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Neha Kapoor

MUMBAI, May 26

TO ensure a continued 20 per cent annual growth rate, the Indian software industry needs to address new business segments such as package implementation and systems integration, along with offering the offshore cost advantage, according to foreign brokerage Credit Lyonnais Securities Asia (CLSA).

With the global IT services market estimated to be around $400-500 billion and India's software exports, including business process outsourcing, expected to be just $9.9 billion in FY 2003, diversification into new business segments is the key to driving stable business growth, feels CLSA.

" While India's penetration into currently addressed business segments is quite high, fresh growth will have to come from two factors — expansion into new target markets such as package implementation and systems integration and rising use of offshore IT services," says CLSA in its report. It added that it had picked package implementation and information security (IS) as the new focus areas in the near-term for IT services as Indian vendors had already started making headway in these fields.

According to the report, at present, in application maintenance and development, India's volume share is already 25 per cent plus, explaining why fresh volume growth is winning steep price discounts and why growth is no longer assured from existing competencies alone.

"India's areas of strength have grown around application development and maintenance, where almost all of the market could be addressable for Indian vendors. In FY02 (year ending March 2002), India exported $6.2 billion worth of IT services, of which almost 71 per cent fell in this category. In FY03, exports rose to $7.4 billion, and we estimate the share of maintenance and development to be 65 per cent, despite rising importance of package implementation last year."

India's share in the application development and maintenance market, CLSA estimates, would likely find closure at 26-28 per cent and given India's significant presence in these service areas, they alone cannot ensure an over 20 per cent growth for the industry in coming years, hence, new business segments would need to be addressed to drive growth.

"We estimate the current addressable market for Indian IT services as 18 per cent of global IT services market based on 100 per cent addressability of the applications maintenance and development and 10-40 per cent for systems integration and package implementation. Also, India's 85-90 per cent share of offshore IT services indicates that about 17 per cent of the addressable market is currently offshore. Expanding interest in using offshore cost advantage could drive this percentage up to 28-30 per cent in the three to four years," the report says.

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