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In India: Wondering when (or if) the good news will eventually end…

Thu, Dec 11, 2008

Offshoring

So, when exactly will the impressive growth phase of the outsourcing industry in India end, or at least begin to significantly slow down?

The answer to this question is something many individuals, such as corporate executives, market analysts, politicians, etc., are constantly attempting to pinpoint as they monitor the situation from both near and far.

Well, recently, the outsourcing industry leader in India had some good news to report – which you can read about here (subscription required) – that indicates the answer to the question posed above may be: ”¦certainly not right now, and perhaps not for quite a while.’

Yes, as the article states, Infosys was quite pleased to announce the following:

‘The company plans to hire another 25,000 employees over the next year, increasing its payroll by nearly 50 percent. Infosys said its revenue should increase 22 percent to 30 percent this year, and its profit should rise 26 percent to 28 percent.

Perhaps more significant, and surprising to most analysts, Infosys said it did not anticipate lower profit margins this year.’

So, nothing but blue skies ahead for the outsourcing industry in India? Well, maybe’¦

But from that same New York Times article, I found news on a certain aspect of the issue very telling:

‘Some industry analysts warn that margins will fall soon. ‘The profit margins of these companies are utterly unsustainable,’ said Rod Bourgeois, an analyst at Sanford C. Bernstein, who has a hold recommendation on Infosys and other Indian outsourcers. ‘And this should be the inflection year for the Indian firms.’

The forces squeezing margins, analysts say, include regular wage increases in India of 10 percent to 15 percent a year, high turnover, and more competition from American companies that are hiring and acquiring in India to narrow the cost advantage enjoyed by the Indian outsourcers.

I.B.M., for example, has increased its Indian work force to an estimated 35,000. Accenture has hired aggressively and now has 18,000 workers in India, and plans to reach 34,000 in a couple of years. Electronic Data has 3,000 Indian workers and plans to hire another 2,500 to 3,000 this year. In addition, Electronic Data made a bid this month for Mphasis, an Indian outsourcing company with 11,000 employees.’

It’s clear from these and other recent headlines that American and European companies have entered a new strategic phase involving the aggressive hiring of skilled Indian talent and even the outright acquisition of companies within India as a means of lessening their reliance on the likes of Infosys and other outsourcers.

So, being the curious sort of individual that I am, this leads me to wonder the following:

Is this latest twist in the offshoring saga ‘good’ or ‘bad’ for India in the long-run?

Does it ultimately matter at all to most Indian workers if they are working for I.B.M. or Infosys?

If this acquisition strategy by American and European companies continues to increase, will the Indian government begin to take steps to bolster the likes of Infosys and others, or just let ‘market conditions’ play themselves out? Should the Indian government even consider getting involved?

Thoughts?

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