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Industry vertical-wise breakup of IT exports
Article » Finance
Posted by : thedesk   Mar 25 2005
IT Industry: Overview of industry verticals
The Indian IT Industry - Breakup by Functional Area/Vertical

Increasingly IT services are being organized along vertical industry lines. Industry studies by leading research outfits such as IDC or Forrester have highlighted the importance of vertical or domain specialization in pitching for large contracts as well as for outsourcing projects. As IT services companies move up the value chain, they have been recruiting consultants and domain experts and bifurcating their businesses along vertical lines. In this the first of our series of Industry Snapshots of the Indian IT services Industry, we look at the breakup of business as per verticals, the verticals which dominate and the key reasons for growth in these verticals in future.

A number of us working within the IT industry could also probably get a big picture view of the overall scenario and where what we do fits into the overall industry landscape.

The Indian Software/ITES Exports Industry
The earnings from IT-ITES exports was US$ 13.3 billion (61.9 percent of total industry revenues) in 2003-04 and is expected to touch US$ 17.9 billion (63.7 percent) in 2004-05 (Source: Nasscom).

Breakup by Functional Area/Vertical
Source: Nasscom Indian IT software services and BPO (ITES) revenues: By Vertical 2003-04

Break up by vertical for leading Indian Software Services Companies
# Data from annual reportS/investor presentations
NMS – Not mentioned separately

It’s the largest vertical forming almost 37% of the total revenues earned by Indian IT companies. Banks and finance companies need to increasingly compete on better service to customers a great deal of which is IT enabled, hence technology spending by this sector continues to grow and is not very volatile with business cycles.

Users of technology in this segment include:
- Asset management companies/Mutual Funds,
- ATM manufacturers,
- Banks (Retail and Wholesale),
- Credit card companies and processors,
- Custodians,
- Investment banks,
- Institutional investors,
- Mortgage banks,
- Pension funds,
- Insurance Companies,
- Securities brokerages,
- Stock exchanges, etc.

Key Trends:
Major areas of spending in the banking segment include for replacement of legacy systems with core banking solutions/products, specialized solutions for risk management, upgradation of systems to meet tighter regulatory requirements (Basel II), Business Intelligence/Analytics solutions, CRM, enterprise portals, security, network and infrastructure management projects.

Some Indian companies derive their revenues out of sale of products/packaged software and the banking segment is one where some companies have products. Key among them is iflex solutions, whose product flexcube is highly rated globally. Other products in this segment by Indian companies include Quartz (TCS), Finacle (Infosys), Orbi-suite (Polaris) etc.

Domestic IT Spending by BFSI segment:
The situation in the domestic IT market is similar to the global trend with the BFSI segment accounting for the largest share of the domestic IT market. The BFSI segment accounts for the largest share of the domestic IT market. The major areas in which banks have undertaken IT related investments include computerization of branches, deployment of multiple delivery channels to customers like installation of ATM networks and facilities for internet banking, systems related to handling of credit/debit cards, and implementation of CRM solutions to add value to customer solutions. Banks are implementing technology solutions for improved customer service, ensuring the security of their data, reduction of costs and increased productivity. The domestic insurance sector has also seen high IT related spending, due to increased competition. IT Spending in insurance is primarily driven by office automation and CRM applications for acquiring and managing customers.

The Manufacturing vertical accounts for 13% of total revenues earned by Indian IT companies. The key drivers include increased focus on Return on Investment (ROI), product design, reducing time-to-market and product life cycles, need for transactional systems which integrate core processes, need to increase operational efficiency and capital productivity while reducing fixed and variable costs etc. The various solutions include:
- MRP (Materials Resource Planning)/Scheduling
- ERP and Extended ERP solutions
- Industrial Automation and Control Systems
- Engineering Solutions - Product Life-cycle Management/Product Design (CAD/CAM)
- Operations Management
- Manufacturing Process Simulation Software
- Supply Chain Management
- Spend Management
- Customer Relationship Management/Business Intelligence
- e-business Solutions
- High-tech Solutions - Embedded engineering, DSP, VLSI Design

Domestic Manufacturing Segment
IT spending in the manufacturing sector increased by 40% in 2003-04 across both process and discrete manufacturing segments, contributing to 10% of the total domestic IT spending. Some of the drivers for increase in IT spending in the manufacturing sector were:
- Adhering to the WTO norms
- Indian manufacturing companies which were Tier 1 or Tier 2 suppliers to OEMs in India or abroad, to reduce time-to-market and product life cycles, put pressure on manufacturers to integrate with OEMs (both Indian and MNCs), Tier I suppliers, sub-contractors and distributors during product development and process manufacturing
- Need to increase operational efficiency and capital productivity while reducing fixed and variable costs
- Need for transactional systems that could integrate with core processes sales, manufacturing, financial, procurement, inventory and supply chain.
- Shrinking product lifecycle, mass customisation of products and increased globalisation led to an increase in Product Life-cycle Management (PLM) initiatives adopted by companies

