1. business and industrial

Perspective 2020:
Transform Business,
Transform India
February 11, 2009
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PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business,
transforming India
Shifting customer needs
and delivery
An agenda for action
1
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
An unparalleled impact on
Indian economy in the last
ten years
Transforming business,
transforming India
Significant returns to all
stakeholders
Shifting customer needs
and delivery
A large unfinished agenda
remains
An agenda for action
Global economic crisis will
have a far-reaching and as
yet uncertain impact
2
THE TECHNOLOGY AND BUSINESS SERVICES
INDUSTRY HAS HAD AN UNPARALLELED
IMPACT ON THE INDIAN ECONOMY
Actual
Aspiration
Growth of Indian technology and business services exports
US$ billion
47
50
18
8
2
1998
2002
2005
Mar Dec
2009 2008
Share of GDP*
Per cent
<1
4
Share of exports***
Per cent
4
16**
*
**
***
Source:
Total export revenues as a percentage of nominal GDP
Based on FY08 performance
Technology and business service exports as a percentage of total exports (merchandise exports and service exports)
RBI Annual reports 1998 to 2008; WMM (Global Insight)
3
THE INDUSTRY HAS HAD A RESONATING IMPACT IN
THE BROADER SOCIETY
Incremental jobs created
Other areas of impact
Million; FY 1994-2005
Share of total
urban jobs*
8.7
45%
• Contribution to education:
6-7x fold increase in tertiary
education capacity in states
that account for 90% of
exports
• Diversity and global exposure:
4.0
2.9**
Indirect
33%
proportion of women in the
workforce estimated to be 30%
in 2008 and increasing; around
30% of delivery outside India
• Offset oil imports: Industry
1.1
Total
organized
urban jobs
Direct
Technology/
business
services
12%
exports offset close to 65 per
cent of India’s cumulative net
oil imports over past decade,
strengthening foreign reserves
* Total urban jobs in FY 1994 amounted to 81.8 million and 90.5 million in FY 2005
** High multiplier effect; for every direct job created 2.6 additional jobs created in indirect employment
Source: Institute of Applied Manpower Research; “The Rising Tide – Employment and Output Linkages of IT-ITES; February 2007”; “Indian IT/ITES Industry: Impacting
Economy and Society 2007-08”
4
THE GLOBAL ECONOMIC CRISIS WILL HAVE
A FAR-REACHING AND AS YET UNCERTAIN
IMPACT ON THE INDUSTRY
But…
Historic data indicates a moderate impact
• Customer
IT spend as per cent of GDP
4.2
feedback is
polarised
IT intensity
peaked in 2000
3.6
• Severity of
the downturn
is far greater
3.0
2.4
1.8
Trend at
2.9% YoY
increase in
IT intensity
1.2
0.6
0
US EXAMPLE
1970
Source: BEA; McKinsey analysis
1980
1990
Current IT
intensity is
much less
than at
peak levels
2000
• Political and
regulatory
pressures
are
escalating
2007
5
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Demographic shifts will fuel the
growth of new sectors, markets
and service lines
Transforming business,
transforming India
The promise of technology to
create new opportunities needs
to be balanced by the risk of
erosion in core markets
Shifting customer needs
and delivery
An agenda for action
India can become a global
innovation hub and own
business systems in at least
three areas
ICT-enabled solutions can drive
socio-economic inclusion of 30
million citizens each year
6
ASIA (INCLUDING JAPAN) WILL BYPASS EUROPE
IN THE GLOBAL ECONOMY BY 2020
Regional share of global GDP
Per cent
Share of global GDP*
1990
100
80
60
Middle East & Africa
5%
7%
Latin America
5%
5%
Asia (except Japan)
8%
20%
Japan
18%
10%
Europe
31%
25%
North America
33%
33%
40
20
0
1990 ‘95
‘00
* Estimates
** Brazil, Russia, India, China
Source: McKinsey Global Forces research
‘05
‘10
‘15
2020
‘20 2025
7
WORK FORCES WILL DECLINE AND AGEING
POPULATIONS INCREASE IN SELECT DEVELOPED
COUNTRIES
Increase in retiree (60+ years)
