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Technology Support: BPM and IT-ITeS industry explores the SMAC opportunity

May 28, 2015
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The business process management (BPM) and information technology (IT)-IT-enabled services (ITeS) industry contributes significantly to the growth and development of the economy. At the end of 2014, the Indian BPM and IT-ITeS industry was estimated to be worth $118 billion. It has helped India to maintain its position as a leading offshoring destination with a 55 per cent share in the global sourcing market. With an overall growth of 13 per cent, the industry continues to be a major driver in the country’s GDP. According to the Department of Industrial Policy and Promotion, the computer software and hardware sector in India attracted cumulative foreign direct investment inflows worth $13,788.56 million between April 2000 and December 2014. As per data from Dealogic, private equity deals registered a significant increase in 2014, particularly in the e-commerce space. In 2014, there were 240 deals worth $3.8 billion in the IT space, including e-commerce. In addition, there was a 10-fold increase in venture funding in internet companies in 2014 as compared to 2013. More than 800 internet start-ups received funding in 2014 as compared to 200 in 2012.

According to the National Association of Software and Services Companies (Nasscom), the Indian BPM and IT-ITeS industry continues to be a preferred global outsourcing hub. It offers low-cost manpower, a large and employable talent pool, customer-centric business outcomes, a global delivery network, competitive infrastructure in emerging potential locations, and maturity in terms of scale, depth of services and vertical presence. In its annual report on the outlook for the Indian BPM and IT-ITeS industry for 2015, Nasscom has underlined its support of customer organisations across sectors like health care; banking, financial services and insurance; and manufacturing through multi-billion dollar cost savings, faster time-to-market, productivity improvements, access to new geographies, and localised solutions. The industry has also been enabling users to achieve operational excellence, redesign technology and undertake business process improvements and business innovations. Over the years, it has contributed significantly to the country’s employment base, providing jobs to about 3 million professionals, with over 160,000 employees being added in 2014 alone.

Recognising the important role played by the BPM and IT-ITeS industry in the country’s economic growth, the government has taken a number of initiatives to provide it with further incentives and support. It recently approved the National IT Policy and the National Electronics Policy, which aim to increase the revenues of the IT-ITeS industry and make the country a manufacturing hub for electronic goods. The policy is aimed at promoting the innovation and development of applications and solutions in terms of localisation, location-based services, mobile value-added services, cloud computing, social media and utility models. As per research firm McKinsey, the adoption of key technol-ogies across sectors, encouraged by the Digital India initiative, could help boost India’s GDP by $550 billion to $1 trillion by 2025. The government intends to drive growth in the industry through a number of supportive taxation and investment policies. Some of the related incentives are as follows:

  • Indian BPM and IT-ITeS service providers are allowed to make outbound investments of up to 200 per cent of their net worth for building delivery centres outside the country.
  • About 30 per cent of the value of - contracts and 100 per cent of the value of offshore contracts has to be repatriated to India.
  • Overseas offices of Indian IT companies are not allowed to create liabilities for their Indian headquarters.
  • Depreciation of 100 per cent can be availed of over five years for computers and peripherals in export-oriented units (EOUs), special economic zones (SEZs) and electronic hardware technology parks.
  • EOUs/Software technology parks can import all goods, including capital goods, without paying any duty.
  • SEZ units can get tax holidays for up to 15 years.
  • The majority of capital goods in SEZ units get customs duty exemption.
  • Input services procured and consumed by SEZ units are exempted from service tax.
  • No service tax is to be levied on taxable services exported by SEZ units.
  • No excise duty is to be paid on the manufacture of IT software.
  • Interstate sales made by SEZ units must be given central sales tax exemption.
  • Up to 84 per cent of the cost of computer hardware and software can be depreciated in the first two years.

