Analysts See Trouble Ahead for India's Outsourcing Sector

Ann All

Financial results for Indian outsourcing firms in the latest quarter are decidedly mixed, with the companies reporting financial gains but lowering future guidance in the face of continued problems with the rupee's strength against the dollar, a softening U.S. market and difficulties finding enough employees.

 

The strong rupee, which has risen to nine-and-a-half-year highs, is the primary concern for companies like Infosys Technologies and Tata Consultancy Services (TCS), according to a Reuters India report. While the firms are still posting respectable gains due to strong demand for their services, financial analysts fret that they won't be able to sustain such growth.

 

Shares in Infosys and TCS declined during the quarter, while the broader Indian financial market posted a gain of 18 percent. CLSA Asia-Pacific Markets predicts a "... period of uncertainty and volatility -- that may extend into 2008" for the outsourcing sector.

 

Many analysts appear to think that TCS is meeting these challenges better than its rivals. TCS earns a nod from Merrill Lynch due to its plans to add 22,000 new staffers, vs. Infosys' expected addition of 18,000 recruits, according to a story on indiaearnings.com.

 

The Associated Press reports that TCS boosted staff salaries by 12 percent to 15 percent in the quarter to curb attrition. Other strategies included charging clients higher rates and moving more work to low-cost sites. While U.S. clients had accounted for 60 percent of the company's revenues in recent years, that number has fallen to 52 percent.


 

TCS is also working hard to diversify its services beyond its bread-and-butter application development and management business, reports InformationWeek, with consulting, business process outsourcing (BPO) and infrastructure services accounting for more than half of its revenues in the latest quarter.

 

The firm's chief operating officer gave a shout-out to its infrastructure management business, which has seen strong growth in the three years TCS has offered such services. "Those deals used to be a half-million dollars; now we're seeing deals of $200 (million) to 300 million," he said.



