| Will India Do A Japan? |
|
|
| Monday, 23 April 2007 | |
|
Riding on the continued outsourcing boom, IT companies in India including Infosys (Nasdaq: INFY), TCS and Wipro (NYSE: WIT) have announced massive recruitment plans – more than 70,000 people to be hired amongst them in FY08. This is after taking into consideration more than 30% jump in their workforce during FY07. Global IT firms are also continuing the hiring spree. Accenture (NYSE: ACN) and IBM have doubled their headcount in India in the last 3 years and have announced plans to scale up further. IBM inducted more than 10,000 in the last six months, taking its Indian count to 53,000. And these firms expect to continue growing at that pace. Will India Do A Japan? Thanks to the continuing boom in outsourcing (read offshoring), revenue and profits have soared by more than 35% year on year for the Indian IT companies. This has resulted out of new client acquisitions and strengthening of existing relationships. For example, Wipro added 197 while Infosys added 150 new customers during the year, eating more into the global IT outsourcing pie. So are the Indian IT companies out to do to global technology services what the Japanese did in the automobile industry? Time will tell what the future service provider landscape will look like, but for now the pressure apparently seems to be on the global giants. Or does it? Although there is urgency on their part to scale up in the cost advantageous regions to build up and match low cost capabilities of the Indian counterparts, they have done that impressively so far. IBM, Accenture, EDS, ADP, CSC, Perot Systems etc seem to have learnt well from the global auto industry shake up – do not allow Indian IT companies to play on price and then later on service quality. And this is what the Indian companies have been trying to do. With a low cost delivery structure they have been able to bite chunks of the global IT outsourcing pie, thanks to the emerging unbundling phenomenon of mega deals. Having done that, these companies have moved up the value chain in terms of services offered, consequently claiming higher billing rates and raising profitability. Off late Indian IT companies are trying to build consulting, advisory and end-to-end service capabilities, that was hitherto catered to by the big six including Accenture and Cap Gemini. Wipro, TCS, Infosys and Satyam have acquired many smaller niche-consulting companies in Europe and the US in the last two years that have already proved gainful. But nothing is up for grab so easily. The multinational companies have adapted quickly by buying the Indian low cost offshoring model, not allowing much room for the Indians to play on price. Add to this their hold in the consulting space, Indians have some catching up to do. Demand And Supply Dynamics The demand for skilled manpower in the software domain is constantly on the rise. As services move up the value chain demand for people with higher skills is surging. Apart form the programmers, testing and coding experts and the technical writers, people needed include those skilled in a variety of enterprise applications, including SAP, PeopleSoft, and Siebel, IT architects, database administrators, project managers and other software leaders. But the supply side pipeline does not look strong enough to support such demand in the long run. More so, when the employable number is just 15-20% of the fresh supply. According to a Mckinsey Nasscom joint study, India produces 400,000 technically trained graduates a year, but their employability quotient is a matter of concern. This disequilibrium is causing double-digit wage-inflation and attrition. The demand-supply disequilibrium has also forced some companies to look outside India, into other low cost countries. For example, around 10% of TCS’s workforce is non-indian from East European, South East Asian and Latin American countries. One important reason for this apart from the supply side constraints in India is that hiring local talents help build trust and confidence in these countries and tap into these markets. All the Indian IT majors have strong onshore presence. What Next? Although offshoring is showing strong growth, industry estimates suggest that the current slowdown in the outsourcing market could affect the offshore outsourcing market in the future. A Detroit like disaster looks improbable for now, but going forward, there can be minor shake-ups in the IT offshoring vendor landscape. ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities. No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited. ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com Related Items: |
| < Prev | Next > |
|---|
ValueNotes’ research indicates that the domestic BPO industry stands at an inflection point, with the growing scale of Indian buyers as well as the emergence of significant vendors with greater capabilities