- Technical Analysis -

August 14, 2009 (FinancialWire) (ValueNotes Outsourcing Watch: Insights for Investors) — According to a recent news report, Infosys Technologies (NASDAQ: INFY) and Wipro Technologies (NYSE: WIT) announced that they would establish dedicated practices to target the government sector for outsourcing contracts. The report also states that this market is worth over $100 billion. While it is not a completely new initiative, considering Infosys recently won two big contracts from the Indian Government, what is interesting is that they would target government contracts overseas too. The entire brouhaha about offshoring, coupled with the tough economic conditions has led the Indian IT and ITeS industry into some difficult times.

TCS is an established player in this space having executed some contracts already. According to the company website, they provide consulting, IT services, ready-to-deploy frameworks, to the government sector. As part of their R&D initiative to understand the segment and its evolution better they have established alliances with universities and institutes throughout the world. Infosys and Wipro also plan to enlist help of industry experts and those from government organizations to understand the requirements, efforts and way forward.

Interest peaks in Government initiatives

The Indian Government’s initiative providing identification cards to all Indians has generated a lot interest among the Indian IT companies. This project will be huge, and actually brings forth the need of IT requirements in the government sector. Treating this as one more high opportunity segment, IT companies are set to pursue it with vigor, working on various innovations and cost effective measures. Among the identified potential markets are UK, Australia, Canada and the US, according to S Gopalakrishnan, chief executive of Infosys Technologies.

As governments across the globe battle challenges in implementation of new policies and reforms and keep the fiscal deficit low, outsourcing seems like a viable option. It is especially of more importance, considering the core competence that these IT companies would bring, which is otherwise lacking in the segment. Governments have also shown an inclination to outsourcing the entire spectrum, thus offering opportunities to the end-to-end service providers.

Standing up to outsourcing challenges

Considering that these are government contracts, Indian companies have expressed confidence that they are ready to compete with the best of the companies in the global market. Other global IT companies are also likely to compete for Government projects, with the public sympathy resting with companies in the west, they seem to have an upper hand. Indian vendors have over the years expanded their presence by establishing offices and centers in various countries, and hiring local talent. They are more akin to global entities than ever before. However, challenges notwithstanding, some of the positive aspects that would favor the Indian outsourcing companies include:

• Experience in handling very large projects
• Experience in handling longer-duration projects
• Experience in the outsourcing space
• Local presence
• Proven track record and competence
• Domain expertise

Some of the other factors that may favor these companies are that the current economic crisis has made it imperative for the government sector to cut their expenses; as a result, they may have to give projects to the lowest bidder. At most, the rider that they may use is that jobs not be taken out of the country.

Going forward

There is no doubt that a lot of research and thought has gone into this decision by the Indian service providers and it has emerged as an extremely lucrative option. With clients constantly rethinking strategies, and changing business opportunities, it was natural for the service providers to seek other options. Other issues aside, business sense has to be given due importance, and slight tweaks may allow them to make a mark and capture a significant market share in this segment.

ValueNotes Outsourcing Watch: Insights for Investors” is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing. The publication analyzes events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established U.S. companies, and emerging investment opportunities.

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