IT is the latest port of call for companies battered by the storm in software services. High growth, low entry barriers are spurring many companies to offer IT-enabled services.
Led by big guns such as General Electric, British Airways, many Indian companies are rushing to open call centres, payroll management and human resource services. These services, broadly called ITES, are expected to record a much greater growth in the future than software services. The fastest growing segment is call centres which, Nasscom reckons, grew by 112 per cent in ‘00-01.
Software, on the other hand, is acutely feeling the pinch of a global slowdown. Nasscom has already reduced growth estimated for software to around 30 per cent from the earlier 40 per cent.
Mphasis, Global Tele-Systems and Tata Consultancy Services are targeting this sector through a subsidiary or a joint venture. Mphasis provides ITES to Citibank through Msource, GTL provides network management-related services, while TCS’s vehicle is a joint venture with HDFC called Intelenet.
Wipro has bought into Spectramind to further its ITES plans, while Infosys is keen to provide higher end services either directly or through a separate unit.
ITES revenues were estimated at around Rs 4,100 crore in ‘00-01, and the industry employed about 75,000 people. But compared to global standards, the figure is tiny.
India’s share in the $208-bn global ITES market is estimated at only around 0.5 per cent. Nasscom expects domestic ITES to grow to around $14.2bn by ‘08.
TS Hariharan, vice-president of 24/7, a Bangalore-based call centre, expects call centres may soon be permitted to offer both domestic and international services with the same infrastructure.
Hariharan also wants costs of telecom operations in India to be lowered, which he reckons to be at least 30 per cent higher than a competing market like the Philippines.
Nasscom, on its part, wants business process outsourcing (BPO) to be classified as an IT-enabled service to qualify for tax exemption under Section 10 (a) 10 (b) of the Income Tax Act.
BPO can be loosely defined as outsourcing back-office work such as accounting and human resources.
This is an important issue as ITES companies are also keen on providing BPO services. Dataquest Gartner estimates the global market for BPO services to grow to $543bn by ‘04 from $208bn in 1999.
The ITES sector is also demanding that Section 88 HH (e) be modified to include ITES units, even if they are not located in an export processing zone. Under this section, ITES units can claim tax exemption only if they are located in a software park or an EPZ.
The industry wants such exemptions to cover all units irrespective of their location. It also resents the phased introduction of tax on services that WTO rules demand.
Other key demands of Nasscom are interconnectivity of international call centres, setting up of international gateways for IT-enabled services, permission for ITES companies to freely buy bandwidth from international markets, services such as toll-free numbers to encourage domestic call centre activities, a single window clearance for IT-enabled services.
“The ITES sector needs tax incentives to attract investment,” said Raman Roy, president and CEO, Spectramind.
Segment———-Market Size (US $M)
Content Services———-20 to 25
CRM ———-95 to 105
Finance, Accounting & Transaction Processing ———-40 to 50
GIS———-80 to 85
Call Centres———-50 to 60
Human Resource———-5 to 10