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Cos. race against time to finish jobs

Satyam Computer office in Hyderabad

The top leadership of the Tata Consultancy Services (TCS) has sparked a debate on the impact of the slowdown in the U.S. economy on the Indian IT and ITeS sector. Though the financial markets have taken a beating, the IT and BPO segments may not have felt the effect of the recessionary trends in the American economy or its impact on the global economy.

Enquiries with the top IT majors in the country reveal that the impact may not be felt in the current fiscal. But in the calendar year 2008, it could become more obvious. In the current last quarter of 2007-08, the IT and ITeS companies are racing against time to complete their outsourced jobs and completion of commitments. It remains to be seen how the slowdown will affect the future jobs and extension of assignments, particularly in the U.S. Most of the IT majors have either set up offices or subsidiaries in the U.S. or have a significant presence of their staff in American companies for whom they work.

While the TCS chief executive S. Ramadorai has preferred the more cautious response of having to ‘wait and watch’ to study the impact, his colleague Chief Financial Officer S. Mahalingam has taken a more optimistic position — at least to say there has been no slowdown in the decision-making till now. The apex IT forum Nasscom, in its highlights for 2007 and projections for 2008, has forecast the revenue aggregate for the IT-BPO sector to grow by over 33 per cent to reach $64 billion by the end of 2008. IT exports alone are expected to cross $40 billion, compared to $31.9 billion last year, a growth of 28 per cent. What is more attractive, the domestic IT markets, including hardware, is projected to post a robust 43 per cent growth to reach $23.2 billion against $16.2 billion in 2007. Exports have remained the mainstay of the IT-BPO sector and continue to be the growth driver.

Indian companies have apparently not spent as much on this side of their business, or manage their needs in-house, without outsourcing. But the question remains on the impact of the U.S. economic slowdown. IT consultants insist that the Indian IT majors remain “over exposed” to the U.S. market. “Even according to Nasscom’s latest report, there is a 61.4 per cent geographic market exposure of IT-BPO exports to the U.S. The next comes the U.K. with a mere 17.8 per cent share, while continental Europe provides a little over 12 per cent. I would say two-thirds of the Indian software outsourcing business is linked to the U.S. and 2008 could be a bad year,” reasons a senior IT consultant. He agrees that starting from the 1990s, IT majors have started looking to the U.K. and Europe for a better spread. This has intensified in the past two years. But the market is still dominated by the U.S. and the bulk of the global transactions remain in U.S. dollars. Hence the impact of the appreciating Indian rupee on exports.

Another area of concern for the IT sector is the global meltdown in the financial markets. What started with the Sub-prime woes of the American housing finances has snowballed into a major global financial crisis. And the Indian software industry seems to be heavily dependent on the financial services industry too. At least one-third of the revenue of major players here comes from the financial services sector around the world. Nasscom accepts this reading, stating in its report for 2007: “Banking, Financial Services and Insurance remains the largest vertical market for Indian IT-BPO exports, followed by high-technology and telecom accounting for nearly 60 per cent in 2007. Manufacturing and retail followed, contributing 23 per cent to the aggregate.”

Financial and marketing teams in the IT majors do not hide this concern. But they also see new opportunities and challenges in this scenario. They expect more American companies to outsource their work to cheaper Asian BPOs, with India and China being the major markets. They also realise that Indian companies have to cut costs and become more competitive, as well as technology-driven to become a real option to American companies that cannot hire local or foreign labour at their work spots anymore.

The IT majors have also been consciously looking to Europe, Southeast and East Asia for more business and collaborations, to overcome the dependency syndrome on the U.S. For them, 2008 promises to be a challenging year.

V. JAYANTH

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