U.S. Slowdown Has Indian Outsourcers Looking Elsewhere for Business


There appears to be good news and bad news for Indian services companies in Forrester Research's new spending report, which I just wrote about yesterday.


Demand for outsourced services seems to be growing, found Forrester, with 45 percent of respondents planning to increase their use of applications outsourcing, 43 percent expecting to boost their use of infrastructure outsourcing, and 43 percent intending to move more work offshore.


Yet North American financial services companies, which account for a large chunk of Indian outsourcing companies' business, are slashing their IT budgets this year. Forty-nine percent of them have done so, vs. 39 percent of companies in the media, entertainment and leisure industries.


Back in July, when I wrote about slowing growth in India's outsourcing industry, the financial services industry accounted for some 43 percent of revenues at Tata Consultancy Services, with similarly high exposures at Infosys Technologies (34 percent) and Wipro (24.5 percent).


And a recent Bloomberg article makes it sound as if Indian providers are beginning to see a slowdown in business from those clients. It quotes Tata Consultancy CEO S. Ramadorai:

We keep hearing bad news and there may be still some more bad news. Delays in projects are to be expected in the financial services sector and that's what we're witnessing.

To help counteract slowing business from North American financial services companies, Indian providers are expanding their presence in less mature outsourcing markets such as Europe, where economic conditions are not as grim as in the U.S. Indeed, Forrester found that just 31 percent of European companies had cut their IT budgets, vs. 49 percent of their North American counterparts, though Europe's economy has further slowed since the survey was conducted in 2008's second quarter.


Last month, Infosys extended a $718 million offer for the UK's Axon Group. (The Bloomberg number is lower than the $753 million reported by The New York Times in August.) Fujitsu Ltd. and HCL Technologies may be planning to make a higher bid for Axon, according to Bloomberg, though Infosys CEO Senapathy Gopalakrishnan says he hasn't heard about any competing offers. Whatever the status of the Axon deal, Infosys is apparently planning further acquisitions. Says Gopalakrishnan:

We're looking at consulting and geographical expansion in Europe and the emerging markets like India and the Middle East.

TCS, too, is looking at growing its presence in markets like Latin America, though Ramadprai says the U.S. will remain the company's largest market for the foreseeable future.