikes/ boycotts/ interruptions • 24x7 support • Quality of service • Cultural understanding

  12. If you analyse the responsibility of the current-day CIO of a large corporation, his task is nothing but like the spaghetti nightmare, which he has to unbundle. Source: Steve Faris, Vice-President, Asia Pacific, BEA Systems

  13. IT & Globalization • IT has dramatically impacted developing nations in recent years • Led to rapid globalization • Enabled developing countries to become a more active force in global society

  14. Biggest impact on developing countries has been offshoring • US companies are now focusing on what they are best at and outsourcing everything else

  15. Offshoring • Relocating business processes to an overseas country • Human capital is most important aspect to attract offshore business • Telecommunication infrastructure • Government support • Tax & development incentives • Technology parks

  16. Problems with Offshoring • Language Barriers • Cultural Differences • Work Ethic • Coding Documentation • How Meetings are Conducted • Control • SLA’s • Support Costs • Telecommunication & Travel Source: www.american.edu/initeb/js5518a/Pitfalls.html

  17. Source: Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation,” McGraw Hill, New York, 2006

  18. Global Outsourcing Country Comparison: INDIA • By far, handles majority of outsourcing work • Exports $12.2 billion in IT services each year • Government agencies designed to make India an IT “superpower” • Original problems were poor communication & problematic government policies & procedures • Want to achieve $60 billion US dollars in software exports by 2008 Source: www.outsource2india.com/why_india/articles/india_outsourcing.asp Vashistha, Atul and Vashistha, Avinash, “The Offshore Nation,” McGraw Hill, New York, 2006

  19. India Continued • Of 23 firms worldwide to be CMM-5 rated in software development, 15 of them are Indian firms • India is #1 offshore destination due to: • Offshore Experience • Huge English-speaking & college-educated population • Government support (Ministry of Information Technology) • McKinsey report suggests that if work is contracted to India, there is a cost savings of 40-60%, quality improvement of 3-8% and productivity increases of 20-150% Source: www.american.edu/initeb/js5518a/Country-analysis-india.html www.samachar.in/biz/featarchives/2612003.html

  20. Global Outsourcing Country Comparison: CHINA • Immature market – similar to India 10-15 years ago • High piracy rates – upwards of 90% • Large pool of workers, but small amount of experienced managers • Most programmers are capable of low level coding and maintenance of existing systems Source: www.american.edu/initeb/js5518a/Country-analysis-china.html

  21. China Continued • Reputation for reliability and credibility has not been achieved yet • Do not have quality control systems India has • Only one Chinese company is CMM-5 certified • Being used by India & Japan • Biggest problem: How to make US and European customers trust and choose Chinese companies over Indian firms Source: www.american.edu/initeb/js5518a/Country-analysis-china.html

  22. Global Outsourcing Country Comparison: PHILIPPINES • Strengths are in areas of human resources and call center operations • Highly westernized country – 3rd largest English speaking nation (US protectorate for 50 years) • Lacks size and scale of India in terms of landscape and human capital – has roughly 30 software companies in comparison to 800 in India • None of the software companies have CMM-5 certification Source: www.american.edu/initeb/js5518a/Country-analysis-philippines.html

  23. India Why India Beckons ?

  24. Why India Beckons????? • Population- 1,080,264,388 (July 2005 est.) • Largest democracy in the world • Middle class expanding by 30 - 40 million every year • GDP growth set to continue at 6-8% ;GDP per capita (PPP): $3,400 (2005 est.) 1 • GDP (purchasing power parity): 3.678 Trillion (2005 est.) Source: www.american.edu and www.cia.gov http://www.rediff.com/news/2004/feb/04inter.htm

  25. Why India Beckons????? (Cont’d.) • Geographical advantage – 24/7 operations • “The Indian Economy work when the Indian government sleeps”- abc news- Good morning America • Low-cost, high quality • Acceleration of the privatization process and restructuring of public enterprises • Language • Hindi is the national language and primary tongue of 30% of the people; there are 14 other official languages • Proficiency in English: The “Times of India” sells more copies than the “USA Today” Source: http://www.blr.stpi.in/indiaglance_advantages.htm http://www.embassyofindiajakarta.org/content.php?sid=172

  26. Trained Labor Force • Well-organized educational system, with internationally recognized excellence in some areas of higher education • World's 3rd largest brain bank - Availability of around 2.5 million technical professionals • Well developed R&D infrastructure and technical and marketing services • India has spent US$ 19 billion in 2000-01, putting it among the top ten countries with the highest R&D spend. Source: http://www.embassyofindiajakarta.org

  27. Major Cities and Culture • Bangalore- World IT Hub • Hyderabad, Kolkata,Noida,Puna, Mumbai, Gurgeon, Kanpur, Chennai, Delhi. • A tremendously diverse and heterogeneous multi-lingual, multi-ethnic and multi-racial country - don’t believe the stereotypes • Family oriented society- Believe in the concept of Joint family and arranged marriages • Major income disparities and contrasts • Indian Cinema is a window to 3hrs of Blissful entertainment. India most the largest movie Industry in the world.

