La In

diaPANKAJ GHEMAWAT

AUGUST 2007

STEVEN A. ALTMAN

Industry Case Study:

The Indian IT Services Industry in 2007
“Many years ago, there was an industrial revolution; we missed it for reasons beyond our control. Today
there is a new revolution – a revolution in information technology, which requires neither mechanical bias nor
mechanical temperament. Primarily it requires the ability tothink clearly. This we have in abundance. We
have the opportunity to participate in this revolution on an equal basis; we have an opportunity, even, to
assume leadership in this revolution. If we miss this opportunity, those who follow us will not forgive us for
our tardiness and negligence.”
—TCS Deputy Chairman F. C. Kohli, 1975 Speech to Computer Society of India
“India is likely to bethe next software superpower.”
—Microsoft Chairman Bill Gates, 2000 Speech at Davos
“Saudi oil, Japanese cars, and Indian services – some industries can truly transform a nation.”
—NASSCOM McKinsey Study 2005
In the fiscal year ended March 2007, the Indian IT (information technology) Services industry
posted revenues of $23.5 billion, including $18.0 billion in exports. 1 With sustained growthabove
30% per annum since the early 1990s, the industry had spurred a global offshore services boom
reaching far beyond IT itself. India had become a global center for offshore execution of business
processes ranging from call center operations to advanced data analytics and engineering. Including
these IT-Enabled Services and products, India’s technology sector earned $39.6 billion,contributing
5.2% to India’s GDP, and was projected to reach $73-75 billion by 2010. 2 ,3
India was succeeding in IT Services despite a domestic context that still faced substantial
development challenges, as illustrated by the country’s rankings in the World Economic Forum’s
Global Competitiveness Report. For example, India ranked 60th out of 117 countries on “basic
requirements” such asinstitutions, infrastructure, macroeconomics, health, and primary education,
but ranked among the world’s leaders in areas such as innovation, science, and engineering.
The stakes riding on India’s continued success in IT Services were tremendous. According to one
analysis, 20-25% of India’s economic growth through 2010 would be driven by IT and related
sectors. 4 Recent press reports, however, hadquestioned the sustainability of India’s competitiveness
in IT. Wages for IT professional in India were rising 15% per annum, the Indian rupee was
appreciating rapidly against the U.S. dollar, and developing countries around the world were seeking
to replicate India’s success. Furthermore, the leadership of large Indian firms such as TCS and
Infosys at the top of India’s IT Services sector was beingseriously challenged for the first time.
Foreign firms, including global leaders such as IBM and Accenture, had plans to invest more than $10
billion in India by 2010. 5 India and its firms were girding themselves for intensifying competition.

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This case study was prepared solelyas the basis for class discussion. It is not intended to serve as an endorsement, source of primary data, or as
an illustration of effective or ineffective management.
Copyright © by 2008 Pankaj Ghemawat

The Indian IT Services Industry in 2007

Global IT Services
The IT Services industry emerged in late twentieth century to support the computers and related
IT infrastructure that hadbecome essential to modern business and life. As IT became increasingly
complex, companies turned to outside specialists to develop and manage their systems. Global IT
Services revenues in 2005 were $625 billion, expected to reach $825-875 billion in 2010. (See Exhibit 1
for current and projected breakdown of industry revenues by service line.) Companies and
governments also spent $510 billion...