Outsourcing backlash to haunt Indian IT sector in 2004

Monday, 22 December 2003, 08:00 Hrs
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NEW DELHI: India's globally recognised information technology industry showed clear signs of reviving in 2003.

Not only did it face excess capacity in 2002 but overseas clients also postponed decisions on technology spending.

Still, analysts, and even industry representatives, are reluctant to declare the business will be as bullish - if not more - in 2004 as it was in 2003.

Their sense of cautiousness stems from mounting protests in the West against outsourcing technology jobs to India.

"Indian software firms have really shown their resilience in 2003 and proven why we are the most attractive outsourcing destination," said Nasscom (National Association of Software and Service Companies) president Kiran Karnik.

"Looking ahead, I think the protest against outsourcing will continue to be a cause for concern. But overall, 2004 looks really good for Indian technology companies," Karnik told IANS.

India's vast pool of English-speaking manpower, coupled with its educational system and training programmes, have helped transform the country into a global outsourcing superpower.

The rapidly growing BPO industry has virtually turned the country into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants.

As Indian training institutes churned out tens of thousands of computer literates a year, the vast majority had jobs waiting for them overseas with the local firms rushing to spread wings to offer services at sharply lower rates.

As global recession tightens its grip and job losses in many economies become a norm, India's cost-effective software army is increasingly becoming the envy of foreign lands.

The backlash against Indian firms in the tech world is gaining ground, whether in the form of opposition to U.S. and British companies outsourcing jobs to India or European nations imposing visa restrictions on Indian IT staff.

Software companies are concerned about their businesses in countries ranging from the U.S. to Indonesia, where political parties and trade unions are becoming increasingly twitchy about "foreign" workers snatching away jobs.

In a latest move, global investment banking major Lehman Brothers has decided to withdraw its help-desk from Wipro Spectramind, the outsourcing arm of Bangalore-based Wipro, and moved it in-house.

This came close on the heels of Dell announcing it had moved back support for some of its corporate customers to the US from India.

"When everything seemed hunky dory for Indian technology companies after the infamous dotcom bust, the outsourcing backlash has really come as a major dampener," said Neeraj Deewan, an analyst with Quantum Securities.

"I think Indian software companies will have to grapple with protests against outsourcing in overseas markets in a major way in 2004," he added.

On the positive side, the stubborn technology spending slowdown in the US, India's prime software export destination, is likely to get over next year as a recovery in the world's largest economy is on the way.

The past few years have been difficult for the IT industry worldwide, which had been faced overcapacity and consumers postponing their investment decisions.

But things are looking up once again, as evidenced by the surge in the prices of technology stocks around the world, including those on the Bombay Stock Exchange, during the past six months.

Shares of Hyderabad-based Satyam Computer is up 31 percent from the beginning of the year and Infosys Technologies, India's largest listed software exporter, is trading nearly seven percent higher.

"The investor appetite for technology companies has really increased in the last six months. Its quite a change from, say, a year back when tech meltdown had made software stock untouchables," said Deewan of Quantum Securities.

India's cost-effective software army caters to a wide customer range, including global financial giants and telecom equipment makers. While price competitiveness has been its strong point, the slowdown that hit last year has made it a necessity.

On the back of a vast pool of English-speaking, tech savvy and cheap manpower, India's IT market has grown from $1.73 billion in 1994-95 to $16.5 billion in 2002-03, accounting for three percent of gross domestic product last year.

The country's software exports totalled $9.5 billion in the fiscal year that ended on March 31, 2003.

According to Nasscom, software exports could grow at 26 to 28 percent during the current fiscal year ending March 2004.

The year 2003 started on a negative note for Indian software makers with financial reports of companies reflecting the ripples of SARS, which had hit many countries, mainly in Asia, and the Iraq war.

The tepid growth projections by high-flying software makers and the subsequent battering of their stocks in the first half of 2003 made experts say that turbo-charged growth rates will elude the IT industry for a long time to come.

Analysts say the softening demand and intense pricing pressure would ensure that the differential annual profit growth rate between the once robust IT and other sectors is not going to be as high as before in the years ahead.

Already reeling under severe billing pressure and a cut back in order by overseas clients, the rising rupee inflicted more pains to India's technology industry.

The unabated rise in the value of the Indian rupee against the US dollar badly pinched the earnings of the export-oriented software makers in 2003. The rupees has risen over five percent in 2003 on increased foreign inflows.

Notwithstanding the adversities, top rung software makers showed some signs of bullishness in the October-December quarterly results on strong volume growth and tapering billing rate declines that had muted the profit and sales growth.

The industry mood was also boosted towards the yearend by blocking of a bill in the American state of Indiana aimed at banning non-US citizens from seeking government contracts.

In a major development, lawmakers in Indiana have opposed a bill, introduced by Governor Joe Kernan, to ban non-US citizens from government contract jobs, as they felt it could affect the American state's drive to attract foreign investment.

The state of Indiana in November dropped a $15.4 million outsourcing contract for IT services with an Indian software company. The move was part of an initiative launched by Governor Kernan to protect local companies and jobs.

Source: IANS
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