India's logistics sector to up IT spend

Overall growth of India's logistics players is set to boost IT spending by a 20 percent compound annual growth rate over the next five years, according to study.
Written by Victoria Ho, Contributor

The Indian logistics industry is on track to attract significant IT spending due to an overall growth among its players, according to a study conducted by Kale Consultants.

The logistics provider said in a press release IT spending from logistics players in India is expected to grow at a compound annual growth rate (CAGR) of 20 to 22 percent over the next five years, to cross 1,000 crores (US$209 million) in 2013, up from the current spend of 400 crores (US$83.6 million).

Sumeet Nadkar, head, logistics SBU, Kale Consultants, attributed the rise in spending to the growth in size of market players at various levels--from "small and medium family-owned enterprises" to major global providers.

"Third-party logistics players are growing at over 25 percent. Small and medium family-owned enterprises are growing in stature...Global majors have committed huge investments to their Indian operations. Private equity funds are increasingly eyeing the sector," he said.

Kale estimates India spends about 13 percent of its gross domestic product (GDP) on logistics--higher than countries such as the United States at 10 percent, Japan's 10 percent and Europe at 11 percent.

The higher operating cost associated with India's logistics industry needs to be improved through "significant strides" in using technology to increase supply chain efficiencies, or have the country "risk missing out on 1 to 2 percent GDP", said the report.

Nadkar said: "Influx of capital in the logistics value chain will also depend on the ability of the stakeholders to deploy technology in improving their processes and functions.

"Investment in technology is expected to result in higher utilization of existing assets, and is likely to result in higher outsourcing by end users."

Additionally, radio frequency identification (RFID) technology is expected to "grow rapidly". Prompted by overseas demand, 80 percent of the 500 respondents said they would be adopting it "despite cost concerns".

According to an IDC survey conducted earlier this year, RFID sits among the top purchases on CIOs' lists for next year, even though IT budgets are expected to remain flat. Adoption of RFID tags was predicted to rise by 122 percent, from 8 percent of companies globally adopting it in 2007 to 18 percent expected in 2009.

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