Mckinsey Perspective 2020 Presentation

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

Perspective 2020: Perspective 2020: Transform Business, Transform Business, Transform IndiaTransform India

February 11, 2009

2

PERSPECTIVE 2020: KEY MESSAGES

Transforming business, transforming India

An agenda for action

Shifting customer needs and delivery

The decade in review

3






An unparalleled impact on

Indian economy in the last ten

years

Significant returns to all

stakeholders

A large unfinished agenda

remains

Global economic crisis will

have a far-reaching and as yet

uncertain impact

4

THE TECHNOLOGY AND BUSINESS SERVICES INDUSTRY HAS HAD AN UNPARALLELED IMPACT ON THE INDIAN ECONOMY

*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)Source:RBI Annual reports 1998 to 2008; WMM (Global Insight)

Growth of Indian technology and business services exports

Actual

US$ billion

Share of GDP*

Per cent

Share of exports***

Per cent

<1

4

4

16**

2005

18

2002

8

1998

2

Dec 2008

50

Aspiration

47

Mar 2009

5

*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 employmentSource: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”

Incremental jobs created

THE INDUSTRY HAS HAD A RESONATING IMPACT IN THE BROADER SOCIETY

Other areas of impact

• Contribution to education: 6-7x fold increase in tertiary education capacity in states that account for 90% of exports

• Diversity and global exposure: proportion of women in the workforce estimated to be 30%

in 2008 and increasing; around 30% of delivery outside India

Million; FY 1994-2005

Total organizedurban jobs

8.7

33%

12%

45%

Share of total Share of total urban jobs*urban jobs*

Technology/

business services

Indirect

Direct

4.0

1.1

2.9**

• Offset oil imports: Industry exports offset close to 65 per cent of India’s cumulative net oil imports over past decade, strengthening foreign reserves

6

THE GLOBAL ECONOMIC CRISIS WILL HAVE A FAR-REACHING AND AS YET UNCERTAIN IMPACT ON THE INDUSTRY

Source:BEA; McKinsey analysis

US EXAMPLE

IT spend as per cent of GDP

Trend at 2.9% YoY

increase in IT intensity

IT intensity peaked in 2000

Current IT intensity is much less than at peak levels

0 1970 1980 1990 2000 2007

0.6

1.2

1.8

2.4

3.0

3.6

4.2

Historic data indicates a moderate impact But…

• Customer feedback is polarised

• Severity of the downturn is far greater

• Political and regulatory pressures are escalating

7






Demographic shifts will fuel the

growth of new sectors, markets and

service linesThe promise of technology to create

new opportunities needs to be

balanced by the risk of erosion in core

marketsIndia 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

8

ASIA (INCLUDING JAPAN) WILL BYPASS EUROPE IN THE GLOBAL ECONOMY BY 2020

*Estimates **Brazil, Russia, India, China Source: McKinsey Global Forces research

Regional share of global GDPPer cent

Middle East & Africa

Latin America

Asia (except Japan)

Europe

North America

Japan

0

20

40

60

80

100

1990 ‘95 ‘00 ‘05 ‘10 ‘15 ‘20 2025

7%

5%

20%

25%

33%

10%

20201990

5%

5%

8%

31%

33%

18%

Share of global GDP*

9Source: UN population prospects, 2004; McKinsey Global Forces research

WORK FORCES WILL DECLINE AND AGEING POPULATIONS INCREASE IN SELECT DEVELOPED COUNTRIES

Decrease in working age (15-60 years) population: Japan

Millions of people

7583

20202008

8

Increase in retiree (60+ years) population: United States

Millions of people

54

38

20202008

16

Current offshore base in India –

1.6 million

10

TODAY’S CORE SERVICE LINES ARE AT RISK OF SHRINKAGE

*Includes specialised voiceSource:NASSCOM data; McKinsey analysis; expert interviews

Highest risk of erosion

Business services

Tech-nology services

• Automation of basic services (e.g., testing, level 1 AM)

• Productivity gains

• Increasing standardisation

• Interactive voice recognition techniques

• New technologies such as optical character reading to automate data entry

Service line

23

4

3

1

2

5

11

3

Industry revenue

US$ billion, 2008

14

1

1

Total

AM

Traditional IT

AD

SI

IT Consulting

High-end offshoring*

Basic data

Basic voice

Total

Rule based decision making

11

THE INDUSTRY CAN TRANSFORM INDIA BY HARNESSING TECHNOLOGY TO ENABLE INCLUSIVE GROWTH

50% of Indians do not have access to primary healthcare – technology can provide it at half the cost

80% of Indian households are unbanked – technology can enable access for 200 million families

India faces a 3-fold shortage in teachers – technology can address this through remote solutions

Healthcare

Financial services

Education

Public services

India suffers from a leakage of 40-50% in public food distribution - technology can ensure transparency

