Services and mainly the export of IT-ITES/BPO services, constitute the most important component of export earnings for the Indian economy. The exports of IT- ITES/BPO services are growing at 28 percent and expected to reach US $ 40.8 billion in 2008. ITES/BPO alone constitute more than one fourth of total IT- ITES/BPO exports. However, India�s share in the world market for IT software and services is only 2.8 percent. One key feature of the industry is its heavy dependence on the US market which accounts for about two-thirds of total IT-ITES/BPO exports. Another important characteristic is its imbalanced mix of services offerings which is skewed towards the banking, financial services and insurance (BFSI) constituting 40 percent of total IT-ITES/BPO exports.
Some recent developments, especially the appreciation of Indian rupee against the US dollar and slow down in US financial sector due to sub-prime crisis has caused concerns for the industry- affecting the profit margins of the companies and overall business inflow. In response, many companies have started devising new strategies to cope with the situation. For instance, TCS and Yahoo have recently decided to reduce variable payments and termination of some �non-performing� employees. Some big companies, such as Genpact and EXL, are trying to mix up their service locations by shifting to other low cost locations such as Philippines. Although these strategies can mitigate the problems of big companies to a certain extent but it will be detrimental to employment growth and also options for small and medium sized companies are very limited.One possible solution to handle this problem is to diversify client base- Europe can be a potential destination for IT-ITES/BPO exports. Although UK is our main export destination in Europe, other big economies like Germany, France, Italy, Netherlands etc are largely untapped. The ongoing India-EU negotiation on Trade and Investment Agreement should be used as a platform to enhance India�s presence in these countries. CECA with Singapore can also be utilized to facilitate the exports to ASEAN and APAC regions.

Another solution can be diversification of products/services offerings. Presently, major proportion of revenue comes from a single vertical e.g. BFSI. Industry needs to focus on some other verticals like construction and utilities, legal, healthcare etc. These are the sectors which are growing at a fast pace in most of the world economies and scope of outsourcing and offshoring is high. Due to abundant supply of required manpower India has comparative advantage in these sectors. One hurdle in way of this diversification is shortage of trained human resources in these sectors. For this government and industry have to come together and make some concrete efforts to enhance the supply of skilled manpower. Companies should direct efforts towards offerings differentiation and there by climbing higher up the value chain, efficient use of available resources, retaining their talent pool, shifting to the 2nd and 3rd tier cities, etc. Apart from developing infrastructure, particularly transportation, for small and medium size companies Government should extend STPI scheme beyond 2009 and develop BPO specific SEZs.