Challenging environment for software companies
The part-nationalisation of banks could trigger negative fallouts on the U.S.-focussed software companies in the BFSI space.
With the global financial system getting trapped in the quicksand, there is uncertainty across the Indian software industry, in general, and the banking, financial services and insurance (BFSI)-focussed software companies, in particular. The announcement of a $250-billion bailout package by the U.S. Federal Government to rescue the battered banks, however, has sort of breathed fresh hopes for the Indian software industry.
The U.S. Treasury had said that the rescue plan would see the government pick up financial stakes in banks such as Bank of America, Citigroup, J.P. Morgan Chase, Goldman Sachs and Wells Fargo. Each one of these is expected to get government fund infusion to the tune of $10 billion or $25 billion, depending on its size in return for allotment of ‘preferred shares’.
The U.S. banks have huge running relationship with Indian software outfits, thanks to the heavy reliance on the outsourcing model to cut costs and improve margins. In a dramatically changed situation, the equations, too, could alter very fast. The domestic software industry could heave sigh of relief over the Bush Administration’s decision to ensure the survival of the American banking system. Hard-nosed analysts, however, are not quite sure if all these would pan out to the benefit of the Indian software industry, especially those who are focussed on the banking and financial services vertical.
As more citizens lose jobs in the wake of the meltdown and even more due to the arrival of virtual recession in the U.S. economy, American politicians from either side of the divide would indeed be wary of the term `outsourcing’.
With opinion polls indicating Obama as a clear favourite in the Presidential race, the picture looks anything but hazy for the Indian software industry. The Democratic candidate has expressed himself against ‘outsourcing’, which contributes to the rise of joblessness in America.
The part-nationalisation of American banks could trigger totally unexpected negative fallouts on the U.S.-focussed software companies in the BFSI space. Being the stake-holder in these banks, the U.S. Government would think several times before allowing them to outsource work, especially at a time when jobs are at stake for the American citizens. In the near-term, these firms would have to factor in this shark reality and re-draw their business plans quickly so as to minimise the adverse impact.
As part of the bailout package, the U.S. Government had also announced that it would guarantee all bank deposits and fresh debt issued by banks for three years. Ipso facto, the Treasury would have greater say in running the affairs of these banks. When the going gets tough, the Americans are very patriotic and nationalist-minded. And, this could add on to the woes of the Indian firms.
With recession looming large in the U.S., the immediate priority for the Administration would be to keep as much jobs as possible within the country. At the moment, there is no clue as to how long the U.S. Government would stay in effective control of these banks. The environment is, doubtless, uncertain for these firms. A rough estimate suggests that at least a minimum of 30,000 Indian jobs could be impacted immediately in the wake of happenings in the U.S. financial system. Indeed, these software firms could be preparing for hard days ahead.
K. T. JAGANNATHAN
Send this article to Friends by