From:	Baroni Limited [baroni-limited@tiscali.it]
Sent:	30 June 2009 13:43
Subject:	Baroni Limited - Offshoring Newsletter 08/2009

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India Information Technology Report Q2 2009
Market Overview 2009 is set to be a difficult year for India's potentially vast IT market, as the country is buffeted by strong economic headwinds, the report has downwardly revised its five-year IT spending projections, and the total size of the IT market is now projected to increase from US$13.7bn in 2008 to US$24.6bn by 2013.
The World Bank on Monday forecast India's economy to expand by 5.1% this fiscal, the slowest in six years, although the country has consistently outperformed the multilateral funder's estimates in the past.
The Indian economy had grown by 6.7% in 2008-09 against the World Bank's estimate of 6.1%, despite recession setting in most of the developed nations.
The Economist Intelligence Unit (EIU) has said - India's GDP growth will average at 7.2% over the next five years even as risks to the global economy continue to remain high, The Reserve Bank of India itself has put the possible growth numbers at six% - 0.9%age points more than the estimates of the World Bank. India economy had expanded by 8.5% in 2003-04.
Prime Minister Manmohan Singh has acknowledged that there is indeed a slowdown in foreign investments, but exuded confidence that Indian could soon return to the days of 8-9% growth on the strength of its domestic savings, which was around 35% of the GDP and is the second highest savings rate in the world. Singh, however, said that this fiscal he expects the country's economy to grow by seven%.
Sales of both desktops and notebooks were down last year as MNCs and domestic companies deferred purchases, and the malaise spread to the consumer segment, where layoffs and a negative wealth effect from lower asset values affected spending. However, the long-term growth prospects of India's IT market remain strong because of fundamental drivers such as India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the vast rural areas to the outside world.
Less than 2% of people in India currently own a computer about one-fifth of the level in China meaning particular potential in the lower-end product range. Meanwhile, the IT services sector remains critical to future market growth, with the government projecting that India's BPO industry is likely to capture more than half of the US$110bn global offshoring market by 2010.
Industry Developments faced with a sharp slowdown in global and domestic computer sales, in 2009 the India government announced a series of measure to support the market. Service tax was cut from 12% to 10% and excise duty from 10% to 8%.The measures were intended to provide relief to domestic consumers, while also providing some support to IT exporters. However, there were questions about how much effect the measures would have on both scores.
Meanwhile, the IT ministry responded to the slowdown by moving to ask the government to extend the Software Technology Parks of India (STPI) scheme by a further three years. The STPI scheme, which offers a tax holiday to software firms located inside STPI parks, was due to expire in March 2010, having being extended by one year by the finance ministry in April 2008.
The government's IT agency, the National Association of Software and Service Companies (Nasscom), has downgraded its 2009 growth projections for the domestic IT sector as a result of the global economic crisis. The government now envisages Indian IT exports in FY09 growing at a rate in the high teens, down from its earlier projection of 21-24%.
Competitive Landscape Weaker consumer sentiment in the second half of 2008 led to locally assembled PC units gaining PC market share at the expense of branded ones. There were also some changes in competitive rankings in the PC market, with Dell advancing at the expense of rivals HCL and Lenovo. India is reported to be the fastest-growing market for US firm HP the Indian PC market leader with between 15%-20% of sales. The leading Indian IT companies have taken a hit from the bad global economy, with companies freezing wages and slowing hiring. However, the big story in the India IT services sector in early 2009 concerned Satyam, whose collapse amid scandal in January sparked a flurry of interest in purchasing the company.
Global software vendors were continuing to find opportunities in key verticals in the India market, including telecoms. Aircel Limited, India's leading GSM mobile operator, recently announced a major implementation of Oracle applications. The company has launched the project, which will be managed by Wipro, to support its aggressive growth plans, which include expanding operations to at least seven more states.
Computer Sales According to forecasts, computer sales (including notebooks) in India’s hardware market will be worth around US$6.4bn in 2009, up from an estimated US$6.0bn in 2008. The report has downwardly revised its computer hardware sales projections for 2009, to reflect negative business and consumer sentiment.
Sales of both desktops and notebooks dipped significantly in Q3 of the 2008 calendar year, and the situation continued to deteriorate in Q408.
The economic slowdown has had a particularly hard impact on business spending, with MNCs and local firms deferring investments. However, it is predicted that the CAGR for the hardware sector as a whole will be 7% between 2008 and 2013, with unit sales expected to resume strong growth. Only nine out of 1,000 people in India own a computer, one-fifth of the China level. The government’s ultimate goal is for 1bn internet-connected computers in India – equivalent to the total estimated number of PCs in the world today.
Software The software segment should continue to grow, with combined software and service CAGR for 2008- 2013 projected at 12%. The economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. Despite the difficult economic conditions, the local market is likely to sustain vendor investment, with small and medium firms becoming more sophisticated in their demand for customised software and applications to increase business flexibility.
In recent years, the SME market in India for hardware deployment has been growing, and this is now resulting in an increasing opportunity for applications. More demand for solutions and hardware is now coming from second- and third-tier cities. Industry reforms and privatisations, government regulations and new global competition have encouraged SMEs to use more technology. A second major software demand driver is the emergence of India as a global centre for outsourcing, with the global recession encouraging large US and European companies to focus on offshore software development to lower costs.
Services The economic situation, and credit tightening, is likely to have an effect on demand in some key verticals which have been driving IT spending, with reports of IT managers in various sectors looking to cut costs.
However, in recent years domestic demand for IT services has grown rapidly, and average project size typically below the US$1mn mark has also increased, resulting in several projects above the US$100M mark.
This trend, along with the US economic slowdown, is attracting vendors like Infosys and Tata Consultancy Services (TCS) to pay more attention to their domestic market. The high spending telecom industry has particular opportunities for IT services vendors, with huge increases in capital expenditure budgeted by most service providers. Meanwhile, a recent report by industry association Nasscom identified China as a major challenger to India’s dominance in BPO segment of the IT market, but found that China was unlikely to close the gap on India in any significant manner over the next three to five years.
E-Readiness Broadband subscriber numbers are consistently falling behind target in India, with only 5.9mn subscribers by the end of 2008, according to estimates. The main reason for the slow uptake is thought to be insufficient demand, although the government has taken some measures to reduce tariffs and encourage alternative forms of service provision. One brake on PC penetration is a poor dial-up internet home-user experience, even in cities. If this is to change, the government must take the initiative in improving bandwidth availability. Government plans to encourage WiMax network deployment may have some impact on penetration. Broadband subscribers are currently expected to reach 67.9mn by the end of 2013, while the number of internet subscribers is forecast to reach 553.1M within the same period.
E-Government Some 26 e-government projects were due to be implemented over the 2006-2010 period, as part of a national e-government plan. The estimated budget for these is INR23,000. The plan will be implemented at central-, state- and local-government levels. Most of the 26 so-called Mission Mode Projects (MMPs) will use a public-private partnership (PPP) model. One central initiative will see the construction of one lakh (100,000) common service centres (CSCs), providing access to frequently sought information such as birth certificates. During 2007, land records, income tax and excise departments were computerised.	

