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2010 What is in Store for Indian Outsourcing Industry?
Vimali Swamy
Tuesday, March 2, 2010
A year after the recession, As the Indian IT industry steps into the fourth quarter of its operations, the question remains - is the worst in global economy over? Hopefully it is, at least by the looks of the financial results of top Indian IT players. The third quarter recorded an improved performance over the second, and this growth in the businesses of Indian outsourcing firms is attributed to improving business sentiments across the globe.

TCS, Infosys, and Wipro, which can do everything from call center management and claims processing to software development and consulting, all reported better than expected results for the December quarter with an average of 3 percent growth quarter on quarter. Revenues and volumes grew, signaling that the cost-cutting imperative of this last, lean year may be over for India's $60 billion software services industry. The companies are in an upbeat mood and are looking forward to great times ahead by launching new services, increasing their offerings, and identifying new areas of business while reviving the existing ones.

While Infosys is looking at new markets like China, the Middle East, and Latin America with a host of new services, TCS is looking at growth sectors like energy, utilities, and BFSI. Wipro on the other end is betting on green technologies.

There are multiple reasons for this. Clients have eased pressure on billing rates, which is evident from the increased operating margins of these companies. New market strategies in regions such as India and West Asia have started paying initial dividends, especially for players such as Wipro. Add to that, some of the big clients have actually gone ahead and increased their IT budget outlays and there are less cancellations of orders now.

“In the past quarter, we have received positive business growth across all verticals. Demand recovery that started in the BFSI segment has become broad based, with telecom and technology posting healthy growth. Improving market sentiments also reflected in the enterprise solutions and the financial products segments,” says S. Mahalingam, CFO, TCS. The company also added 32 new clients and 7,000 new employees. Similarly, Infosys and Wipro have expanded their global workforces by an average of 5.1 percent last quarter.

MNCs like the consulting giant Capgemini too have recently announced the addition of more than 21,000 employees, at least 1,000 more than its headcount in France, indicating the recovery from the downturn. Capgemini plans to start with a workforce of 1,000 for the new Bangalore unit, increasing the strength to around 3,000 in 18 months. The firm is aiming at establishing a business information management center of excellence to help companies improve their collection, use, and analysis of data. Accenture and IBM too are following a similar course of increasing their workforces in India to take advantage of the low-cost IT skills.

Everest Group, a research firm, has identified some real reasons to smile for the Indian outsourcing industry in its quarterly study ’Market Vista: Q3 2009’. India as an outsourcing destination continues to be a favorite as new captive setups increased to an 18-month high in the third quarter of 2009 compared to the second quarter. Of the 28 new captive centers, 11 were set up in India during the quarter. This happens to be the highest for a single economy. These included companies as big as Standard Chartered, Ingersoll Rand, and Kontron. In addition to this, one-fourth of the new supplier delivery centers were set up in India. Even Dell’s entry into the IT services segment after the acquisition of Perot Systems, last quarter, too emphasize the prospective future of the Indian IT services industry.

The confidence and the performance of these players reflect that India will continue to have good growth momentum throughout 2010. “The increase in the number of captive setups reflects the signs of recovery in the overall market. We expect the industry in India to continue this momentum of the last quarter of 2009 well in to 2010,” says Amneet Singh, Vice President-Global Sourcing, Everest Group.

But there is an increasing threat to India’s outsourcing growth from the growing competition from China. Indian biggies like Wipro have acknowledged that China’s tremendous strides in outsourcing constitute an imminent threat to the Indian IT industry. “India has an advantage with a large base of $50 billion revenue; China's is significantly less, but it is growing faster than ours. It is important that the whole ecosystem is supportive to grab marketshare. Otherwise, it will be lost quickly,” explains Wipro's Executive Director and Chief Financial Officer, Suresh Senapaty.

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