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2010 to be Marked by M&A in Outsourcing

Tuesday, February 2nd, 2010

India's economy is expected to grow at an eye-popping 7.5 percent this year.India is expected to grow at 7.5 percent this year, up from 6 percent in 2008 — a rate that is the envy of most of the world.  To buoy its economic prospects, the Indian Government has raised more than $100 billion over the last four quarters to finance a stimulus package, pushing the country’s debt to 50 percent of the total GDP.  One place that’s feeling the optimism is India’s IT industry.  As 2010 gets underway, recruiting will reach a peak with spikes in salary hitting pre-recession levels, according to advisory firm Gartner’s India regional VP, Partha Iyengar.

In terms of outsourcing, this year is likely to be characterized by an inflow of low-end projects off-shored to Indian vendors to achieve cost savings.  Speaking in an interview with Financial Express, Iyengar said that 2010 will also reveal consolidation in the software sector along with spiked IT spending by Indian firms.

Off-shoring is likely to witness what Iyengar calls a “back to the future syndrome”.  The next year will see industry growth pushed forward by cost savings, which is how the outsourcing sector initially began.  Most outsourcing projects are expected to be related to maintenance support and application development.

For global firms, outsourcing often provides 80 percent of a company’s cost savings.  Consequently, more low-end work will come in to India.  More complex projects are likely to follow in 2011.

Additionally, 2010 is likely to be marked by mergers and acquisitions.  Giants in the Indian outsourcing business like Infosys, TCS, and Wipro will make more acquisitions in Europe in order to acquire onsite capacity.  They will also expand to near-shore destinations to tap markets in Latin America, Eastern Europe and elsewhere.  Meanwhile, global firms, particularly Tier II firms that have not developed off-shore capacities, will make acquisitions in India and other top outsourcing countries.

Jacob Cherian is the India correspondent for AlterNow.  His work is featured on SourcingLine, a leading source of data and news about offshoring.

A Rebound in Offshore Activity Signals India’s Recovery

Monday, November 16th, 2009

call-centers-india_26A report by India’s Economic Times indicates that up to 11 multinational firms including Wells Fargo, Standard Chartered and Ingersoll Rand set up back office facilities in India during the 3rd quarter of 2009.

A research firm, Everest Group, says this bodes well for the overall business momentum in India picking up in 2010.  Two of the reasons cited for India’s resurgence are the depreciation of the Indian currency and the reduction in operating costs which have enticed outsourcing operations back.

Although there was movement of outsourcing projects to facilities in Latin America and Southeast Asia, India continues to dominate the scene in the third quarter.

The new numbers signal a shift away from the doldrums of the first part of 2009.  Many U.S. firms like GE and CitiGroup put expansion plans and capital projects on hold due to the deteriorating financial ratios.

Jacob Cherian is AlterNow’s India Contributor. He is a business writer for Offshore Advisor.

Downturn in Economy Triggers Outsourcing and Contract Work in India

Thursday, October 1st, 2009

genpact22With U.S. unemployment figures approaching 10 percent, it has affected parts of the tech industry with the chip and system design areas among the most affected (unemployment is 8.6 percent among American software engineers although the overall tech sector is faring better with an unemployment rate under five percent).  In response, it has led seasoned talent to eschew searching for a new job in favor of offering their services to the highest bidder, according to a new online report.

It’s also been a boon for countries overseas.  American companies now have access to highly skilled contract talent across the globe who can collaborate virtually.  India, especially, is reaping the benefits since approximately 64 percent of all outsourced computer-design projects went to Indian companies this year, up from 51 percent the previous year.  Trailing close behind was China, which raked in 33 percent.

Jacob Cherian is AlterNow’s India Contributor. He is a freelance business writer based in Kerala, India.  He has written about business outsourcing for Offshore Advisor.

India Still Lags in Innovation

Tuesday, September 8th, 2009

Much has been made in the world’s press about India’s economy buoyed by its IT sector. And a lot of it is justified.  The nation’s IT sector managed to grow some 20 percent in 2008, according to India’s National Association of Software and Services Companies, and IT firms have already extended 100,000 job offers for 2009.

india-outsourceBut all is not rosy for India.  While the country has surged in the basic and mid-level areas of coding and development, it has struggled in the area of R&D and top-end innovation.  India produces about 300,000 computer science graduates a year.  Yet it produces only about 100 computer science PhDs, a small fraction of the 1,500 – 2,000 that get awarded in the United States or China every year according to a recent article from Reuters.

“Students here are not exposed to research from an early age, faculties are not exposed to research and there’s no career path for innovation because there’s a lot of pressure to get a ‘real’ job,” said Vidya Natampally, head of strategy at the Microsoft India Research Centre.  Rival China has already pulled ahead with more than 1,100 R&D centers compared to less than 800 in India, despite lingering concerns about rule of law and intellectual property rights (IPR).  India is also losing out in the patent stakes. In 2006 – 2007, just 7,000 patents were granted in this country of 1.1 billion people, compared to nearly 160,000 in the United States.

India is cheaper than China for R&D.  But salaries in India have been rising by about 15 percent every year and may soon reach parity with China. R&D centre costs in Shanghai are currently just 10-15 percent higher than in India.

But this could be changing:  Microsoft, for example, has just opened a new facility in Bangalore staffed with about 60 full-time researchers, many of them Indians with PhDs from top universities in the United States.  The center “is at the cutting edge of Microsoft’s R&D, covering seven areas of research including mobility and cryptography.  Cisco, IBM, Intel, Nokia are among the other companies going beyond low-end coding to bring R&D to India.

Jacob Cherian is AlterNow’s India Contributor. He is a freelance business writer based in Kerala, India.  He has written about business outsourcing for Offshore Advisor.