The Telecom vertical accounts for 13% of total revenues earned by Indian IT companies. This includes solutions for Telecom Equipment companies as well as telecom service providers. Areas include:
- Operations Support Systems(OSS),
- Business Support Systems(BSS),
- Wireless/Wireline Network Management,
- Embedded Solutions,
- Switching Systems
- Equipment Testing,
- Billing Solutions,
- Strategic Product Engineering for Telecom product companies
- Fraud Management,
- Revenue Assurance,
- Protocol Stacks,
- Business Intelligence/Analytics etc

Domestic Telecom Vertical
Deregulation, mergers and acquisitions, and intense competition have thrown up multi-faceted challenges for the Telecom & Internet Service Provider communities. To sustain themselves in the highly competitive market, the players need to invest in infrastructure, improve quality of service, network efficiency and billing solutions.

The Retail vertical accounts for 6.2% of total revenues earned by Indian IT companies. Competition and increasing customer expectations compel retailers to perpetually innovate in every set of activity they manage including forecasting, assortment planning, global sourcing, logistics, managing multiple sales channels and returns handling. Solutions usually are in the following areas :
- Supply chain (Warehouse Systems, logistics management)
- Point of Sale Systems (Embedded Technology)
- Merchandising Systems
- Store productivity solutions
- Vendor collaboration
- Back-end ERP Technologies
- CRM and Business Intelligence/Analytics Software for data mining on customers loyalty programs
- e-business/Multi-channel retailing

Users include: department stores, speciality stores, discounters, drug strores and pharmacies, apparel wholesales, supermarkets etc. Key drivers include recent tax breaks and robust increase in consumer spending in the US.

Domestic Retail Vertical
The significant increase in activity in the retail sector has resulted in a growth in IT investments in this sector. Indian retailers have been spending more and more on setting up IT systems and, importantly, plan to hike up their investments in this area in the future. Retailers are also looking beyond basic expenses to higher levels of IT functionalities. Applications that are very commonly used by retailers include SCM, CRM and e-business solutions.

Utilities include power, oil and gas companies, etc. The Utilities vertical accounts for 3.5% of total revenues earned by Indian IT companies. Key drivers of this segment are deregulation and increased competition, which have created a need for improved efficiency, profitability and customer services. Some Strategic Areas are:
- Enterprise Asset Management
- E-enabling operations
- Knowledge Management
- CRM/Business Intelligence Solutions
- GIS Solutions
- Facilities Management Services like Network Administration, Desktop Support etc.

The Healthcare vertical accounts for 6.1% of total revenues earned by Indian IT companies. Segments include Healthcare service providers like hospitals, physician practices, etc. health insurance companies, managed care organisations and life sciences/pharmaceutical firms, healthcare standards compliance and medical equipment firms.

Several Indian companies are providing solutions such as Hospital Information Systems, customer management systems, claims adjudication and member enrollments applications, operations, financial and HR Management solutions for service providers, healthcare portals, maintenance of electronic medical records services, clinical information management solutions, health industry accreditation, HIPAA compliance framework, 21 CFR part 11 and part 58-compliant solutions for Pharma organizations etc

Domestic Healthcare
Healthcare is one of the fastest-growing verticals in India. The Indian healthcare sector has started focusing on serving customers better, keeping in mind the need to balance a robust and profitable business operation and meeting broader social objectives. The main focus areas have been to improve service to the end-customer, the patient and to increase patient safety. IT has played an important role in providing better systems, thereby streamlining information processes of an organisation, ironing out inefficiencies that grow due to lack of information, increase the quality of healthcare delivery to patients and reduce costs.

The Travel, Transportation and Logistics vertical accounts for 2.2% of total revenues earned by Indian IT companies. Segments include:
- Passenger Segment: Airlines, Cruise Lines, Hospitality (Hotels etc.)
- Freight Segment: Cargo, Courier, Railways, Road Transport, Logistics Service Providers, Shipping
- Support Segment: Airports, Ports and Transport Authorities

Key Strategic Drivers include Consolidation, e-bookings, integrated solutions, highest customer service expectation, revival in business travel/tourism

Solutions relate to the following areas:
- Asset Maintenance, Repair and Overhaul (MRO) Systems especially in Aerospace Industry,
- CRM/Business Intelligence Systems,
- Internet Based Applications,
- Enterprise Applications,
- Package Implementation,
- Managing IT Infrastructure, etc.

The Government vertical accounts for 0.9% of total revenues earned by Indian IT companies. Key trends are: Electronic Administrative Networking, Housing Development Records, Postal Systems, Government healthcare systems

Focus areas include:
- E-Governance
- Information Security

Domestic Government Vertical
Government spending on IT is expected to witness a significant increase, owing to initiatives by both the Central and State governments sector. The government will use web-enabling services, consulting for planning and implementation, apart from the hardware and software needed to build the e-governance platform.

Consists of 18.1% of total revenues. Some segments include
- Call Centers,
- Defense,
- e-learning,
- Engineering and Construction,
- Media, Advertising and Publication etc.

Looking forward to further insights from other members on trends within the various verticals.