[sbinews] Outsourcing in 2004
- From: sbistcbangalore@xxxxxxxx
- To: sbinews@xxxxxxxxxxxxx
- Date: Tue, 23 Dec 2003 07:19:28 +0500
Outsourcing backlash to haunt Indian IT sector in '04
IANS[ MONDAY, DECEMBER 22, 2003 01:19:05 PM ]
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 that 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 said.
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 of 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.
With global recession tightening its grip and job losses in many economies
becoming 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 US 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 US 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 dot com 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 with overcapacity and consumers postponing their investment
decisions. But things are looking up once again, as evident 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 per cent from the beginning
of the year and Infosys Technologies, India's largest listed software exporter,
is trading nearly seven per cent higher. "The investor appetite for technology
companies has really increased in the last six months. Its quite a change from
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 per cent 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 per cent 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.
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