Potential of ICT solutionsAreas

Source:Expert interviews; McKinsey analysis

12






The industry landscape will be

fundamentally altered

There are several new business

models for providers to consider

A majority of incremental growth will

be driven by opportunities that are

untapped today

13

2020 WILL PRESENT A DRAMATICALLY ALTERED LANDSCAPE (1/2)

Past decade

• Concentrated footprint

–75% with Fortune 500

–80% from US/UK

–75% from BFSI, Telco, Manufacturing

–60% from IT services

• Predominantly private sector

• Managing for cost, productivity and quality

• Labour arbitrage dominant value driver

• Onshore/offshore mindset

2020

• Significant opportunity outside 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

• Global delivery

2 Customers

1 Market

Demand

14

2020 WILL PRESENT A DRAMATICALLY ALTERED LANDSCAPE (2/2)

Past decade 2020

3 Talent

Supply

• India accounting for more than 50% of the low cost workforce

• Delivery centric management

• Recruiting and training as key differentiators

• Trainable talent pool

• Global people supply chain with globalised recruiting and talent practices

• Multiple management tracks, globalised expertise

• Emphasis on learning, knowledge management, research spending

• Deployable talent pools

15

THERE ARE MULTIPLE “STEP-OUT” BUSINESS MODELS FOR PROVIDERS TO CONSIDER

*Independent verification and validationSource:McKinsey analysis

NOT EXHAUSTIVE

Ho

w t

o c

om

pe

te (

co

mp

eti

tiv

e a

dv

an

tag

e)

Multi-client services/ products

Domain expertise

Customer intimacy

Delivery excellence

New geographies (BRIC)

SMBs Large enterprises

SMBs

Developed markets

Where to compete (customer segments)

Large enterprises (Fortune 1000)

3 Domain approach

2 Customer-centric approach

1 Delivery approach

4 Solution approach

Low-cost

Players today

“Step-out” plays

Full-service provider

Vertical specialist

Saas enabled

BRIC specialist

Low cost product

16






Success will rely on concerted action by industry stakeholders (companies, NASSCOM, government) anchored on a five-fold 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

17Source:McKinsey analysis

COMPANIES CAN EMERGE AS WINNERS THROUGH 4 ACTIONS

Deepen end to end capabilities in select areas

Target recession resilient sectors

(Healthcare, BRIC, climate change)

Invest in transformative big bets

Create a portfolio of “downturn” services

Segment customer base for resiliency

Target transformative acquisitions

Ring fence talent and knowledge investments

Consider strategic alliances for scale

Develop isolutions for domestic end-customers

Fundamentally transform existing cost structure – 20 to 30% lower

Balance delivery foot-print to hedge against concentration and forex risk

Make strategic invest-ments

Adapt offering/sales

approach

Rebalance customer/ services portfolio

Streng-then

operations/

delivery

18

Catalysing growth beyond

today’s core markets

1

Establishing India as a trusted

global hub for professional

services

2

Harnessing ICT for inclusive

growth

3

Developing a high caliber

talent pool of over 4 million

people

4

Building India as a

preeminent innovation

hub 5

Five themes

AN AGENDA FOR ACTION ANCHORED ON A 5-FOLD VISION

• Winning through the downturn

• Reinvented business models

• New verticals, geographies and customer segments

• Improved infrastructure (e.g., satellite townships)

• Corporate governance

• National security

• Robust domestic demand

• Global branding• ICT solutions for healthcare, education,

financial services, public services

• Connectivity and access (e.g., broad-band rollout)

• Soft infrastructure (e.g., IT literacy)

• Primary and tertiary education quality and scale up

• Curriculum and faculty development

• Intellectual property framework (especially enforcement)

• Centers of Excellence

• Entrepreneurship

19

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

20

BACKUPS

21

THERE IS AN INCREASING NEED TO ADDRESS CLIMATE CHANGE AND ICT IS EMERGING AS A KEY ENABLER

ESTIMATES

Select ICT-enabled abatements

ICT can play a role in abatement of a potentially dramatic rise in global greenhouse emissions by 2020

Greenhouse gas emissionsGtCO2e

22

52

1240 22

8

30

Potential

abatementEmissions

in 2020EIncremental

emissionsEmissions

in 2002Emissions in

2020 withabatement

ICT enables at least 35% of global abatement potential

Social and environmental trends

Source: McKinsey analysis

BACKUP

22

Efficientbuildings

Industrial processes efficiency

Efficient transport

Efficient power

generation

ICT efficiency

OPPORTUNITIES EXIST ACROSS A BROAD SET OF APPLICATIONS AND ARE NOT LIMITED TO THOSE TRADITIONALLY ASSIGNED TO ICT

*Excluding telecommutingSource:McKinsey analysis

Abatement potential, GtCO2e

0.68Industrial motor optimisation

0.29Industrial processautomation

2.03 Smart grid

0.40Combined heat and power (CHP)

1.52Efficient logistics and supply chain

0.50Private transport optimisation

0.25 Dematerialization*

0.16 Efficient vehicles

0.10Traffic flow monitoring, planning simulation

1.68Smart buildings

0.26Tele-commuting

NOT EXHAUSTIVE

Energy efficiency/climate change

BACKUP

Documents

Mckinsey Perspective 2020 Presentation