India gradually becomes a favorite investment destination for global IT majors who are flocking to the country's shores to outsource their software requirements. For international IT software and services leaders who have set up state-of-the-art development centers and R&D facilities, the efforts have begun to reap rich reward.
MNCs Advantage India
Various reasons have been cited by leading global business intelligence and consultancy firms such as Giga, Forrester Research, and Mc Kinsey & Co. Giga for instance, expects offshore outsourcing by MNCs and other companies to grow by at least 23 percent during 2002. India's quality and cost-benefit edge are likely to be a major draw for these organizations. Compared to other competing countries such as China, Ireland, Israel, and the Philippines, India will continue to dominate as the preferred offshore country, Giga adds.
Forrester Research meanwhile also points to an enlarging offshore software development pie, indicating that by 2003 a larger number of companies will engage offshore providers. Budgets for offshore services too are expected to grow rapidly over the next two years from 12% of technology budgets today to 28% in 2003. According to a study conducted by Forrester in November 2001, India's edge over other competing nations in the IT outsourcing business is based on the country's decade-old experience in this area, English fluency, supportive Government policy infrastructure, and high-quality offerings.
In an October 2001 survey, McKinsey & Co. found that India's cost advantage added to its relevance as a software outsourcing destination. The study indicated that the cost of doing offshore software development in India was almost 30-80% lower as compared to development in Europe or the US.
No wonder then that key MNCs are rushing into India to stake a claim to the IT outsourcing market. While a large number of companies are outsourcing their software development to Indian companies, others are establishing a presence in India and participating actively in the software export game.
A look at the software export statistics of these organizations shows just how aggressive these players are in the Indian market.
According to a recent Nasscom survey, MNCs accounted for 15 percent of India's overall software export revenues during 2000-01. Of India's total software export figure of Rs. 28,000 crore, a healthy Rs. 4,300 crore came from MNCs! This represented a whopping 50 percent growth in the revenue contribution from the MNC side over the last year.
Why do MNCs love India?
The year-on-year improvements in MNC performance in the software sector, is the result of the substantial cost and quality advantages these companies are deriving from their India operations. India's highly-skilled, English-speaking manpower is a key asset for these companies that rely on this strength to create products and services for their internal use as well as to cater to their own global customers. Companies such as Adobe and Computer Associates are getting a chunk of their own products developed in India.
Nasscom statistics revealed that software exports by MNCs with a turnover between Rs. 100 crore and Rs. 250 crore grew by 30 percent. For companies with a turnover of Rs. 100 crore, the growth figures were pegged at around 29 percent.
Success through India-centered initiatives has further incentivized MNCs to expand their operations in India. A study of the last year reveals that a number of leading MNCs are either diversifying their activities in India, expanding operations, entering into alliances with Indian companies, or then spreading geographically.
Provided below are a few snapshots of MNCs that are hiking their stakes in the Indian market:
Nortel Networks: Communications big wig, Nortel Networks is set to strengthen its existing enterprise business in India on account of the fact that the company considers the country a hot growth market. The company is bringing to India its optical fiber solutions and next-generation Internet offerings including routing products and security software.
IBM: IBM Global Services in Bangalore has bagged a mammoth outsourcing project from AT&T. The work, pertaining to application development, enhancement, and maintenance, has been contracted for a 10-year period. IBM will increase its workforce dedicated to this project by 250 people by the end of next year. Eventually, there could be around 5,000 people working on this project.
Sun Microsystems: Sun has identified its Indian operations as one of the top five locations having the potential to clock over $1 billion in revenues over the next five to six years. The focus within Sun on India is very high, considering that Indian operations are one of the fastest-growing. In another five years, Sun's manpower in India will increase from 400 to 4,000.
Cisco: Cisco has bought 29 acres of land from the National Power Corporation to establish its own campus in Bangalore. The company is also committed to investing Rs. 900 crores over the next few years.
Tejas Networks: Bangalore-based optical networks company, Tejas is set to finalize its second round of funding. Biggies, Intel, IVC, and Sycamore Networks of renowned communications guru Gururaj Deshpande are the VCs involved in contributing $7 million to the Tejas coffers. Tejas has recently announced the arrival into the Indian market of its optical access products aimed at building intelligent optical networking.
Cap Gemini E&Y: One of the big names in the worldwide consultancy business, Cap Gemini E&Y is spreading its wings wider in the Indian market. Not only is the company expanding its base of employees from 250 to 500, but it is also planning to set up its second software development center over the next few months. Cap Gemini is also making a bid for the high-growth IT-enabled services market.
Silicon Graphics: Lifting US restrictions from hi-tech defense research in India, has spurred IT major, the $30 billion Silicon Graphics to create a strategy for the defense sector in the country. SGI is keen to develop solutions specially designed for the defense market and the company is also scouting for partners to work with for this segment.
Intel Giant chipmaker continues to find India an interesting investment opportunity, a fact proved by the recent decision of the company to invest $25 million in India. The idea is to set up a new technology development center in Bangalore and expand engineering staff by 50 percent. The company also plans to provide the services of its Applications Solutions Center to Indian information technology companies.
GE: General Electric's fresh round of investments in the Indian market is likely to be directed towards the infotech sector, the company recently announced. A significant chunk of an $800 million investment will come the way of the IT market, the company informed. Software exports from India are expected to rise to $3 billion by 2004 with software outsourcing expected to account for a third of the export targets.
Canon: Business Process Outsourcing could be a key lure for Canon Japan to expand operations in India. Canon India, a subsidiary of Canon Singapore is expecting its software services division to contribute about 15 percent to its topline growth next year with revenues touching around $10 million.
Accenture: International management and technology consulting organization Accenture has recently kick-started its new technology development facility in India. The Indian offshore development center located in Mumbai will leverage Accenture's systems integration methodologies and capabilities.
