The current business environment is not quite encouraging. Several businesses have a not so bright outlook for the coming months. The total 'value of contracts' witnessed a significant dip in 2008 as compared to the previous year.

As is evident in the exhibit below, the total contract value took a significant dip in the first, second and fourth quarters of 2008 as compared to 2007.

There has been a lot of talk around the slowdown and its possible impact on the BPO industry. At the recent Nasscom India Leadership Forum 2009, the impact of slowdown and the measures to deal with it were highlighted. Service providers, analysts and industry experts, debated on "Duration of the current recession and the possible implications".

While businesses face a long haul as the recession is confirmed, what are the measures taken by companies to survive these turbulent times? The key strategies that found favour among the participants were cost cutting and innovation.

Narayana Murthy, Chairman of the board and chief mentor, Infosys at the conference opined that the recession is deep and can be compared to the great depression of 1929. Murthy said that in the beginning of 2008-09, the growth in IT spending was projected at 19-20% in dollar terms. This projection has been brought down to 13-15% in the last quarter. He also pointed out that infrastructure upgradation has currently taken a back seat. Organizations are concentrating only on things that are necessary. Murthy said that organizations should cut costs and this should start with limiting the top management's salary.

Several others like Harsh Mangalik, Chairman and MD, Accenture India, Suresh Vaswani, Joint CEO, Wipro, Sudhakar Ram, CMD, Mastek and Salil Parekh, CEO Capgemini India emphasized on ways to combat the crisis by creating a strong differentiator. Companies need to be innovative in terms of products or services or delivery models. Honest communication and a good relationship with the client are essential. In essence, this is a time to transform businesses.

There is no doubt that the Indian IT-BPO companies are facing turbulent times. However, managing operations efficiently and being innovative at a time like this can tide them through!!

Shake out likely

In the current uncertain economy, mid-sized and smaller service providers are badly affected by margin pressures. Many weaker players will fade away from the competitive landscape.

Service providers offering multiple services to multiple verticals will be better positioned to weather the storm. In 2009, we believe that 'multi-service capability' will become critical not just for sustaining growth but also for the very survival of service providers.

In line with this trend, we are likely to see accelerated consolidation in the industry. Small service providers will be forced to innovate with a focus on "differentiating" their services and/or partnering with other service providers. A large number of cash strapped mid-sized players will look to exit the game. On the other hand, this is a good time to buy for cash rich companies, at cheaper valuations, to expand their service or vertical offerings.