Add Comment      Leave a comment on this blog post
Oct 22, 2007 2:32 AM Guillermina Cabello Guillermina Cabello  says:
Mexico is an option that companies from India are taking.However they are not realizing that rates are higher than in India and the culture is different. They have to learn how to attract Mexican talent, as their offers are not very attractive competing with all companies that are establishing in Mexico with the nearshore wave. Reply
Oct 22, 2007 11:31 AM cebess cebess  says:
The Chinese seem to be putting price pressure on as well. Reply
Oct 22, 2007 11:32 AM Dave Kempson Dave Kempson  says:
We have moved our offshore services to Romania. Romania is much more stable as both a NATO and EU country. Talent is plentiful and English skills are excellent! Reply
Oct 22, 2007 12:23 PM Mason Yu Mason Yu  says:
Will the US Army outsource Intel microcode developmenton the Joint US Strikefighter to India ??? There are limitsyou know... Reply
Oct 23, 2007 1:32 AM Jimmy Jimmy  says:
Even Poland has come up very well as there is good english speaking population there Reply
Oct 24, 2007 2:44 AM A Vespucio A Vespucio  says:
I strongly believe the Indian Golden Times of Outsourcing are coming to an end, or the bubble will burst faster than we thought. I have worked long time with and IN India (Im European Citizen) and I can see an hysterical increase on self-confidence accompained by the directly proportional lack of quality and trust. While giants like TCS are offering a vast sort of promises, the service, quality and cultural differences remain the same. Moreover, to which field a company can belong where in 2005 the workforce was 48,000 and by 2007 is almost 100,000 people? And mostly, when revenues are directly driven for this phenomena (the more people the more money). I cannot think a company like this will belong to the IT field but to the cheap labor workforce traders.I agree Romania and Mexico are looking quite attractive. Mexico specifically from the infrastructure point as the famous nearshore is supported by an infrastructure that is much reliable than in India. The only problem is the low percentage of people speaking english and their political internal problems. But, honestly, in the same line, India is not the kind of best english speaking country and politics, no comments. Belgium, Poland and Ireland are also making their way on offering good service and good quality, in spite of not so "Cost-effective" (read: chea) as indian price, but, HEY we get good european standards, no cultural clashes, not strong schedule difference and good english.Let us remember "the cheap is expensive". As the H1 visas are hiking prices and cutting the number of it, in UK movements for saving work for british and so on, will also trouble this Outsourcing to Asia. Mostly because companies like TCS do not promote work opportunities to nationals in other countries but send their own Indian employees to cover those positions avoiding tax payments (because of double taxation) among other: is always better to pay taxes in rupees than in euro, dollar, pound, yen, etc. And for the very few local employees (a 10% of local employees in foreign country) the salary offer is not attractive: much less than the regular offers. Not to mention the reluctancy of Indian people to work with foreigners, mostly when both are "playing on the same side". There is the unhealthy competition environment in companies of this big size in all directions.Finally, Im not really sure where the figures of salary increment came from, perhaps just some indirect marketing from the company, but Im very sure, those numbers cannot be real. TCS is a young company: there is majority recent-graduates and 3-4 years of work experience people. Also, India is a young independent nation. They are still in the post-independence years and they are skipping important steps: before running you need to learn how to walk.I would think twice before outsourcing to India and really get a realistic assessment. And i would think three times before outsourcing to one of those Indian giant companies. If I can give a little piece of advise here, the best success of a win-win relation with Indian outsourcing (if you really need to give up the employement for your own nationals) have been when a company brings it's own management, get foreigners who have had Indian experience (believe me, perception is different) and build their offices and operations here, giving valuable job to indian employees, making them feel worth as professionals, enhancing their skills and values and tracking personally their careers. Of course this can be achieved with small companies and not moving all your business for outsourcing, only the well stablish processes. And i can mention at least an italian and belgium examples which have succeeded and have given to Indian people what huge companies cant: certainty and personal care.The chaos you see on streets and daily life in India (if you have ever come or seen a video) cannot be magically removed at office premises, and for sure not, in an 94,000 employees company. Reply
Oct 24, 2007 2:45 AM A Vespucio A Vespucio  says:
I strongly believe the Indian Golden Times of Outsourcing are coming to an end, or the bubble will burst faster than we thought.I have worked long time with and IN India (Im European Citizen) and I can see an hysterical increase on self-confidence accompained by the directly proportional lack of quality and trust.While giants like TCS are offering a vast sort of promises, the service, quality and cultural differences remain the same.Moreover, to which field a company can belong where in 2005 the workforce was 48,000 and by 2007 is almost 100,000 people?And mostly, when revenues are directly driven for this phenomena (the more people the more money).I cannot think a company like this will belong to the IT field but to the cheap labor workforce traders.I agree Romania and Mexico are looking quite attractive.Mexico specifically from the infrastructure point as the famous nearshore is supported by an infrastructure that is much reliable than in India.The only problem is the low percentage of people speaking english and their political internal problems.But, honestly, in the same line, India is not the kind of best english speaking country and politics, no comments.Belgium, Poland and Ireland are also making their way on offering good service and good quality, in spite of not so "Cost-effective" (read:chea) as indian price, but, HEY we get good european standards, no cultural clashes, not strong schedule difference and good english.Let us remember "the cheap is expensive".As the H1 visas are hiking prices and cutting the number of it, in UK movements for saving work for british and so on, will also trouble this Outsourcing to Asia.Mostly because companies like TCS do not promote work opportunities to nationals in other countries but send their own Indian employees to cover those positions avoiding tax payments (because of double taxation) among other:is always better to pay taxes in rupees than in euro, dollar, pound, yen, etc.And for the very few local employees (a 10% of local employees in foreign country) the salary offer is not attractive:much less than the regular offers.Not to mention the reluctancy of Indian people to work with foreigners, mostly when both are "playing on the same side".There is the unhealthy competition environment in companies of this big size in all directions.Finally, Im not really sure where the figures of salary increment came from, perhaps just some indirect marketing from the company, but Im very sure, those numbers cannot be real.TCS is a young company:there is majority recent-graduates and 3-4 years of work experience people.Also, India is a young independent nation.They are still in the post-independence years and they are skipping important steps:before running you need to learn how to walk.I would think twice before outsourcing to India and really get a realistic assessment.And i would think three times before outsourcing to one of those Indian giant companies.If I can give a little piece of advise here, the best success of a win-win relation with Indian outsourcing (if you really need to give up the employement for your own nationals) have been when a company brings it's own management, get foreigners who have had Indian experience (believe me, perception is different) and build their offices and operations here, giving valuable job to indian employees, making them feel worth as professionals, enhancing their skills and values and tracking personally their careers.Of course this can be achieved with small companies and not moving all your business for outsourcing, only the well stablish processes. Reply
Oct 24, 2007 2:45 AM A Vespucio A Vespucio  says:
And i can mention at least an italian and belgium examples which have succeeded and have given to Indian people what huge companies cant:certainty and personal care.The chaos you see on streets and daily life in India (if you have ever come or seen a video) cannot be magically removed at office premises, and for sure not, in an 94,000 employees company. Reply

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