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BUSINESS
Will Indian outsourcing be affected by economic slowdown?
By
Devajit Mahanta
The National Association of Software and Service Companies (Nasscom)
said on November 4 that the continuing turmoil in the US financial market is
likely to have a negative effect on Indian Business Process Outsourcing
(BPO) contracts in short term.
Even Nasscom held their last February annual meeting for the first time
where top industry honchos deliberated the future of the IT service
industry. But another school of economists said that when US companies lose money due to economic
crunch, they will start to tighten their belts for expense reduction where
outsourcing to India
is one potential solution. By outsourcing from India, US can save so many
billion dollars which they have been spending in training this expertise.
But the problem arises for the Indian industry when the rupee appreciates
against the dollar because a majority of Indian service providers’ revenue
is billed in US dollars, while their earnings are reported in Indian rupee.
During 2007, the Indian rupee appreciated against the dollar by
approximately 12 percent. Soaring salaries and attrition rates faced by
Indian outsourcing has led to many questions being asked about the future of
the outsourcing industry in India,
including the question, “Is Indian outsourcing on its deathbed?” Companies
should start setting up their branch in smaller towns and villages rather
than in big cities which will bridge the gap between supply of and demand
for labour and invariably will help in controlling rising salaries and
attrition.
According to ‘Strategic Review 2008’ prepared by IT industry body Nasscom,
around 60 percent software industry is based on the project being
outsourced from the US followed by Europe, which accounts for around 25% of
the export revenue. The IT sector, which accounted 1% of India’s GDP a few years back has grown
rapidly, and now contributes to nearly 5% of India’s GDP. Due to recent US economic
slowdown, Indian IT has come to a halt. Just a month ago, Satyam Companies
decided to lay off 4,500 Indian software engineers for cutting down IT
costs. On November 7, HSBC has confirmed 1,100 job cuts by the bank, as the
fallout from the global credit crunch continues. HP, the largest PC maker
laid off substantial jobs numbering around 26,000. Moving further, TCS,
Wipro and Infosys have deferred promotions, cut off hiring freshers and
even shown pink slips to those who are one or two years experienced.
Even newly elected US President Barack Obama said during his presidential
speech that “…….Unlike John McCain, I will stop giving tax to companies
that ship jobs overseas. I will start giving them to companies that create
good jobs right here in America.”
Nasscom president Som Mittal countered the offensive comment by Obama. He
said, “US companies themselves favour outsourcing due to a shortage of
talent to drive their growth.” Obama has been elected on the platform of
change, so rather than thinking what America
can do for India,
he has to think about fix ing his own house from the recent crunch. We also
have to see, will Obama’s American administration in 2009 tolerate draining
of American well paying jobs to India due to rupee appreciation
against the US dollar? If we have a stronger America
it will augur well regardless for India as well as the rest of
the world.
The current credit crunch of the US and rupee appreciation could
have affected the bottom line in the near short term, but in the long run
Indian companies like Infosys, Wipro and Satyam are the winners because
their proactive measures have proven to be helpful.
Most Indian companies are already spreading their presence in emerging
markets like Brazil, Mexico, Australia,
Eastern Europe and China,
which help them provide services to current customers as well as new
customers and maintain their project growth.
Finally, we can proudly say that India is still the world’s back
office. As a service provider, we have to work as an executor.
Readers can send their feedback at devajitmahanta@gmail.com
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1 comment:
Thanks for sharing due to over population in india us and european countries want their work done from indians because they will pay less and get good result..to know more
outsourcing in india
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