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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

July - 2008 - issue > Cover Feature

Mid-tier Miseries

Jayakishore Bayadi
Tuesday, July 1, 2008
Jayakishore Bayadi
After the dotcom bust in 2001, though all thought India’s IT ascent was over, it regained its lost glory creating a poignant image for Indian IT in the world map. Now, again debates are rife on whether India is on the verge of loosing its ‘IT grandeur’ as a most preferred destination for outsourcing due to globally volatile and cyclical economic circumstances such as the continuing U.S. recession, fluctuating rupee against dollar, and surfacing domestic challenges like intensifying fixed and operating costs, and the mounting wages of professionals. All these certainly send across a creeping sense among Indian IT of loosing their survival battle.

Despite all the advantages on their side, India’s top tier IT services companies too are sensing the pinch due to impending global and domestic challenges. However, it’s India’s mid-tier IT service companies, which are sandwiched between global as well as domestic issues, which are badly affected. Though many of these are not really keen on sharing what they are experiencing, it’s quite evident by trends like consolidations gaining momentum, decline in talent hiring, and desperate attempts to move to non-U.S. markets to remain in the game. In fact, most of the mid-tier firms registered minimal Q-o-Q growth or dip in their earnings (See table). Besides, they also have to cope up with apparent domestic issues like crumbling infrastructure and skyrocketing real estate costs, leading to mounting frustrations among the mid-tier IT fraternity.

How They are Feeling the Pinch?
No doubt, the vendors in Banking Financial Services Insurance (BFSI) space are the people who are feeling the most heat of the ongoing U.S. recession. However, an important trend that is putting down mid-tier companies is that the outsourcing companies in the U.S. prefer the BIG 5 Indian vendors over mid-tiers as they have an established brand value, flexibility, access to huge resources, marketing and financial muscle, capabilities in terms of scalability, having a global network, and other facilities compared to mid-tier counterparts. And since recession is leading customers to consolidate their outsourcing deals as well, it is clearly creating pressure on mid-tier companies. Today, the deals that could have come to the mid-tier pure-play services are being taken away by the big players because of their capabilities and offerings. Hence, opines V. Srinivasan, MD and CEO, 3i Infotech (Head count - about 5,500), “Coming times will be really tough for mid-tier companies to cash in on the wave because of their limited resources. It can be an opportunity for the BIG 5.”

However, many key mid-tier companies such as MindTree (Head count - around 7,500) and Zensar (Head count - around 4,500) see it more as an opportunity than as a threat. “We are witnessing a trend wherein customers are willing to give more business to us. We can see lots of deals or contracts flowing in during later part of this year as firms in the U.S. are under severe pressure to cut costs. The expectation was that this year the Industry would register a growth of about 28 percent. But it may come down to 24-25 percent,” opines Ganesh Natarajan, CEO, Zensar and Chairman, NASSCOM.

An interesting fact is that the impact of recession is undoubtedly higher on small and medium sized enterprises (SMEs) in the U.S., whose bottom lines are increasingly getting squeezed due to lack of spending by consumers. These SMEs have now started waking up to cash in on the outsourcing wave, so as to survive, and explore a market opportunity that their larger counterparts have already made use of. “Especially the SMEs in the U.S. are under severe pressure to increase profitability and business margins. This will force them to outsource and even have M&A arrangements with Indian firms,” says Arup Roy, Senior Research Analyst, Gartner.

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Reader's comments(1)
1:wow what a Atricle it is ! I learn so much from this coloumn
Posted by: Varish Dwivedi - 12th Jul 2008
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