Reports are circulating that outsourcing hub India might be experiencing contraction. In a recent report from CIO, India’s top call centers and business process outsourcing providers said that due to slower revenue and profit growth last quarter, they are likely to cut more than 25percent of their staff in the next 10 days.
The U.S. economic crisis is affecting the revenues of these outsourcing firms. In October 6 Accenture UK in a ZDNet article said that because of the financial sector problems, the company will need to lay off 300 to 400 jobs. Last month Economic Times wrote about the Satyam Computers firing 4,500 employees and Wipro putting almost 3,000 of its employees under performance evaluation. TeleTech announced a massive layoff this year with a total of 226 employees let go by September.
Together with that outsourcing firms have cut their revenue estimates for the following quarter. Satyam Computer Services cut its revenue guidance from 24-26 percent growth to 19-21 percent in the year ending March 2009 and “Infosys cuts its dollar revenue growth forecast to 13.1-15.2 percent from 19-21 percent” according to Reuters October 17 report. “Infosys, India’s second-largest software-services provider, on Oct. 10, cut its profit forecast, citing uncertainty about clients’ decisions on orders” as per Bloomberg.
Operating rating margins of outsourcing firms have been falling in the past few years due to salary increases, property rental rise, and currency volatility according to Pratik Kumar, corporate vice-president for human resources of Wipro and have been contributing in the decrease in hiring projection. He also said in reference to that, that “Wipro’s global IT business … [has] fallen from 28 per cent in 2003 to 22 per cent last year”.
Despite that Indian major outsourcing firms remained positive, assuring their government that it will not be cutting jobs due to global financial crisis although decrease in hiring is likely. Ashok Kumar Manoli, principal secretary for information technology, biotechnology and science and technology of the Karnataka state government told Economic Times reporter that “Tata Consultancy Services and Infosys Technologies Ltd. will not layoff any of their employees and their future recruitments will continue”. Satyam hiring forecast in the year to March is 15,000 employees as per Reuters.
Furthermore, another factor which can pressure the industry as a whole to contract is the upcoming U.S Presidential elections as the economic policies of the next U.S. President will have an impact on the demand for outsourcing. Protectionist policies can hit the cost attractiveness of outsourcing and the industry has to prepare for this. However, with the continuous development of the outsourcing sector, leveraging itself not just in terms of cost but as well as highlighting its excellent quality pool of people might ease this upcoming pressure. For example Sigelman, co-president of India-based OfficeTiger said that he has found incredible depth of design talent in Manila; the kind of talent that is hard to come by in Bangalore, Hyderabad, or Chennai. With this the Philippine outsourcing industry can continue banking on its human resources to attract clients and achieve growth.
Author: Chris V.