Is the Party Over for Indian Outsourcers?

I recently addressed concerns that Cognizant’s (CTSH) growth - as well as that of other Indian outsourcing firms - may be peaking. Now it seems that those in thee industry may be wondering the same thing.

Is the party over for Indian outsourcers? - ZDNet Asia

A confluence of adversities is at play. They include an appreciating rupee that is cutting into earnings, a severe shortage of qualified talent at home, and a cap on H-1B worker visas to the U.S., along with pre-2008 election protectionism threats.

On top of that, there is the end of preferential industry tax benefits at home and the growing success of multinational competitors such as Accenture and IBM on Indian turf. Perhaps most challenging for the Indian players is the pressing need to move up the ladder into business consulting, a domain that companies such as IBM have dominated for decades. Indian outsourcing firms need to invest heavily to secure a position in this arena, and that will erode their fat profits, at least in the short term.For the first time, industry insiders are asking: Is the outsourcing game over for Bangalore? “The Indian IT companies have had an unusually long run in profits and growth,” says Siddharth Pai, partner and managing director of global tech advisory TPI Advisory Services India. But that is “an anomaly”, he adds. “As they mature, they cannot expect the same kinds of returns.”

It is healthy that industry insiders are beginning to worry about the issue. Nothing is more dangerous than cocky management teams. For investors, though, there still needs to be an adjustment to the risks that growth will not be what it used to be.

Comments

[David Collins_:]

The party IS NOT OVER for this Indian software developer focused on the insurance industry.

EBIX, Inc. (NASDAQ: EBIX) reported record results of $0.75 per share for Q2 2007. Subsequent to that report they discussed a major new contract in their conference call and then disclosed it in an 8-K:


In a conference call with investors on August 7, 2007, Robin Raina, Chief Executive Officer of Ebix, Inc., (the “Company”) disclosed that the Company’s subsidiary, Infinity Consulting Systems, Inc., had recently executed licensing and professional services arrangements with Princeton Insurance Company and WRM America. These agreements, taken together, could provide revenue between $6.6 million and $10.3 million for the Company over the next two years.

2007 Aug 08 10:01 AM

[Nidhi Kadalbal:]

Appreciating rupee, declining dollar, increasing indian salaries and retaining good employees, all of these have been levelling the playing field to the US companies. THe advantages that Indian outsourcing companies had will diminish in their magnitude.

creating-wealth.blogsp.../

2007 Aug 08 10:38 AM

[trimalli:]

US/Indian Company

Why not talk about iGate (IGTE) when you would then be talking about the innovator!! iGate is really "best in class" once you review it's history and how it got here along with who founded the company as well as their contacts and uninvolved relatives. Please, comment....
Ken Malli
[e-mail]

2007 Aug 09 04:01 PM

[brij srivas...:]

Is the Party Over for Indian Outsourcers?............. Sir,definitely not.Rather this party seems to be over for the outsourcers who have lately been feasting on cheap indian talent/enterprise.Time to get real now.Strong rupee is what outsourcers need to tackle now,incase they dont wanna do the job themselves.This party will be over when Law of Comparative Advantage is no more relevant....basic economics Mr.Trent.Look for time immemorial,we were told that strong dollar is good for us,even now the effort is on to supress appreciating indian rupee by the indian authorities.Realistic rupee will in turn bring more clarity to this poser of yours.
As far as visa restriction by us authorities is concerned,its more to do with US policies,which is governed by various other factors,some not incidental to main issues.

2007 Aug 11 08:40 AM