population: United States
Decrease in working age (15-60
years) population: Japan
Millions of people
Millions of people
83
75
8
54
16
38
2008
2020
2008
2020
Current offshore
base in India –
1.6 million
Source: UN population prospects, 2004; McKinsey Global Forces research
8
TODAY’S CORE SERVICE LINES ARE AT RISK
OF SHRINKAGE
Service line
Traditional IT
Industry revenue
US$ billion, 2008
3
AD
Technology
services
• Automation of
14
AM
1
IT Consulting
1
Total
Basic voice
Business
services
Basic data
High-end offshoring*
Total
* Includes specialised voice
Source: NASSCOM data; McKinsey analysis; expert interviews
basic services
(e.g., testing,
level 1 AM)
4
SI
Rule based decision making
Highest
risk of
erosion
23
• Productivity gains
• Increasing
standardisation
• Interactive voice
3
recognition
techniques
5
• New technologies
2
1
11
such as optical
character reading
to automate data
entry
9
THE INDUSTRY CAN TRANSFORM INDIA BY HARNESSING
TECHNOLOGY TO ENABLE INCLUSIVE GROWTH
Areas
Potential of ICT solutions
Healthcare
50% of Indians do not have access to primary
healthcare – technology can provide it at half the
cost
Financial
services
80% of Indian households are unbanked –
technology can enable access for 200 million
families
Education
India faces a 3-fold shortage in teachers –
technology can address this through remote
solutions
Public
services
India suffers from a leakage of 40-50% in public
food distribution - technology can ensure
transparency
Source: Expert interviews; McKinsey analysis
10
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
The industry landscape will be
fundamentally altered
Transforming business,
transforming India
There are several new business
models for providers to consider
Shifting customer
needs and delivery
A majority of incremental growth
will be driven by opportunities
that are untapped today
An agenda for action
11
2020 WILL PRESENT A DRAMATICALLY ALTERED
LANDSCAPE (1/2)
Past decade
2020
• Concentrated footprint
• Significant opportunity outside
Demand
1
Market
– 75% with Fortune 500
– 80% from US/UK
– 75% from BFSI, Telco,
Manufacturing
– 60% from IT services
• Predominantly private
sector
• Managing for cost,
2
Customers
productivity and quality
• Labour arbitrage
today’s core markets
– SMB
– BRIC, GCC, Japan, ROW
– Public sector and Healthcare
• Public sector, Government
owned or influenced companies
• Innovation, end-to-end
transformation, risk & compliance
• Access to talent and expertise
dominant value driver
• Onshore/offshore mindset
• Global delivery
12
2020 WILL PRESENT A DRAMATICALLY ALTERED
LANDSCAPE (2/2)
Past decade
2020
• India accounting for more
• Global people supply chain with
than 50% of the low cost
workforce
globalised recruiting and talent
practices
Supply
• Delivery centric management • Multiple management tracks,
3
Talent
globalised expertise
• Recruiting and training as
key differentiators
• Trainable talent pool
• Emphasis on learning, knowledge
management, research spending
• Deployable talent pools
13
How to compete (competitive advantage)
THERE ARE MULTIPLE “STEP-OUT” BUSINESS
MODELS FOR PROVIDERS TO CONSIDER
Multi-client
services/
products
“Step-out” plays
NOT EXHAUSTIVE
4 Solution approach
Saas enabled
Domain
expertise
3 Domain approach
Vertical
specialist
Customer
intimacy
2 Customer-centric approach
Full-service
provider
Delivery
excellence
Players today
Low cost
product
1 Delivery approach
BRIC
specialist
Low-cost
Large enterprises
SMBs
(Fortune 1000)
Developed markets
Large
SMBs
enterprises
New geographies (BRIC)
Where to compete (customer segments)
* Independent verification and validation
Source: McKinsey analysis
14
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business,
transforming India
Shifting customer needs
and delivery
An agenda for action
Success will rely on concerted
action by industry stakeholders
(companies, NASSCOM,
