PESTEL ANALYSIS ON THE IT/ITES INDUSTRY IN INDIA

PRIYANKA OJHAPOLLEN CHAKRABORTY

PALLAVI PANDEYNOOPUR SINGHMANU TANDON

SHREYA JAIN

About the industry

The Indian IT / ITES industry has been one of the great success stories of modern India.

An industry that did not exist barely 2 decades ago is now the toast of the nation and the envy of the world.

Business Process Outsourcing (BPO) segment, which is an industry in itself, has played a vital part in fuelling economic growth.

The industry has influenced people’s lives through an active direct and indirect contribution to the various socio-economic parameters such as employment, standard of living and diversity.

….continued

Nearly one million jobs were created in India during 2010-11, of which 70 per cent were from the IT and BPO sectors

The sector is estimated to have grown by 19 per cent in the FY2011, aggregating revenue of almost US$ 76 billion

Between April 2000 and April 2011, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 10,821 million, according to the Department of Industrial Policy and Promotion

Political factors

•This is political factors which affect a business which can be government rules and regulation toward that particular business environment.•For IT/ITES industry the Indian political structure is stable, but there are fears of hung parliament due to a lack of clear majority in parliament creating fear of wrong investing in the minds of investor thereby reducing capital.• U.S government has declared that U.S firm that outsource IT works outside the U.S will not get tax benefits, this has caused reduction in U.S BPO contract from the U.S in the last fiscal year thereby reducing revenue from the U.S. Indian government has decided to contract IT job to Indian IT companies creating more opportunities for the company and the industry at large

Political stability

India suffered political instability for a few years due to the failure of any party to win an absolute majority in Parliament. However, political stability has returned since the previous general elections in 1999. However, political instability did not change India's economic course though it delayed certain decisions relating to the economy.

The political divide in India is not one of policy, but essentially of personalities. Economic liberalization (which is what foreign investors are interested in) has been accepted as a necessity by all parties including the Communist Party of India (Marxist).

Thus, political instability in India, in practical terms, posed no risk to foreign direct investors because no policy framed by a past government has been reversed by any successive government so far.

You can find a comparison in Italy which has had some 45 governments in 50 years, yet overall economic policy remains unchanged. Even if political instability is to return in the future, chances of a reversal in economic policy are next to nil.

As for terrorism, no terrorist outfit is strong enough to disturb the state. Except for Kashmir in the north and parts of the north-east, terrorist activity is either non-existent or too weak to be of any significance. It would take an extreme stretching of the imagination to visualize a Bangladesh-type state-disrupting revolution in India or a Kuwait-type annexation of India by a foreign power.

Hence, political risk in India is practically non-existent.Likewise the IT sector does not have any influence of political stability on industry. And if the govt. changes there is little effect on the industry of that political step.

Economic factors

Impact of entry of IT Companies in two tier and three tier cities

Social factors

ITES industry is also positively influencing the lives of its people through an active direct and indirect contribution to various social parameters such as employment, standard of living and diversity

Impact of employment practices adopted by IT companies

Opportunities created

in smaller town

Employment for

differently

abled

Employment

for non-technic

al person

Promoting

womenempowerment

High growth Opportunities

for youth

Employment

for the out-of-

the main

stream Candida

tes.

Human resources development initiatives

Training of workforce

through collaboration with

educational institutes

Promoting higher

education through

scholarships and tie-

up with educational institutes

Improving work

environment by

providing recreational

facilities and work-

life balance

Socially relevant products and services of ITES Company

Healthe.g,tele-

consultation system,health

portals and application

awareness of HIV and AIDS

Bridging the digital divideE.g,compitable hardware and software for

visually impaired,tools and application to support web

accessibilty

Technological factorsTELEPHONY

 •Cellular mobile telephony tariffs in India are the lowest in the world. A comparison of Indian cellular tariffs vis-à-vis the tariffs prevailing in comparative emerging economies in South America & Asia-Pacific region, clearly brings out the affordability of Indian cellular mobile telephone services.

•The airtime tariffs have plunged by over 75% in the last three years alone. According to the TRAI :

• the average monthly rental and airtime being realized for cellular services stands at Rs. 202 and Rs. 1.99 per minute respectively.

• Prepaid services have been introduced by all operators at an extremely affordable tariff of Rs. 300 per month.

• Roaming charges have been cut by 70% down from Rs.10 to Rs.3 in early 2002 and now to as low as Rs. 1.50 by several service providers.

 

 

INTERNET

 

 • India had as on September 2008 45.3 million active internet users. • This is an internationally accepted benchmark for enumerating internet users. • Urban users continue to dominate internet use contributing to 42 million of the 45 million odd users.• In September last 2007, the number of active internet users in urban India was 32 million showing a year on year growth of a little more than 30 per cent.

