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Quietly confident

In Hyderabad, the IT industry believes it can ride out the storm. P. Vikram Reddy reports.

IN HYDERABAD, a major destination for information technology companies with a focus on IT-enabled services (ITES) and BPO, developments in the U.S. are being watched keenly. While some dismiss them as an aberration, which will fade out after elections, some are apprehensive of a long-term backlash. But everyone is convinced that the competitive advantage India holds will ultimately influence the decision of the American corporates.

However, there is also concern over protectionism re-emerging in America. As Colonel Vijay Kumar, Director, Software Technology Park of India, Hyderabad (STPH) points out, the impact may not be significant in the short term. But what should be of concern is the backlash that is likely to continue after the elections because of job losses. It could lead to protectionism spreading into areas such as consulting or to limiting outsourcing to geographical areas such as Mexico.

The STPH registered exports of Rs.3,668 crores, of which ITES and BPO accounted for Rs.1411 crores (almost 40 per cent) in March 2003. But hardly 1.5 to 2 per cent could be from U.S. Government contracts, according to Col. Kumar. There are major players such as Dell, GE Capital, Nipuna, Computer Associates and Cognizant Technologies in Hyderabad. But there is no direct work undertaken by companies, and whatever is taken up indirectly is very small; it is not going to have a major effect right now, he says.

Meanwhile STPH continues to grow at a healthy pace, and expects to do Rs.4,500 crores by March-end, with increasing focus on ITES and BPO. Col. Kumar feels the industry should take up a "low level but high intensity" campaign with NRI groups and the U.S. Government on the issue. He agrees with the World Economic Forum president, Klaus Schwab's suggestion, at a CII meeting in Hyderabad last month, that Indian IT companies take up the issue of a ban on outsourcing with the Chief Executive Officers Club, a forum created at the WEF.

K. Thiagarajan, Director and Senior Vice-President, Corporate Strategy, Satyam Computer, feels the American decision is unlikely to have any significant impact on businesses in India. The share of U.S. Government contracts in exports of IT software and services from India is "insignificant (less than 2 per cent)," he says. He feels corporate America sees the benefits of offshoring work to India, as it would help improve efficiencies and compete better in the global market.

Offshoring has become inevitable and in a way binds all the economies of the world, he says. Customer visits are increasing, and global corporates are reposing greater faith and confidence in the Indian companies' ability to deliver mission-critical services, according to him.

Shakti Sagar, president of Hyderabad Software Exporters Association (HYSEA), says no member of HYSEA has voiced any concern over the issue. The Hyderabad IT sector is not really affected, he maintains adding that hardly anyone in Hyderabad is doing U.S. Federal Government contracts, even indirectly. The real issue is of jobs moving out of the U.S., but the Government cannot tell a private company not to outsource, as it will amount to restrictive trade practice, he says.

Hyderabad, according to him, has the competitive advantage and every day some company is coming to the city to explore outsourcing possibilities. At the end of the day it will be business decisions and issues like leveraging strong points of any location that decide things, he says.

V. Krishnan, Director, Finance, of VisualSoft, which is setting up a 500-seat capacity BPO facility in Hyderabad in addition to a huge facility in Vizag, also says it is not a cause for concern. Ultimately the U.S. will have to compromise or economise on costs, he says.

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