government) anchored on a fivefold vision
• Catalysing growth beyond
today’s core markets
• Establishing India as a trusted
global hub for professional
services
• Harnessing ICT for inclusive
growth
• Developing a high caliber talent
pool of over 4 million people
• Building India as a preeminent
innovation hub
15
COMPANIES CAN EMERGE AS WINNERS THROUGH
4 ACTIONS
Target transformative acquisitions
Ring fence talent and
knowledge investments
Consider strategic
alliances for scale
Develop
isolutions for
domestic endcustomers
Fundamentally
transform existing
cost structure – 20
to 30% lower
Balance delivery
foot-print to hedge
against
concentration and
forex risk
Source: McKinsey analysis
Make
strategic
investments
Strengthen
operations/
delivery
Deepen end to end capabilities in
select areas
Rebalance
customer/
services
portfolio
Target recession
resilient sectors
(Healthcare, BRIC,
climate change)
Segment customer
base for resiliency
Adapt
offering/sales
approach
Create a portfolio of
“downturn” services
Invest in transformative
big bets
16
AN AGENDA FOR ACTION ANCHORED ON A
5-FOLD VISION
• Intellectual property framework
(especially enforcement)
• Centers of Excellence
• Entrepreneurship
• Primary and
tertiary
education
quality and
scale up
• Curriculum
and faculty
development
• Winning through the downturn
• Reinvented business models
Building
India as a
preeminent
innovation
hub
5
Developing a
high caliber
talent pool of
over 4 million
people
4
Catalysing
growth beyond
today’s core
markets
1
Five
themes
2
3
• New verticals, geographies
and customer segments
Establishing
India as a trusted
global hub for
professional
services
Harnessing
ICT for inclusive
growth
• ICT solutions for healthcare, education,
financial services, public services
• Connectivity and access (e.g., broadband rollout)
• Improved
infrastructure
(e.g., satellite
townships)
• Corporate
governance
• National security
• Robust domestic
demand
• Global branding
• Soft infrastructure (e.g., IT literacy)
17
PERSPECTIVE 2020 PAINTS THE WAY TO “TRANSFORM
BUSINESS, TRANSFORM INDIA”
What has lead to the success of the industry thus far?
What will be the altered landscape of 2020, including growth engines and
industry revenue potential?
How can the Indian industry lead the way in innovation-led transformation
of global business and technology-led inclusive growth of the nation?
What are internal and external threats to India’s leadership and how can it
sustain and improve its competitiveness in 2020?
What is the industry vision for 2020, and resulting imperatives and actions
for industry stakeholders (companies, NASSCOM, the government)?
Report release in March
18
BACKUPS
19
Social and environmental trends
THERE IS AN INCREASING NEED TO ADDRESS
CLIMATE CHANGE AND ICT IS EMERGING AS
A KEY ENABLER
BACKUP
ESTIMATES
Select ICTenabled
abatements
ICT can play a role in abatement of a potentially dramatic rise in global greenhouse
emissions by 2020
Greenhouse gas emissions
GtCO2e
52
30
12
40
22
8
Emissions
in 2002
Source: McKinsey analysis
Incremental Emissions
emissions
in 2020E
Potential
abatement
ICT enables
at least 35%
of global
abatement
potential
22
Emissions in
2020 with
abatement
20
Energy efficiency/climate change
OPPORTUNITIES EXIST ACROSS A BROAD SET
OF APPLICATIONS AND ARE NOT LIMITED TO
THOSE TRADITIONALLY ASSIGNED TO ICT
NOT EXHAUSTIVE
BACKUP
Abatement potential, GtCO2e
Industrial motor
optimisation
Industrial process
automation
0.68
0.29
1.52
0.50
Industrial
processes
efficiency
Efficient logistics
and supply chain
Private transport
optimisation
0.25 Dematerialization*
0.16 Efficient vehicles
0.10
Efficient
buildings
Smart
buildings
Telecommuting
ICT
efficiency
1.68
0.26
* Excluding telecommuting
Source: McKinsey analysis
Efficient
transport
Smart grid
2.03
Efficient
power
generation
Traffic flow monitoring,
planning simulation
0.40
Combined heat
and power (CHP)
21