Impact of Global Recession on Indian IT Industry

Why Western Countries Continue Sending Jobs to India

At the peak of the global recession in early 2008, there were dire warnings of Western clients pulling out of outsourcing destinations such as China, the Philippines, and Malaysia. There were predictions that the powerhouse of global outsourcing, India, would take a major hit in terms of revenue and growth projections – especially in outsourcing of IT and ITES.

But in 2010, when the last fires of the financial crash have almost been doused, global job shipping, and job shipping to India, is still going strong.

In fact, quite recently, American computing and IT giant IBM announced that it will be scaling up its Business Process Outsourcing (BPO) operations by hiring at least 5,000 people in 2010. This is a vote of confidence in favor of Indian as well as global outsourcing.

IBM said it had faith in India’s service sector and the economy in general. While announcing plans for fresh hiring, it put particular emphasis on software-related services and HR activities of major manufacturing companies as the drivers of outsourcing spending in India in the next 12-24 months.

In spite of economic conditions being tough in 2008, IBM did not lay off a single employee in India. This is bound to have a relaxing effect on many companies, especially those in computer hardware and software, who might be vacillating between stay or flee mode.

Another U.S. firm, CSC, a global leader in providing technology-enabled business solutions and services, maintains that the job shipping business remains firm despite economic gloom.

According to CSC’s President Lemuel Lasher, the company is seeing a continued interest in outsourcing. Global enterprises continue to explore opportunities to bring in operational efficiencies and cut costs through job shipping, which has remained an enduring trend even in the downturn.

In October 2008, when the downturn was dying out, research companies dedicated to outsourcing carried out surveys of major clients. As per their research, India’s software and BPO industry is projected to grow by 15 percent annually till 2010-11 to log export revenues alone of $60-62 billion.

Many major management and technology consultants have even defined growth areas in international outsourcing. Financial services, manufacturing, health services, consumer end technology, chemical energy and natural resources, and the public sector will attract major outsourcing projects.

So one can say that it’s more or less established that the outsourcing business did take a dip, but has come back roaring – with many companies now thinking of how to get even more value for each dollar spent in this industry.

Within this debate and the continuing larger trend of this industry’s forward momentum, there’s an emergence of two sub-trends that are likely to define the future of spending and structure.

The first is technology and Internet-enabled technologies.

Experts say technology innovation, enabled by the Internet, will generate demand for outsourcing, and it’s the same thing that has sustained job shipping during protectionist campaigns in the U.S. and Europe.

So far as India is concerned, technologies in the form of cloud computing, web services, virtualization and new media, social networking, etc., and the demand for increasingly complex software and software-enabled services will most likely enable it to ride another outsourcing boom in another 2-3 years.

The second trend is related to businesses taking longer to evaluate operational activities and outsourcing relationships.

This is resulting in companies signing Service Level Agreements that are stricter and incorporate costs of job shipping as a key result area.

Life sciences IT outsourcing is a case in point when it comes to controlled and performance-based outsourcing.

Pharmaceutical companies are moving to send operations to countries including India, China, and Singapore as a cost-cutting measure. Despite the pharmaceutical industry increasingly rationalizing and rightsizing its job shipping, this still presents a substantial market.

New analysis from Frost & Sullivan, a leading US-based business consultancy, in Life Sciences-IT, finds that the market was worth $26.5 billion in 2008, and is estimated to reach $41.6 billion in 2015.

New analysis from Frost & Sullivan, a leading US-based business consultancy, in Life Sciences-IT, finds that the market was worth $26.5 billion in 2008, and is estimated to reach $41.6 billion in 2015.

Thus, the IT cost-efficiency compared to productivity of the business in exploring the cost, is now a corporate wide strategy for maximizing business productivity from costs.

Outsourcing, as a cost-advantage tactic pre-recession, is now morphing into a time-tested strategic tool that is learning to balance cost and value creation in favor of the latter.