Gaurav Oberoi, an insurance-focused Project Leader at Larsen & Toubro Infotech in India, writes and asks about what the Indian vendors (IT service providers to insurers) are facing and what should they do to cope up with these challenges.
About 60% of India’s IT and related services business comes from the U.S., and almost half of that work is financial services in nature, which, of course, includes insurance. This IT and related services business (including call centers, and all sorts of back office operations in addition to common IT processes like programming and quality control) are often called IT-enabled services (ITES).
In a posting from its Indian bureau, The Washington Post reports that while new hiring has slowed, there have been no major layoffs. In fact, it’s possible that the crisis could help employee retention issues at Indian firms that have caused wages to escalate. If employees are concerned about the economic environment and don’t seek to move around as much, training costs could go down and the pace of salary growth might slow – helping the margins of those companies.
The Hindu Business Line publishes a vendor scorecard in tomorrow morning’s edition that shows growth slowing until the end of the second half of 2009. Of course, you have to remember that slow Indian ITES growth rates are still torrid by U.S. standards.
Technology sourcing advisory firm TPI is predicting a similar slowness for the next few quarters, primarily based on the third quarter results just posted by the five leading Indan ITES vendors: Tata, Wipro, Infosys, Satyam, and HCL.
Of course, vendors do not perform uniformly – whether in growing markets or retracting ones. Some always do better than others. It will be interesting to see which vendors distinguish themselves in this challenging environment.
Tags: insurance IT spending, offshore, outsourcing
November 3, 2008 at 5:36 am |
Hi Mike,
Agree with you that major chunk of Business of Indian IT vendors come from US. Off late Indian IT vendors have spread their wings in Europe also. But, the recent financial carnage has even struck Europe. Most of the Indian IT majors have put on better than expected quarterly numbers in the recent quarter. But, they have given weaker revenue guidance for the coming quarters. Also you have mentioned that there have been no major layoffs, but I know of quite a few companies who have shrunk the salary structure of their employees. People have been making wild guesses that everything will be ok by mid 2009. However, I personally feel that it will take much longer for everything to be back on track.
November 3, 2008 at 2:56 pm |
You may be right Gaurav. And it is the recession itself, whose dimensions we do not yet know, that will determine the outcome more than the financial crisis which has occupied the news headlines of the last two months.
Your comment about “shrunk the salary structure of their employees” was quite interesting. Could you describe this in a little more detail?
November 6, 2008 at 9:59 am |
Mike, I have a few friends working for mid sized Indian IT vendors. Recession in USA and its impact on Indian IT vendors and professionals is a hot topic of discussion these days. During such a casual discussion, my friends mentioned to me that there Organization have cut pays by 3% – 10%. My friend’s pay has been reduced by 3%. I would not like to take names of those Organizations who have cut salaries of their employees. Cutting down on pays has started in other industries also in India. Like for example, the largest Airlines company has cut pays of its employees. This became the headlines of the major newspapers in India few days back.
November 6, 2008 at 10:04 am |
Thanks for the feedback, Gaurav. This is very interesting information. We can hope that such cutbacks are limited…and short-lived.
November 6, 2008 at 12:31 pm |
Gaurav, what do you think of this post? It seems much more positive – what accounts for that optimism? Indian IT outsourcing to benefit (http://bpo-services-news.blogspot.com/2008/11/indian-it-outsourcing-to-benefit.html)
November 7, 2008 at 5:55 am |
Hi Mike, this is indeed quite an interesting article. I have attended a conference some time back where all IT Industry experts were present. They had a panel discussion on what would be the impact of this financial carnage on the IT industry in India. Some people were of the opinion that this will create newer opportunities in India (as mentioned in the article you mentioned), while others were of the opinion that this will create problems for India as Organization would be forced to reduce their IT budgets. There was no clear consensus. However, the immediate impact that we are seeing here is negative. Many IT vendors have fired employees in bulk. Some other small sized IT vendors were acquired by big companies. Lehman Brothers had a development center in Mumbai, India, which was abruptly shut down and employees there were left with no option other that to look for other job prospects. I will give you another instance. Fresh college graduates from Engineering stream were earlier hired in bulk through campus interviews. This year, even though the fresh graduates have received offer letters from IT companies, they are still not allowed to join the Orgnizations. Their joining dates have been postponed indefinitely by IT Orgnizations. All this signals that there is indeed a slowdown and IT vendors in India have been adversely affected. What are your thoughts on this?
November 8, 2008 at 4:11 pm |
It could indicate an actual slowdown, but more likely just indicates caution at this point. After all, U.S. and European corporations are currently in the midst of preparing their 2009 budgets. No one knows if the financial crisis is fully past or what new contextual changes might be brought on by the new U.S. presidential administration. It will take more time to determine exactly what IT and related spending is going to do. Your comments about hiring layoffs and hiring slowdowns are indeed sobering, but we can hope that such hard measures won’t be with us too long.
November 8, 2008 at 6:16 pm |
Gaurav, here’s an assessment of the Indian situation from Vietnam. It supports the dour anecdotes you mention: http://tinyurl.com/575pur
November 10, 2008 at 4:45 am |
Interesting article.