  28. Trivia: Source: http://www.cia.gov/cia/publications/factbook

  29. Glimpse of Indian Culture & People Sikhs culture Holi - festival of color Hindu Ritual Festival of Rakhi Muslim- Secular country Sacred Animal

  30. Government Laws and Regulation- IT Pro • Reduced import duty on computer software from a high 114 percent to nil • Conducive foreign investment environment that provides freedom of entry, investment,  location, choice of technology, import and export • Deduction under sections 10A/ 10B of Income tax Act, 1961 (“IT Act”) in respect of profits derived from export of computer software • Dividends from Indian companies tax free in the hands of the shareholders • Corporate tax rate for the domestic companies reduced to 30 percent from existing rate of 35 percent Source: www.nasscom.org

  31. Government Tax Laws and Regulation- IT Pro (Cont’d.) • Rates of tax applicable on non-residents/ foreign companies earning royalties/ fees for technical services reduced • STPI registration • Income tax holiday – 90% till 2010 • Customs and excise duty exemption – 100% • Central Sales Tax reimbursement • Fiscal benefits under other policies • Exemptions from stamp duty • Minimum floor rate on sales tax • Exemptions from octroi duty • Exemptions from electricity duty • Reduction in property tax • Service tax – exemption • IPR (Intellectual Property Rights ) laws in place

  32. Location attractiveness of Key Indian States for IT-ITES Source: www.nasscom.org

  33. Virtual Tour of a Tech Park

  34. Piracy • Magnitude of Piracy rates • Statistical Inference of Piracy • Impact of Piracy in developing nations and IT Globally • Bill Gates optimistic forecast on piracy

  35. Piracy rates world wide and the losses thereof : Source: Second annual BSA and IDC Global Software Piracy study

  36. Cost Impact of Piracy in Developing Nations 20 Countries with the Highest Piracy Rates Ranking (2004) Software Piracy Losses Source: Second annual BSA and IDC Global Software Piracy study

  37. Estimate calculation of Piracy rates Source: Second annual BSA and IDC Global Software Piracy study

  38. Infrastructure Scenario Overview Credit for India's rapid growth in IT software and ITES/BPO domains must go in part to the availability of a robust infrastructure Telecom Power Roads Civil Aviation

  39. Telecommunications .Total number of telephone connections grew by 34.34% to reach 124.78 million by the end of December 2005. .Total number of mobile telephony grew by 58.17% to touch 75.94 million by the end of December 2005. . Mobile tariffs in India are the lowest in the world. On average about 3 million subscribers were added every month during 2005 – 2006. . By the end of December 2005 Internet subscribers base grew 22.94% to reach 6.70 million and the Broadband connections grew by 1821.28% to reach 0.903 subscribers . Source: http://www.trai.gov.in/Report%20%20Dec-05%20Part%201.pdf http://www.trai.gov.in/report31jan06.pdf

  40. Power .India is the worlds 6th largest power generator .Installed capacity of 124,311 MW as of January 2006. Plans to add 100,000 MW capacity by year 2012 .Thermal power accounts for 66.4% of the capacity, Hydroelectric power accounts for over 25% of capacity, nuclear plants and non-conventional plants account for 2.7 and 4.9 percent respectively. .Power consumption has been having a compounded annual growth rate of 9%. .Demand has always been higher that supply. Source: http://www.nasscom.org/artdisplay.asp?cat_id=403 http://powermin.nic.in/JSP_SERVLETS/internal.jsp

  41. Roads .India has the second largest road network in the world totaling more that 3.3 million Km. .The traffic on the roads is growing at 7 to 10 percent and vehicle population is growing 12% annually. .National highways account for only 2% of the total road network in terms of length and carry around 40% of the total traffic. .National Highway Development Project .Started in 1999, is one of the highway projects in the world. Source: Ernst & Young, Doing Business in India. http://www.ey.com/global/content.nsf/India/Home

  42. Civil Aviation .India is one of the fastest growing markets in the world for both passenger and cargo traffic, second only to china. .The entry of no-frills flights which are 30 to 35 percent cheaper that the regular flights, has changed the profile of the air passengers. .Domestic and international traffic grew by 24.2 percent and 18percent respectively, in April-December, 2005. .Indian aviation market is estimated to grow to 45 million passengers by 2010. . Top six air ports are Bangalore, Chennai, Hyderabad, Mumbai, New Delhi and Kolkata Source: http://indiabudget.nic.in/es2005-06/chapt2006/chap98.pdf http://news.bbc.co.uk/2/hi/south_asia/4626810.stm

  43. IT - ITES Industry .The Indian IT-ITES industry is broadly categorized into IT services and software, ITES - BPO and Hardware segment. . Aggregate revenue for FY 2004-2005 is expected to be around $28 billion. . Sector growing at 31% is expected to account for 4.1% of the national GDP during FY 2004-2005. . North America and Europe remained key export markets contributing around 69% and 23% respectively to the overall IT-ITES export revenue during FY2004-2005 Source: http://www.nasscom.org/artdisplay.asp?cat_id=794

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