Indian Outsourcing: Moving Past Economic Turmoil With A Positive Quarter
July 28 2009 (FinancialWire) (ValueNotes Outsourcing Watch: Insights for Investors) — Infosys Technologies (NASDAQ: INFY), Wipro Technologies (NYSE: WIT), and Tata Consultancy Services (TCS) declared positive results over the past two weeks raising hopes of improved future outlook. Recent deals won by the Indian outsourcing companies indicate a positive sentiment, as companies take more measured decisions. While not all service providers have fared well under the difficult economic circumstances, performance by the top companies in the sector indicates a trend. Though they differ vastly in strategies and strengths, yet together they have managed to hold the industry squarely in place.
The outsourcing industry, like all others suffered huge losses during the economic downturn. The effect on the Indian industry was further accentuated by the fact that US and Europe, the worst hit are also the two biggest markets. Estimates till the last quarter were bleak and outlook for the next quarter saw downward revision by many; sentiments are even lower after the Satyam debacle.
Infosys: Betting big on domestic outsourcing
Nandan Nilekani’s exit to take up responsibility of the Union Government National ID plan was perceived as a big loss to the company, yet the seamless transition has completely restored faith. While he was not involved in the day-to-day running of the company, his presence as a mentor and strategist was highly valued. Infosys meanwhile is betting big on the Indian domestic market, and aiming at earning revenues worth USD 2 billion from the Indian market. Among the most recent developments are two contracts that the company has received from the Indian government - an e-biz platform development project for the Indian Commerce ministry, and another pilot project from the Indian Railways. The emergence of an alternate market will be a boon for many companies that have witnessed business from overseas market dry down to a trickle. No doubt the gap in earnings is huge, but the market is big and opportunities galore.
Wipro: Increasing overseas employee headcount
While the BFSI market went through a major shake up in the last 2-3 quarters, most of the service providers with a bulk of their earnings dependent on this sector suffered. Some of the major banks that received a bail-out package have reported improved earnings, but it will be some time before the market recovers completely. Suresh Senapaty, executive director and CFO, Wipro, said in an interview that despite the negative impact, there were some other positive developments. The company is using many options that include increased presence in other verticals like healthcare, offshore mix, and better employee utilization. The company is also looking at the domestic sector to increase revenues. Wipro plans to increase the number of employees overseas. There are many buyers that prefer service providers with onshore presence. Increasing presence in other countries makes it possible for service providers to achieve its goal of becoming a global company. Offering services to customers from multiple locations will enhance its global delivery capabilities.
TCS: Targeting $3 billion revenues in 5 years
TCS after posting a positive quarter is looking at a much faster growth in the BPO sector. TCS acquired the BPO captive center of Citibank, Eserve, in one of the biggest deals in the outsourcing sector in 2008. According to N. Chandrashekaran, chief operating officer, they are further looking at expansion in BFSI, where it already has a strong presence and healthcare and retail, which the company has identified as segments with potential. The company is also looking at achieving revenues worth $3 billion from BPO over the next five years. Among the verticals that it is looking to grow its business include healthcare, retail, media and utilities. It already offers services in banking and financial services, insurance, pharma, retail, telecom, travel, media and energy. The emerging verticals are set for faster growth as companies are looking to becoming leaner and concentrate more on core activities. This is expected to give the necessary fillip to the outsourcing industry.
Going Forward
It is imperative that in the face of economic slowdown companies expand their horizon, cater to more verticals, and expand market. India has emerged as the new market with public sector being the focus. One of the other emerging trends is that companies are seeking repeat business from existing clients rather than looking at new clients actively. A number of other BPO companies have also reported positive quarter results. Going forward recovery is expected to be slow, but definitely sure to happen.
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