India”s outsourcing woes

Posted on May 20, 2010 in Business and Economy

Utkarsh Chaturvedi:

With recent news of stringent policy of UK conservatives regarding outsourcing, this might be another blow to the Indian outsourcing scene. Indian firms, still recovering from recession era problems may find it quite hard if other countries follow suit.

The concern for IT and other outsourcing firms began with the new coalition government in the UK reviewing six outsourcing contracts. One of these is contract of Personal Accounts Delivery Authority (PADA) with TCS amounting to about $850 million. This is a part of the government strategy to trim government spending. The target is about $ 9 billion. This move comes in light of increasing unemployment in European nations. There is a major concern in the UK and other European nations regarding rising unemployment, outsourcing and immigration. With mounting pressure on Greece to clear out its public debt, the other European nations may want to stay away from similar condition.

The problem lies not just at the European front. With Indian firms like Infosys Technologies Ltd. and TCS etc. reporting strong financial results this week, the real challenges underlying this recovery haven’t really shown. There are both long term and short term challenges to be dealt with. Short term challenges include cost cutting measures, managing man power for various projects and to return to the state of high octane growth. Talking on long term, the companies have to take in account rising labor costs and most importantly currency exchange risks. The companies targeting more than 30% revenue growth have to start looking into such problems.

Still, the dark days of recession are far behind. National Association of Software and Services Companies, says growth in software exports will be about 13% to 15% in the fiscal year that began April 1. This signals positive mood for outsourcing market in the world. Not only software but infrastructure projects are also the next big things in the outsourcing scene. Similar developments in other sectors can also be predicted. Though there may be minor hiccups in the process, Indian IT and outsourcing firms will overcome those and prove why they are the heart of India’s service sector.

The writer is a correspondent of Youth Ki Awaaz.