Bank Breakdowns a Big Worry for Indian Outsourcers


Just last week I wrote about the effects of a slowing U.S. economy on India's outsourcing business, noting that the credit crunch and resulting fallout at American financial services companies was a big factor since such companies spend big bucks with the Indians.


That was before the implosion of Lehman Brothers and Bank of America's buyout of Merrill Lynch.


Not surprisingly, these events give Indian services providers even greater cause for concern. Tata Consultancy Services and Satyam are both in "wait and watch" mode, reports The Financial Express, since it's not certain how much, if any, of their existing business with Merrill will remain with BofA.


TCS maybe in a better position, as it already has a business relationship with BofA, according to the Times of India. The Times article focuses more on broader business impacts of the BofA/Merrill deal. Compared to peers like Citibank, BofA has a negligible presence in India. It's not clear whether it will choose to use the Merrill acquisition to further expand its presence there.


The Lehman Brothers bankruptcy has a far more immediate impact on India, with up to 2,000 offshore employees receiving pink slips, according to the Financial Express article. And the uncertainty keeps coming, with a likely merger between the UK's Halifax Bank of Scotland (HBOS) and Lloyds Bank, both of which have contracts with Indian outsourcing companies, reports IT Examiner.com.


Even experts like Ovum's Samad Masood seem uncertain as to how big of an impact the financial services fallout will have on services providers. Masood tells Computing:

... I don't think all projects are going to be halted, but then I also don't think that clients are going to suddenly invest in outsourcing either. It's horses for courses whether the market is rising or falling.

Industry sub-sectors such as insurance and compliance have remained relatively immune to the market turmoil, notes Masood. (Shareholders at American International Group would likely beg to differ.) Some providers, including Capgemini and Accenture, are reporting new projects with financial services clients, especially cost-reduction initiatives. Providers who want to preserve their business will need to focus on developing deeper relationships with their clients, says Masood.