Given the strong policy support and the impetus provided by the central government, the Indian BPM and IT-ITeS industry is expected to grow significantly over the next few years. According to industry estimates, BPM and IT-ITeS exports are expected to grow by 13-15 per cent and domestic market revenues by 9-12 per cent in 2015, with the overall industry revenue expected to reach $130 billion. The big opportunities for the industry lie in the adoption of emerging technologies like social, mobility, analytics and cloud (SMAC). In the future, SMAC is expected to provide the Indian BPM and IT-ITeS industry $1 trillion worth of business opportunities.

Cloud represents the largest opportunity under SMAC and it has been growing at a compound annual growth rate of about 30 per cent. It is expected to reach $650 billion-$700 billion by 2020. The BPM and IT-ITeS industry has taken the lead in adopting cloud, with a large number of organisations using the platform within the organisation as well as offering it as a service to clients. Some of the key business processes that are being enabled by cloud technology are contact centres, specialised human resource solutions, payroll, and finance and accounting.

Nasscom states that some large enterprises have even matured on their journey to the private cloud and are now evaluating the option of a hybrid cloud (a combination of public and private cloud), where they can choose the resources they want to manage in-house, with the rest being managed externally. Large companies have mostly been putting only non-critical applications such as customer relationship management, lead management and human resource management onto the public cloud.

After cloud, social media is the second most promising segment for IT organisations. It is expected to offer the industry market opportunities worth $250 billion by 2020. Other prominent technologies being leveraged by the BPM and IT-ITeS industry include business analytics software, social media platforms and process automation software. These technologies are helping companies improve their internal efficiencies and lower the costs that are passed on to clients.

Going forward, the internet of everything (IoE) is expected to have a huge transformational impact on the BPM and IT-ITeS industry. To leverage IoE, organisations are required to put in more strategic infrastructure investments. According to Cisco, IoE is an $18 billion opportunity for IT companies as it helps them improve productivity and asset utilisation as well as enhance the end-customer experience.

Though IoE presents a vast business opportunity, it also poses challenges in the form of higher threats to security and privacy. However, this can be addressed by taking an intelligent, application-centric approach to all network components and not focusing only on software. With IoE, IT-ITeS companies can offer clients products and services to help realign businesses and prepare networks for the future. The establishment of uniform standards and compliance norms for IoE will also help the industry create an environment that fosters innovation and helps companies achieve scale. As per consultancy firm KPMG, the IT industry is making a transition towards IP-driven products and services. The next phase of business models for the BPM and IT-ITeS industry will be driven by the rise of SMAC and the convergence of technologies.

However, to ensure the effective utilisation of these trends, it is imperative for the industry to create, manage and mon-etise intellectual property. So far, Indian IT-ITeS companies have grown by offering customers the value proposition of cost savings and efficiencies in delivering business processes. The big challenge now is to use SMAC to move from traditional on-site delivery models to cloud-based and off-premises delivery models.

With all these technological transformations taking place, traditional markets and business domains that were once key growth drivers for the Indian BPM and IT-ITeS industry are paving the way for new geographies, customers, IT applications and services. From the technology perspective, there is a greater focus on IP, integrated and flexible delivery platforms, social media, cloud, analytics and mobility. This shift is creating a greater demand for solutions that provide dynamic IT management across physical, virtual and cloud-based networks, and help organisations simplify IT operations and reduce operating costs. In a joint report on the innovations transforming the growth landscape of the Indian BPM and IT-ITeS industry, KPMG and Nasscom have taken the view that a unified approach at the architectural platform level can help the industry lower operating costs while extending capital assets. This will also help IT-ITeS companies harness the power of technol-ogy trends like big data, cloud computing and workload mobility, and provide key business insights to customers for a greater competitive advantage. Industry standards, partnerships and expanded ecosystems are going to be the key to this transformation. Over the next few years, a qualitatively different approach and greater degree of collaboration on the part of BPM and IT-ITeS players are going to be critical for offering customers new products, services and innovations in the domestic as well as international markets.

 
 
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