McKinsey: India IT and BPO Business To Grow 25% Annually Through 2010


    NASSCOM, India’s trade association, and McKinsey & Company issued a joint report yesterday, which predicts a 25% year-over-year growth in India’s IT and BPO industries over the next five years.

    According to “NASSCOM-McKinsey Report 2005- Extending India’s leadership in the global IT and BPO industries,” the Indian IT and BPO industry is estimated to be $22 billion currently. By 2010 that could rise to $60 billion, slightly more than half of the $300 billion total global offshoring business expected to be done.

    Drivers for the growth include: “abundant talent supply, strong cost- and-leadership oriented companies, regulatory support, scaleable high-quality infrastructure, and a growing domestic market…”

    However, the report cites three potential stumbling blocks. McKinsey partner Jayant Sinha laid them out: "First, the skills and quality of the workforce need to be improved, since only 25 percent of technical graduates and 10-15 percent of general college graduates are suitable for employment in the offshore IT and BPO industries, respectively. Second, as margins come under pressure, companies must be able to continuously improve operational excellence, in addition to innovating and developing new service lines. And lastly, urban infrastructure needs immediate attention, as offshoring companies deal with bottlenecks ranging from power to cafeterias. Further growth will have come to from entirely new business districts outside of tier 1 and tier 2 cities.”

    The report calls on central and state government in India to address the deregulation of higher education and setting up “focused-education zones” to improve the country’s educational system; as well as the need for master plans to build 10 to 12 “integrated townships” with urban infrastructure, such as roads, international airports and land development. Last, it hopes for progress in negotiating free trade arrangements with select countries during this week’s WTO talks.

    Researchers identified four “possible wining approaches” for service providers to pursue during the next several years to ensure their position in this bright new world:

    Global Champion: Full-service global IT and BPO provider offering multiple service lines and integrated solutions to large global companies.

    IT specialist: A focused IT-oriented service provider with a top five position in at least three or four major industry verticals and cross-industry service lines (such as infrastructure management services).

    ADM (Applications Development & Maintenance) factory: One of the top three global low-cost providers of applications development and maintenance services through a "lean" operating environment built on a manufacturing mindset and superior scalability of operations.

    Specialist BPO providers: Three types of specialised BPO providers appear possible: 1) an operator of industry-standard transaction or platform-based services e.g., card processing; 2) a top three custom BPO services provider with distinctive capabilities in transition, process automation and re-engineering of customer processes; 3) a top three global player providing highly skilled services such as chip design, aerospace engineering, or chemical plant engineering.