Media, analysts love to knock down Indian outsourcers

It is probably got to do with the success of the Indian outsourcing industry, or can be perhaps put down to an unconscious resentment that the Indians are close to challenging big global services companies. Or maybe they are just plain lousy in their forecasts.

The fact is that a story about Indian outsourcers going down the tube, or almost down the tube, sells.

It started with stray incidents of data theft in Indian call centers. Adopting a shocked and sanctimonious stand, the media and analysts tried to embarrass not only the outsourcer affected by the data leak, but the entire Indian industry. The media quite forgot that there are more incidents of data theft in call centers in the UK and in the US. Reporting on data theft got less popular after an exasperated Nasscom lay bare these comparative figures on data theft.

Perhaps to be fair to the media and analysts, it was only goading India to do better. After strong measures by Nasscom, a local trade body which believes that India should raise the global bar on best practices, there haven’t been incidents of data theft reported in recent months from India.

As India got successful, and not only Indian outsourcers but multinational technology companies like Dell Inc., Intel Corp., SAP A.G., and Oracle Corp. started expanding their operations in India, the prophets of doom started forecasting over two years ago that Indian workers were getting too expensive, were getting too difficult to hire. The upshot: India was going to lose its competitive edge to China, Vietnam, and the Philippines.

They miscalculated on a number of counts. Yes, Indian engineers and other workers were getting a little expensive, but where else do you find such a vast talent pool to set up development centers or call centers with thousands of staff ? Even if Indian staff is getting expensive, the quality still seems to be in the favor of the Indians, else it gets tough to explain the continued expansion in India by multinational companies.

The proverbial last straw for the Indian outsourcer was said to be the weakening of the dollar. Indian outsourcers were expanding outside India because the strong Rupee was killing them. Once again it was overlooked that setting up some near-shore centers to Europe and the US would not dramatically change the economics for Indian outsourcers, but were only designed to improve customer comfort-levels with the outsourcer.

Instead dramatic cost-cutting, which Indian outsourcers are good at with their process focus, seems to have done the trick.

Less than a week after Infosys Technologies Ltd., said it had improved its margins despite the weaker dollar, Tata Consultancy Services Ltd. on Monday said that it had got around the currency impact by hedging and cost cutting. TCS’ revenue and profits grew 45 percent in the quarter ended September 30.

Wonder what the pundits will come up with next ?

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NASSCOM says no slowdown in outsourcing to India

India’s National Association of Software and Service Companies (NASSCOM) in Delhi said that India is on track to achieve US$60 billion in exports by 2010, despite the appreciation of the Indian Rupee, according to a report by AFP.

NASSCOM’s President Kiran Karnik said Wednesday that it does not see an export slowdown, but added the appreciation of the rupee could weigh on margins and profits, according to the report.

The rupee has risen by more than 11 percent this year against the dollar, leading to speculation that Indian outsourcers, who get over 60 percent of their revenue from the US, may be badly hit. There was also speculation that Indian outsourcers were setting up operations outside India to counter the appreciation of the Rupee, and higher wages in India.

However, as pointed out in this blog in September, India’s outsourcing industry is in fine fettle, but for possibly a few percentage point drops in their whopping profitability and Rupee earnings. The post said:

“But even as (Indian outsourcers) realizations are going down, their costs of keeping staff on-site at client sites in the US is also coming down. Other dollar denominated costs are also coming down. This is not to say that these companies won’t be affected at all, but expect a few percentage points drop in margins.

As usual the top players like Infosys Technologies Ltd., Tata Consultancy Services Ltd. (TCS), and Wipro Ltd. will report next month robust quarterly revenue and profits growth, that are the envy of their peers in the US and Europe.”

The slow-down in the sub-prime mortgages market in the US may have also impacted some Indian outsourcers, but only marginally, and the staff were quickly shifted to other clients.

Confident of the outlook for the industry, Indian outsourcers now say that the appreciation of the Rupee and the slow-down in the sub-prime mortgages market are part of normal risks they have to deal with in the business.

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Indian outsourcers not floundering, not migrating