The global economic downturn has slowed the growth of India’s technology and business services industry, but beyond the current crisis, the industry faces a changing global environment that will probably cut into the country’s worldwide market share.
A McKinsey analysis suggests that there is little immediate risk to India’s dominance of the market for offshore technology and business services. But the country’s share could sink to 40% by 2020, from just more than 50% at the end of 2008, primarily as a result of increased competition from other countries, talent and infrastructure constraints, and an unhelpful regulatory environment. But changes in the global market could also give India opportunities, especially if its companies become more innovative and rely less on low labour costs.
Changing focus: A file photo of a Convergys office. Indian IT firms can get more opportunities in the market if they rely less on low labour costs. Madhu Kapparath / Mint
The revenues of India’s business and technology services companies have grown to about $58 billion (Rs2.8 trillion today) at the end of 2008 (including about $46 billion in exports), from $4 billion in 1998. In 2005, industry lobby Nasscom, suggested that export revenues could reach $60 billion a year by 2010, but the global downturn will probably delay the achievement of this goal by three or four quarters.
Looking past the immediate situation, McKinsey expects the global market for offshore business and technology services to grow to about $500 billion by 2020, from the current $80 billion a year. Even with this more than sixfold growth, the industry will serve less than a third of the potential market, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.
Several factors will contribute to this global growth. Core markets—for instance, large financial services and telecommunications firms in developed economies—should continue to expand along with the global economy, once growth returns. The pace of growth could slow, however, if processes are automated and standardized more quickly than seems likely now. Corporate budget cuts during the downturn and protectionist regulation could also dampen demand from core and other markets.
Much of the industry’s expansion will come from non-traditional customers. Increased demand from emerging markets (primarily China and India, but also Brazil and Russia) could add $450-500 billion to the global market by 2020.