IT Outsourcing India

The outsourcing industry has brought jobs and prosperity to India - but, asks Saritha Rai, at what cost to workers’ well being?

The cheery, chatty voice at the other end of your customer care helpline may be a stressed-out, sleep-deprived and depressed twenty-something in Bangalore.

As many young people in India’s outsourcing industry are beginning to discover, underneath the heady promise of an exciting job, a good paycheck and attractive career prospects lie long spells of night shifts, ruthless targets and the dreadful monotony of writing code or pacifying angry customers.

The outsourcing industry has long been hailed as a key driver to India’s rise as a global economic power. Now, that growth is beginning to take its toll on its workers who labour for long hours in stressful work environments to meet tight deadlines for customers thousands of miles away.

Workers are suffering from obesity, sleep disorders, depression and broken relationships - problems which can lead to more serious conditions such as diabetes or heart disease. In a country where a public healthcare system is virtually non-existent, overworked outsourcing employees could present a health crisis in the making.

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Even as its US business has been impacted by the recession, Tata Consultancy Services, India’s largest information technology services provider, expects its India revenues to double to $1 billion in the next three-four years, majorly coming from the government sector. India currently contributes 10 per cent to TCS’ total revenues.

We are looking at three pillars in the domestic market — government, large enterprises, and small and medium enterprises (SMEs). With large enterprises, the deals could be in products and engineering services, while for SMEs, it could be cloud-based services, based on their affordability. The government offers opportunities in mission mode projects, e-governance and NREGA, among others, through a portal-based approach or a web-based one,” TCS’ outgoing CEO, S Ramadorai, told reporters here.

For large enterprises in India, it is looking at an overall deal size of around Rs 400 crore. For SMEs, anywhere between Rs 25-100 crore for niche services like SAP or Oracle-based services in analytics or data warehousing.

Of its India business, the government sector’s share is 40 per cent and the IT major has already worked on the government’s e-Passport Seva project and MCA-21.

Commenting on the deal pipeline in this environment, Ramadorai said drastic downturn is behind us and there is a demand uptake in some areas.

“Pricing is stable, except for the telecom and manufacturing clients. There is a deal pipeline in BFSI (banking, financial services and insurance), retail, life sciences and government, and enquiries are also coming from these sectors,” he added.

The pricing position is not very stable, as project cancellations happen and closures of projects might happen slowly. Also, some bankruptcies in manufacturing led to the unstable situation, he explained.

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BANGALORE: A potential sale of India-based back office firm WNS Holdings could trigger consolidation in the business process outsourcing sector BPO as IT services firms, knocked back by the global financial crisis, look to bolster their presence in the growing BPO market.

According to a media report last week, private equity firm Warburg Pincus was looking to sell its 50.12 percent stake in WNS, a move that would entail a change of control at the Mumbai, India based call-center operator.

IT services firms have thrived for years by winning contracts from international clients, helped by a large pool of English-speaking engineering workforce and cheaper wages.

But a downturn in the United States, which accounts for more than half of the sector’s export revenue, and turmoil in the global financial sector have halted the scorching pace of growth.

"Perhaps because the IT offshore business slowed down in the recession, IT services firms are looking at other areas where they can make some good progress," Brandon Dobell, an analyst with William Blair & Co, said.

While most of the top Indian IT services firms such as Infosys Technologies and Wipro have BPO arms, some of their U.S. based counterparts such as Cognizant Technology Solutions and Affiliated Computer Services Inc could be interested in the sector.

A Cognizant spokesman refused to comment. Even some of the world’s largest IT services firms such as IBM and Accenture have forayed into BPO services. In 2004, IBM acquired Daksh to create India’s largest BPO firm.

Pure-play BPO firms such as WNS and EXLService Holdings, which largely provide services such as insurance claims processing, payroll management and customer support, are seen by analysts as possible takeover targets.

Sykes Enterprises Inc, Genpact Ltd and ICT Group could also be on the takeover radar.

"Strategically, it makes some sense. There is a lot of offshoring growth opportunities available in BPO, and lot of budget dollars that could be captured by acquiring one of these BPO players," said Joseph Vafi of Jeffries & Co.

