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‘US crisis to help Indian IT cos’

September 30th, 2008

NEW DELHI: India’s flagship outsourcing industry expects some pain from the latest global financial turmoil but insists it could emerge a winner with companies shifting more work to the country.

The sector, an economic mainstay that generates $40 billion in annual export revenues, traditionally views bad times as offering potential as Western companies cut costs by moving work to cheaper destinations offshore.

Industry body Nasscom believes the trend will be the same this time, though it could take longer. “There will be a short-to-medium-term impact which we define as three to four quarters,” Nasscom chief Som Mittal said.

Some of the pain from the bankruptcy of Wall Street giant Lehman Brothers, the sale of Merrill Lynch and the US government’s bailout of insurance giant AIG — all ravaged by credit woes — is already being felt.

IT companies are cutting hiring plans and share prices of India’s IT companies are under pressure. But there’s some positive fallout as Indian legal process outsourcing firms doing bankruptcy work report a rise in business.

“Companies are seeking to outsource to India, where legal work costs a tenth of what US lawyers charge,” said Sirisha Gummaregula, chief operating officer of legal support firm Quislex.

“Over time, the financial crisis should lead to much stiffer controls that “will all be IT-and systems-driven,” said Mittal.

“This should lead to more business for India’s “tech titans” like Infosys, Wipro and Tata Consultancy Services whose skilled, English-speaking, low-cost work force planted the nation on the global business map,” Mittal said.

“We have a fairly deep understanding of our customers’ operations now. This would be the time to help partner them,” he told reporters.

Still, the latest financial crisis has come at a bad time for the sector. The US-led credit crunch, rising pay costs and currency fluctuations had already hit profits, along with competition from outsourcing rivals like Malaysia, the Philippines, Vietnam and Mexico

Earlier this year, Nasscom forecast the sector’s revenues would grow by 21-24 per cent to $50 billion in the year to March 2009 — strong but not the scorching 30-per cent-plus growth seen earlier in the decade.

Mittal said the forecast could be “tempered down” from that level by a “minor few percentage points — if at all.”

Over the next few months, analysts do not expect Indian IT firms to sign any big contracts in the so-called BFSI sector — banking, financial services and insurance — that represents nearly 50 per cent of their income.

“There’ll be a period of stocktaking by Western companies where they put their houses in order and where there’ll be no really significant decisions,” said Partha Iyengar, research head at global consultancy Gartner.

Even before the latest turmoil, the sector was already seeking to diversify to offset reliance on the US, which takes 60 per cent of its exports, seeking out new business in Europe, the Middle East and Asia.

The sector has also been aggressively bidding for contracts with the burgeoning Indian corporate sector, earlier dismissed as too small.

“It’s a great support in these times having an Indian economy growing by 7.5 to 8.0 per cent,” said Mittal.

The sector has also been cutting dependence on the financial arena by getting into such areas as retailing, transport, health care and manufacturing.

“There’ll be robust growth surely coming through — the industry has diversified. There are lots of unpenetrated areas,” Mittal said.

Longer term, industry executives see a major role for India’s IT sector. “There’ll be a huge restructuring (by Western companies). This will bring a lot of opportunities and there’s a big role to play for India’s IT sector as it already has a credible reputation,” said Ganesh Natarajan, chief executive of Zensar, a leading outsourcing firm.

Source: The Times of India

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