The real threat to India's IT giants
By siliconindia   |   Thursday, 15 July 2004, 19:30 IST
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NEW DELHI: The outsourcing backlash may be nearly over, but the Indian IT companies are facing a different kind of threat. A threat bred by the very success of the IT sector, reports a business daily. Instead of emotion-charged outpourings latched on to by politicians, there are other, more serious factors which Indian companies will have to keep in mind to survive in the post backlash era, according to Economic Times, a business daily. As Infosys’ Q1 results show, the tech companies are doing better. It was a combination of weakening rupee, more relaxed attitude in the US against outsourcing as well as good business growth worked for Infosys. In fact, Infosys has cut its US exposure by 10% from 74.7% to 65.2%, turning to Australian and European clients more. But the fairy tale may stumble on more prosaic factors that can see a profits crunch for the tech firms. One big threat looming in front of the Indian tech giants is the threat of brain drain. IT Pros In Demand IT biggies like Wipro and Infosys are not only losing people at the entry level, but also experienced professionals at the middle and senior management level. The top Indian IT companies starting to lose key software developers, project managers and high level executives to leading US tech companies such as IBM, Oracle and Accenture. Infosys Europe head Srinjay Sengupta went off to iGate while IBM poached Shanker Annaswamy of Wipro-GE Medical to head its India operations. As for ITeS firms, the attrition rate is even higher. In the last two quarters ended June 2004, attrition crossed 20% levels, for almost all the leading IT services firms. Companies like Wipro and Infosys are starting to lose key software developers, project managers and high level executives to leading US tech companies such as IBM, Oracle and Accenture. How To Fight Attrition? There is a talent war going on. Indian companies can fight the talent drain by paying higher wages. But that will cut into the very basis of outsourcing success. The cost-card or rather, lower salaries vis-à-vis US tech firms has always been a big factor for the success of the Indian IT companies. Though Indian tech firms always factor in healthy increases in compensation expense, now competition from American tech firms could lead to higher-than-expected increases. Costlier scrip Finally, in the very success of the Indian IT companies lies the seeds of a future tragedy. The stocks have appreciated significantly in the past 12 months, so much so Infosys, Wipro and Cognizant all trade for more than 35 times the calendar 2004 earnings estimates. This means investors need to pay even closer attention to the risks. Also, it would be wrong to say that the BPO backlash has completely gone away. Sure, it's lesser now, but the IT stocks could be affected soon as outsourcing will be a contested issue during the US presidential campaign.

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