Build Your Career: Hot Sectors 


Indian Outsourcing Still Growing

BPO firms eye new markets to combat slowdown

By Margo McCall

The red-hot growth of India’s business process outsourcing industry might be cooling, but by global standards, it’s still a jobs-creating juggernaut. Nasscom, the trade group representing India’s BPO industry, recently estimated that revenue for its hardware, software, and services companies this year would only increase by 21-24 percent, well below the 30-percent growth the industry has enjoyed in recent years. To put things in perspective, that’s 10 times the growth forecast for the world’s economy as a whole.

Hot Sectors

With heavy exposure to the financial services sector, India’s outsourcing providers felt the effects of the subprime-lending debacle early. But they’ve apparently adjusted, since they continue to sign up new business and hire fresh employees in droves. Furthermore, Som Mittal, Nasscom’s president, expects that global technology companies’ current focus on cost-cutting will lead to an increase in outsourcing, benefiting the group’s member companies even more.

And India’s BPO industry doesn’t just serve the financial services sector. Nasscom companies are now responsible for 43 processes, double the number just four years ago. Although India started out focusing on the IT services niche, it’s now expanding into products. Nearly 400 companies produce technology products, compared with 100 just one year ago.

Hiring continues

As India’s outsourcing heavyweights weighed in with their financial results recently, their CEOs confessed to the same sense of caution as their counterparts elsewhere. But their businesses appeared to be weathering the US-sparked financial crisis far better than others around the globe.

Mumbai-based Tata Consultancy Services, India’s biggest outsourcer, added nearly 10,000 new employees and took on 51 new clients in the third quarter. Although TCS’s $1.6 billion revenue was up nearly 15 percent from the year-ago quarter, net profits of $582 million were up a scant 2.8 percent.

However, the company, which boasts more than 120,000 workers, is still on track to meet its annual hiring target of 30,000 to 35,000 employees. More than 18,500 people were hired during the first six months of the year, including 11,150 campus trainees. In addition, 24,500 campus offers have been made for the next fiscal year.

Of the nearly 10,000 hired last quarter, 6,700 were trainees, 1,600 were lateral recruits in India, and 1,400 were hired in overseas branches.

Bangalore-based Infosys and its subsidiaries hired more than 10,000 employees during the third quarter and added 40 new clients. The company, which employs more than 100,000 in 50 offices around the world, reported a 19 percent increase in revenue in the third quarter and a 17 percent rise in earnings. For the fourth quarter, however, revenue growth is slated to slow to 8.4-12.6 percent and earnings growth to 5.6 percent.

Still, Infosys CEO and Managing Director S. Gopalakrishnan is optimistic. “The challenging environment provides interesting opportunities for transformational service providers like us,” he said during the company’s conference call.

The $1 billion in quarterly IT services revenue generated by Wipro, which also employs nearly 100,000 people, was ahead of expectations and 36 percent ahead of the year-ago quarter. Although Wipro Chairman Azim Premji expressed some concern about the economy, he still expects a slight revenue increase in the current quarter.

“The global economic environment has deteriorated significantly over the past couple of months, and our outlook is cautious in the near term given the extent of strain on the global economy. However, we are confident of the resilience of our business model to tide over these challenging times,” he stated.

New business

TCS reported strong growth in engineering services and new opportunities for application development and maintenance. Among TCS’s new business is a full-services outsourcing deal with a European electronic retailer, as well as contracts with banks in Europe, Latin America, and the Middle East. In addition, TCS will be paid $2.5 billion over the next decade to provide BPO for Citigroup Global Services as part of TCS’s agreement to acquire CGS.

Among Infosys’s major projects, the company is currently developing a business intelligence strategy and technology architecture for an international auto manufacturer, helping an online digital photo service provider improve its customer engagement through behavior and conversion analyses, providing research and development for a telecom equipment manufacturer, and helping an agri-engineering company develop products.

Infosys is also working on a Microsoft CRM implementation for a provider of power and automation technologies, a SAP retail implementation for an eyewear company, and a Web content management project for a chemicals company.

Wipro, which specializes in financial services testing, added 28 new clients during the second quarter. Among its wins were a multi-million dollar deal to provide testing as managed services to a financial services group, a five-year application development contract for a US retailer, and an application development agreement with a French telecom company. Wipro also opened a joint embedded engineering center in Bangalore and Chennai with Harman International.

Expansion into Japan

To make up for the loss of financial services clients and to reduce its dependence on US and European markets, Nasscom plans to launch a major expansion in Japan. Besides still enjoying relatively high projected growth rates compared to other countries, Japan also boasts a $108 billion IT services market, the world’s second-largest. And currently, Indian companies control only about a $1.5 billion share. According to Nasscom estimates, Japanese companies outsource only about 10 percent of their IT services, and Chinese outsourcers snap up about half of that business.

Indian companies plan to offer embedded systems development and engineering and research and development services in Japan by positioning themselves as a higher-end alternative to their Chinese competitors. However, Nasscom officials admit that language and culture differences will prove a barrier to entry, as well as the Japanese IT industry’s vertically integrated structure. CW (November 2008)



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