 	
 Top Stories	
 	
Gartner reveals growth pockets
Despite the current economic doom and gloom there are still pockets of positivity for the channel, according to Gartner. The analyst has forecast that overall IT spend  including hardware, telecoms, software and services  in 2009 will decrease by 3.8% to $3.23tn compared to $3.36tn in 2008.
Large deals lift UK outsourcing market
Top ten UK ITO outfits see total contract value rise by 31% in first half of 2009, according to Ovum. Deals signed since January by HP-EDS (Aviva and the Ministry of Defence, BT (NHS) CSC and IBM (UK Identity and Passport Service) and Fujitsu Services (Marks & Spencer) added more than £2bn in new ITO spend to the market, Ovum said.
IDC slashes European services outlook
The European IT services market is set to enter negative growth this year as support, training and project revenue tumbles, IDC has claimed. The research house predicts the market will contract 0.6% this year, a point down from its previous forecast of 0.6% growth. A gradual recovery is expected to start next year, with growth returning to the tune of 1.3% in 2010. IDC anticipates the compound annual growth rate will stand at 3.2% between this year and 2013. Outsourcing is still expected to grow this year, with revenue projected to spike 4.2%, a fifth of a point down on IDC's previous forecast. The research firm claims application outsourcing remains a fruitful area as end users seek short-term cost savings.
Gartner: Don't sign long-term outsourcing deals
Gartner predicts that IT outsourcing pricing is set to shrink by 5 to 20% during 2009 to 2010, as traditional service providers compete with new players.
US, European firms sell back-offices in India to cut costs: Report
Citigroup Inc and insurance firms AXA SA and Aviva PLC, among others, have sold offshore computer-programming shops and other operations to companies in India over the past year, the report stated. Some companies have received hundreds of millions of dollars for their centres, while others have sold their sites for the cost of the equipment and usually the buyer gets a multiyear contract to provide the same services back to the seller, it added. Other firms, including Delta Air Lines Inc and UAL Corp, have shut down centres in India during the past few months. 
Wal-Mart to Start Outsourcing More to India
Wal-Mart Stores has shortlisted top Indian tech firms, including TCS, Infosys and Wipro, for an outsourcing contract potentially worth up to $500M over next few years, as the retailer seeks to award multiple contracts for managing its business applications and other back office activities.
UBS in talks with Infosys, Wipro for sale of BPO, KPO units
Switzerland-based bank UBS is believed to have put its business process outsourcing (BPO) and knowledge process outsourcing (KPO) units up for sale. The bank, which has centres in Poland and Hyderabad, is in talks with Indian IT companies such as Infosys and Wipro, said a person familiar with the possible transaction.
Citibank Negotiating To Sell Internal IT Platforms To TCS, Wipro
The deal, which could be valued between $60 and $100M, includes intellectual property (IP) used for delivering equity trading services. 'With this IP, we will not only gain business from Citi, but also be able to offer services to other financial services customers using the same platform,' said a senior executive at one of the IT firms negotiating with Citi to acquire its technology assets.
Diageo signs £20M deals with CSC
The first, a four-and-a-half year contract worth $7M (£4.3M), will see the vendor design, develop and implement a new worldwide supply chain management system. The SAP-based system is intended to improve visibility of Diageo’s product stocks worldwide, increase supply-demand ratio and reduce costs throughout the supply chain.	
 	
