Nasscom, the premier trade body and 'voice' of the IT software and service industry in India, on Thursday announced the key findings of the Strategic Review 2006, on the eve of its 15th annual event Nasscom 2006: India Leadership Forum, scheduled from February 15-17, 2006 in Mumbai.

Kiran Karnik, president, Nasscom, said, "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. Inspite of the growth seen so far, it is estimated that less than 10 percent of the addressable market for globally sourced IT-ITES has been captured till date, indicating significant headroom for growth."

The Strategic Review 2006 reviews the industry's performance in 2005, estimates the growth expected in the current fiscal (FY06) details the service line trends observed across the various industry segments over the past year, presents an assessment of India's competitiveness as a sourcing destination, analyses the sustainability each individual factor contributing to India's leadership position and provides a view of the outlook projected for the global and Indian IT-ITES industries -- outlining the opportunities, challenges and agenda for key stakeholders to further extend India's leadership in this space.

Highlights of the Strategic Review 2006

• Steady growth: The Indian IT-ITES expected to exceed $36 billion in annual revenue in FY06, an increase of nearly 28 percent in this current fiscal.
• Exports to account for nearly two-thirds of the total revenues.
• IT-ITES sector to contribute to 4.8 per cent of GDP in FY06.
• Engineering and R&D, software products hold significant opportunity for India -- growing at 37% and 43% (CAGR FY 2003-06E), respectively.
• Indian IT-ITES sector on track to achieve the targeted $60 billion in exports by FY 2010.

IT Industry-Sector-wise break-up

Total may not match due to rounding off

* Nasscom estimates have been reclassified to provide greater granularity. Revenues from Engineering and R&D services and Software Products reported separately (erstwhile clubbed with IT Services / ITES-BPO). Historical values for a few segments have changed. For ease of comparison, details for two preceding years have been restated as per the new classification.

Employment trends

• Total IT Software and services employment to reach 1,287,000 in FY06.
• Industry has already initiated several initiatives to further enhance the availability of and access to suitable talent for IT-ITES in India.
• A comprehensive skill assessment and certification programs for entry-level talent and executives (low-middle level management) launched.
• An image enhancement program to build greater awareness about the career opportunities in this segment.
• Nasscom is working with the academia across the country to encourage and facilitate greater industry interaction.

Employment figures: Software and services sector

*Figures do not include employees in the hardware sector.

Emergence of newer locations

• As global delivery matures, newer locations are emerging; however India remains the undisputed leader.
• India maintains its distinctive lead amongst offshore destinations.
• Strong fundamentals will help sustain India's value proposition.
• 28% of the suitable talent available across all offshore locations (outranks the next destination by a factor of 2.5).
• Keen emphasis on security and quality.
• Sustained cost competitiveness, gains from increased productivity, utilization and scale expansion.

Growth in domestic market

• Complementing the continued growth in IT-ITES exports is a growing domestic market.
• Domestic market coming into its own, to grow by nearly 22% in FY 2006.
• Strong demand over the past few years has placed India amongst the fastest growing IT markets in the Asia Pacific region.
• Growth in the domestic market is witnessing the early signs of service line depth that characterizes maturing markets.
• Global product companies are also looking to introduce localized versions of their software products to drive usability and penetration.
• Several large domestic contracts announced last year were won by MNCs.

Coming of age of Indian multinationals

• Traditionally India-centric, indigenous players beginning to build noticeable presence in other locations -- through cross border acquisitions and organic growth in other low-cost locations.
• Global majors continuing to significantly ramp-up their offshore delivery capabilities -- predominantly in India.
• Portfolio of services sourced globally continued to expand into higher-value, more complex activities.

From outsourcing to global sourcing

• Transition from outsourcing to global sourcing to drive the next phase of evolution in process quality frameworks and practices.
• Having aligned their internal processes and practices to international standards such as ISO, CMM, Six Sigma, etc., companies in India are seeking to further increase the quality and productivity benchmarks by introducing adaptations more suitable for remote service delivery.

Going forward

• For India to fully capitalise on the opportunity and sustain a disproportionate lead in the global IT-ITES space, we need to focus on five key areas:
• Enhancing the talent pool advantage -- focus on skill development to better leverage the worlds largest working population.
• Strengthening urban infrastructure in existing (tier I) and emerging (tier II and tier III) cities and continued emphasis on proactive regulatory reform to facilitate greater ease of doing business.
• Driving a philosophy of operational excellence amongst industry players (across the board) to ensure that India based delivery sustains world-leading benchmarks in performance.
• Catalysing domestic market development.
• Actively promoting an uncompromised agenda towards global free trade.