IT Outsourcing India

Outsourcing companies are raking in profits as fears spread that there will be a global recession, but their reputation as haven investments should be taken with a grain of salt, analysts advise.

The two largest Indian outsourcing groups in information technology, Tata Consultancy Services and Infosys Technologies, brought a smile to the faces of shareholders this month when they reported revenue growth in excess of 20 percent for the financial year that ended March 31. Their competitor, Wipro, was equally upbeat in its annual management statement, which suggested that businesses were still prepared to farm out activities to try to reduce operating costs and improve company focus.

Unfortunately, behind the glad tidings lie some worrying trends.

Revenue growth is slowing as Indian outsourcing companies weather an economic downturn in their main market, the United States. The Indian National Association of Software and Services Companies forecast revenue growth of 21 percent in 2008, down from 28 percent in 2007.

Those who believe that investing in Indian outsourcing is still a winning bet have dismissed the figures as inconsequential, but Frances Hudson, an equities strategist with Standard Life in Edinburgh, figures that outsourcing firms in the Asia-Pacific region will struggle to reverse the downward trend in revenue growth as economic and political headwinds build.

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Satyam Computer Services intends to decrease the US component of revenues by riding on the growth momentum in geographies such as India, West Asia and Australia. The Hyderabad based company is working on a plan to have a 50:50 mix, wherein revenues from the US would contribute 50 per cent to the companys topline from the current 60 per cent, according to Ram Mynampati, President, Commercial and Healthcare, Satyam Computer Services.

It is no secret that US market is facing a lot of challenge and is in a state of change. For the next few quarters, we expect greater growth to come from non US markets, he told journalists on the sidelines of an informal meet, here on Monday.

Satyam, which last week said the outlook for the banks and financial services segment was fluid, saw some nearterm challenges, although the medium and longterm prospects were very bright, President Ram Mynampati said at a news briefing.

Other markets outside of US are looking increasingly attractive, especially considering the situation in US now, Mynampati said. We are looking for growth in Asia Pacific, Australia, Singapore and the Middle East.

Over the next few quarters, the share of revenue from the US market is expected to fall to about half of Satyams total sales from about 60 per cent now, he said.

Satyam, which specialises in business software and offers outsourcing services, planned to shortly set up an IT backoffice centre in Mexico with about 100 people, Mynampati said.

The company was also exploring setting up another centre in Chile or Uruguay, he added. He declined to give the money involved or a timeline for these investments.

The West Asia and India operations of the company have been growing at more than 100 per cent.

However, he agrees that the Japanese market, which accounts for a meagre 2.5 per cent of the overall companys revenues, has stagnated. This is because of the cultural and linguistic difference between the countries, added Mynampati.

The company intends to set up two new development centres for both IT and BPO in Latin America.

We are targeting to have a centre in Mexico and are also evaluating a base either in Chile or Uruguay, said Mynampati. However, he did not specify a timeframe for this initiative.

Source : http://www.offshoringtimes.com/