Why the global recession
is also an opportunity for India
Prasanto K. Roy
near recession in the US and the global meltdown will, of
course, have its impact on India's high-tech industry, as
it is one of the greatest financial crises of our globalised
times. But it also presents an opportunity for Indian services
vendors to improve their market share, while forcing them
to diversify and de-risk across sectors and geography.
Brothers went bankrupt Sep 15. A day earlier, Merrill Lynch
had announced that Bank of America was acquiring it. A week
earlier, US mortgage giants Freddie Mac and Fannie Mae went
into federal receivership.
with each news flash, the Indian Sensex swung wildly downward,
partly in sympathy, partly with foreign funds pulling out
because they needed the cash. And the jitters echoed in the
hallways of a host of tech services companies - who were servicing
any of these firms, or their US-based suppliers.
was bad news. The Indian tech and business process outsourcing
(BPO) services industry is strongly dependent on North America,
and specifically on the sector that we call "BSFI"
- banking, financial services, and insurance.
the US financial services slump has come as a wake-up call
for Indian exporters of technology and BPO services. But for
them, this is no sudden crash.
They have been through a longer crisis, though arguably,
one that wasn't as severe, as the result of the weakening
dollar in 2007. So, that have had some time to prepare. In
2006-07, the dollar averaged Rs.45.05 to a dollar. In 2007-08,
it averaged Rs.40.4, which meant a 10 percent decline in rupee
earnings for the same dollar billings.
many of the Indian tech/BPO services exporters looked harder
beyond North America, which used to account for most of our
services exports three years ago. They went to Europe, and
Asia, and an adventurous few Indian companies even "came"
to the India market.
is a tech services market dominated by IBM and HP, with very
few Indian services majors - mainly Tata Consultancy Services
(TCS) and Wipro - active in this market. Others, such as Infosys
and Satyam, have a negligible presence in India.
here's the impact one sees of the dollar weakening in 2007,
followed by the US financial services-led slump in 2008:
Indian services exporters look harder beyond the US: to Europe,
and Asia, including Japan
They all work out an India market strategy, if they did not
have one already
Financial services drops from nearly 60-40 percent of our
entire services exports
Other areas like telecom and engineering services pick up
Overall, there's increased diversification, across geography,
sector and type of business
services have been the mainstay of Indian software and BPO
services exports. This began to change a few years ago, with
telecom and engineering services picking up. That process
has now accelerated. Telecom is a huge growth market in Asia,
and especially India and China.
the slowdown hit Indian tech exporters? Of course, it has,
though not dramatically. Here's what, and why:
A very few large institutions have melted away. They were
outsourcing to India, directly as well as through other US-based
services majors who had delivery centres in India. This has
of course meant some impact on business
For some time now, new deals have slowed down, and turnaround
time for signing contracts has increased
There is increasing pressure on companies to minimize their
"bench" - or the currently idle employees. Recruitments
thus slowed, and campus offers stayed pending
Most of the stars of the Wall Street collapse are not going
away. They will continue
after either Chapter 11 filing, or acquisition (Merrill Lynch),
or federal receivership (Freddie Mac, Fannie Mae). These will
generate new opportunities for low cost high quality services,
especially the mergers
A recession is all the more reason to cut costs and become
more competitive on quality. Hence, more need to outsource
and offshore. Many companies who were not outsourcing certain
processes will increasingly be forced to do so
The US Congress approved a revised $700 billion package to
bail out the US financial sector. This means major opportunity
for India-based services companies
India is not de-linked from the world, and the financial
meltdown has certainly impacted us. While some of the impact
is real and direct
like foreign institutional investors pulling out funds, which
they needed back home, and thus causing havoc with the rupee
a lot of it is wild overreaction.
instance, the day Infosys announced a great quarter and a
30 percent rise in net earnings, the Sensex saw one of its
worst crashes ever. The market is not reacting to fundamentals,
but is overreacting in panic. It is also reacting to rumours.
Take ICICI Bank. Each day I bought ICICI stock, figuring it
couldn't go any lower, it would drop 5 percent the next morning.
Indian services vendors have an opportunity waiting. There
are factors in their favour. The dollar has swung very hard
in the other direction now. India's brand image and reputation
of services expertise in a range of areas, beginning with
financial services but now extending to telecom, engineering
services and medicine and more is on the rise. And then there
is this large untapped market - a long tail of companies and
processes that do not outsource that may be forced to open
up to reduce costs.
economic downturn is like a mild ice age, with the survival
of the fittest. Take the airlines industry shakeout today:
the fittest will survive. The outlook for IT and BPO services
is a lot brighter than it is for the airlines, and brighter
than it was post the dot.com bust.
so, it will mean belt tightening, and more focus on efficiency.
Just as the fuel crisis and cost is forcing us toward more
efficient transport. The global financial meltdown will mean
some tough times for its suppliers, but the fittest will survive
- and emerge stronger. And many will find opportunity in the
K. Roy is chief editor of CyberMedia, a leading technology
and speciality media house. He can be reached at firstname.lastname@example.org)