•New Technology : WEB 2.0

The term Web 2.0 is associated with web applications that facilitates participatory information sharing, user-centered design, and collaboration on the World Wide Web.

It represents the next transition in the evolution of web applications; they promise to restore the richness, interactivity and usability lacking in many web applications

 

Since the inception of the industry in India, players within the country have been focusing on quality initiatives, to align themselves with International standards.

Over the years, the industry has built robust processes and procedures to offer world class IT software and technology related services.

Today India based centers (both Indian firms as well as MNC owned captives ) constitute the largest number of quality certifications achieved by any single country.

Availability of high quality telecommunication connectivity across the country, and the IT – BPO sector has been a key beneficiary.

Environmental factors

Environmental conservation and protection is an issue which has gained prominence because of deteriorating environmental balance which is threatening the sustainability of life and nature.

Businesses responsible for such situations

usage of bio non-degradable

resources affecting the bio-chain

exposure of employees to

hazardous radiations bring

their life in danger

industries polluting the air

excessive chemical affluents drained

out in water

The rising levels of industrialization across the globe have had an adverse impact on the environment due to high levels of emissions and deforestation among others resulting in critical consequences such as global warming.

IT/ITES companies are playing a key role in promoting environment friendly practices in their day to day operations as well as undertaking specific community linked initiatives. By creating awareness among their employees and the community they are also ensuring that a more environmentally conscious and responsive society is created.

Measures for betterment of the environment have been adopted by companies through both internal business practices as well as community linked activities.

The most common initiatives include conservation of resources (such as energy, water, paper), adoption of environmentally friendly practices throughout the supply chain, tree plantation and conducting awareness programmes.

The sector has taken a lead in ensuring that the IT Parks/buildings conform to the certified energy conservation measures and have the potential to earn carbon credits in the future.

Energy efficient processes and equipments

Companies are focusing on reducing the carbon footprints, energy utilization, water consumption etc.

Legal factors

This speedy growth of IT /ITES Sector is undoubtedly due to the efforts of Indian government and the other developments that took in the other parts of the globe.

IT ACT 2000

The arrival of the internet and the world wide web made it possible for the people to transact over the cyber space.

Companies shall now ne able to carry out electronic commerce using legal infrastructure provided by the Act.

Under the IT Act, 2000, it shall now be possible for corporate to have a statutory remedy in case if anyone breaks into their computer systems or network and causes damages or copies data. The remedy provided by the Act is in the form of monetary damages, not exceeding Rs. 1 crore.

The Act enables the companies to file any form , application or any other document with any office. authority , body or agency owned or controlled by the appropriate Government in electronic form .

INCOME TAX

Deduction under sections 10A/ 10B of Income tax Act, 1961 (“IT Act”) in respect of profits derived from export of computer software. Following undertakings are eligible to claim deduction in respect of profits derived from export of computer software under the provisions of sections 10A/ 10B of the IT Act:

Depreciation on computers and computer softwares at 60 percent. According to written down value method 84 percent of cost of PCS can be depreciated in first 2 yrs.

Existing units which commenced operations prior to April 1, 2000 and claimed deduction under the provisions of erstwhile sections 10A/ 10B, can continue to claim such deduction under the provisions of newly substituted sections 10A/ 10B for the unexpired period of ten consecutive assessment years.

IT SEZ requirements 

•IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax benefits and fiscal benefits.•Software Technology Parks of India (STPI), is a society set up by the Department of Communication & Information Technology, Government Of India in 1991, with the objective of encouraging, promoting and boosting the Software Exports from India.

•Companies operating in software technology park (STPI )•Scheme will continue to get tax benefit till 2010.•STPI maintains internal engineering resources to provide consulting, training and implementation services. Services cover Network Design, System Integration, Installation, Operations and maintenance of application networks and facilities in varied areas ranging from VSATs to ATM based networks.

•Setting up of the Software Technology Parks of India (STPI), by the Ministry of Information Technology, Government of India and the International Technology Park in a joint project by the State Government, the TATA Group and the Singapore Consortium to promote and facilitate the software exports is another major step towards the growth of Indian Information Technology Sector.

Information technology (IT) or information and communication technology (ICT) is a broad subject which deals with technology and other aspects of managing and processing information, especially in large organizations. Particularly, IT deals with the use of electronic computers and computer software to convert, store, protect process, transmit, and retrieve information. Over the past 20 years, its prevalence has dramatically increased so that it is now a part of nearly every aspect of daily life.

Conclusion