A recent Nasscom-McKenzie report had projected BPO to be a $340 billion-$360 billion market opportunity by 2020.

"So, I would look at it as an opportunistic move to expand platforms," said Vafi, adding that companies such as Cognizant and Patni Computer Systems, which do not have a strong BPO platform, could look at BPO firms such as WNS.

In an indication of what lies ahead, Philippines-based BPO firm eTelecare Global Solutions Inc and Boston-based Stream Global Services Inc merged late last week to broaden offerings and geographic footprint.

China’s leading IT outsourcing firm VanceInfo Technologies is also looking at fresh acquisitions to boost its presence in the backroom operations of the financial industry.

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The recent economic turmoil has had a varied impact on various industry sectors in India. Even within a particular sector, there has been little uniformity, with different companies performing differently in response to the slowdown. Of India’s 500 largest companies, there have been quite a few upsets over the past year, as many companies slipped a few ranks due to the ongoing economic turmoil.

These performances were influenced by several factors like sensitivity of a sector (and the related companies) to the overall economic slowdown and the sector’s dependence on exports. Sectors like metals, auto and real estate have been hit harder than others like FMCG, power and telecom.

IT sector, the blue-eyed boy of many investors, portfolio managers and traders, is also going through a turbulent phase. The sector, which receives around 80–90% of its revenue from the US and Europe, went through a very difficult phase after 2001, thanks to a recession in Western countries, especially the US and Europe. In the recent economic slowdown, many top-tier clients in the US and Europe—Lehman Brothers, Bear Stearns, Nortel and General Motors—declared bankruptcy or closed shop.

While the growth in the number of new projects has taken a back seat, the depreciation in the rupee has helped Indian IT companies to some extent. It is interesting to analyse the effects of these factors on the ranking of companies in the IT sector, as this sector has been a major driving force in the growth of India Inc.

The sectoral ranking (based on total consolidated revenue) indicates that most top IT companies have managed to retain their ranking of the previous year. As a result, slower topline growth was visible across all tier-one companies and their relative position remained almost constant.

The top three companies—Tata Consultancy Services (TCS), Wipro and Infosys—retained their positions at number one, two and three respectively. This means the negative impact of the economic turmoil in the West was felt equally by almost all top Indian IT companies. The sample includes 31 IT companies chosen out of India’s 500 largest companies.

The companies in the top 10 positions on the sectoral ranking list remained unchanged from last year, with the exception of Teledata Informatics. The company was replaced by Mphasis, which moved to the seventh rank from its eleventh place last year.

The main reason for this was the almost 50% decline in the revenue of Teledata Informatics. Other companies which improved their ranking among the top 10 include Redington and Tech Mahindra. Both these companies reported around 16% growth in their annual revenue for the year ended March, 2009.

The biggest upsets in the ranking were visible among the small and mid-sized IT companies. More than three-fourth of the 11 companies that moved down the ranks were small and mid-sized companies, which only goes to show the tremendous impact on companies in this category has not been uniform. This list includes First Source Solutions, Sonata Software, Cambridge Solutions, Hexaware Technologies, CMC, Mastek and Zensar Technologies, among others.

Similarly, there are nine companies which improved their ranking this year, as compared to last year. The companies on this list are uniformly distributed across different categories—small, mid- and large-sized companies. The list includes companies like TechMahindra, 3i Infotech, Rolta and Mindtree, among others.

In total, 11 companies maintained their ranking from the previous year. Some of these are TCS, Wipro, Infosys, Patni Computer Systems, Oracle Financial Services Software, Tulip Telecom and Polaris Software Lab, among others.

Overall, however, the number of companies which maintained, improved or slipped the IT sector ranking have been almost equal. For instance, out of the 31 companies in the sample, 11 companies maintained their ranking while 11 moved down the ranks.

If we have a look at the entire industry per say, two companies from the IT sector made an exit from the list of India’s 500 largest companies. These two companies are Satyam Computer Services and Financial Technologies. Similarly, three companies—ICSA India, HOV Services and Infotech Enterprises—made their debut into this list this year.

Source: http://economictimes.indiatimes.com/