 Service Provider News	
 	
Philippines BPO sector on track for $7.5-B target
The industry still expects to haul in $7.5 billion this year, growing 23% over 2008, and achieve its $12 billion original target by 2011, Business Processing Association of the Philippines (BPAP) CEO Oscar Sañez told the group’s executive breakfast briefing in Makati yesterday.
China's Software Outsourcing Export Growth Slowed In First Four Months Of 2009
According to the latest statistics provided by China's Ministry of Industry and Information Technology, China's software export reached USD4.93 billion in the first four months of 2009, a year-on-year increase of 48.2%. Of the total value of exports, USD380 million was from the software outsourcing sector, a year-on-year increase of 25.8%, but the growth rate was 4.4% lower than that of the first three months.
India Inc buys 143 US Cos in 2 yrs
During the last two years, Indian companies acquired 143 US firms across various sectors. While 94 deals were concluded in 2007-08, in the following year when the economy was on the downturn, Indians bought as many as 50 US entities that were on the verge of closure, saving thousands of jobs.
EDS Wins $34 Million DoD Contract
Hewlett-Packard's EDS outsourcing unit said Monday that it won a $34M contract to provide a range of services to the U.S. Department of Defence. Under the deal, EDS, along with partner Harris Information Technology, will provide the Defence Information Systems Agency with engineering, technical, and analytical services for its Multinational Information Sharing program.
TCS, Wipro eye $200M BPO deal from UK’s RMG
India’s top tech firms TCS and Wipro, apart from several multinational rivals, are preparing to bid for a $200M outsourcing contract being considered by Britain’s public postal service Royal Mail Group (RMG). The contract is part of a $2 billion technology-led transformation being planned by RMG, even as Britain readies to part-privatise its premier postal service and help it compete better with private sector rivals. 
India's TCS opens new outsourcing centre in Mexico
TCS has opened a new centre in Queretaro, Mexico, third in Mexico since entering the country in 2003. TCS said it would hire 500 people to work at the new centre.
IBM Provides IT Services to Canadian Telco Rogers
According to IBM's announcement, which coincided with the Canadian Telecom Summit in Toronto, IBM will support Rogers' ongoing information technology transformation with a stable and highly available IT environment to accommodate future growth. IBM's data centre will be linked to Rogers' existing facility using Rogers Business Services networking technology. IBM will also be upgrading Rogers' existing facilities and storage capabilities over the next several years.
Xchanging to set up 1,000-seat BPO near Bangalore
UK-based Xchanging, a Rs 460-crore business process outsourcing (BPO) unit, is set to open a 1,000-seat high-performance processing centre in the Tier-3 town of Shimoga near Bangalore.
Unisys subsidiary wins Australia airport contract
Unisys Corp. Australian subsidiary has received a five-year contract worth $20M to continue to provide a baggage-tracking system for 44 international airlines using Australia’s eight-international airports.
HCL Tech unit in multi-yr pact with Germany's Linde
HCL Technologies on Thursday announced that its German subsidiary has entered into a multi-year, multi-regional enterprise resource planning support services and projects engagement with gases and engineering firm The Linde Group.
Capgemini adds first line support centre for Europe in Poland
Capgemini today said that it is expanding its presence in Eastern Europe to meet ongoing client demand for outsourcing services by adding a new first line support help desk centre in Poland. The new technology centre in Iasi, Romania, will perform first line IT help desk support and business continuity work for Capgemini's outsourcing clients.	
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