Credit crisis: Offshoring under threat?

A top-ranked US analyst has said the events that shook Wall Street last week spell the end of the golden age of offshoring for India. Days after Wall Steet’s collapse, vice-president and principal analyst with US research firm Forrester, John McCarthy, said the scale of the crisis had rendered all previous studies including Forrester’s own survey, released earlier this month, redundant, and that Indian IT providers should prepare for slower growth and lower profits. “It is naive to say an economic slowdown is good because cost-cutting will lead to higher offshoring. This is no longer a recession, it is fundamental a re-structuring of financial services that is taking place,” he told ET from Boston, Massachusetts. Many analysts, including research firm, Gartner, had said there could be higher opportunities for Indian companies and for offshoring. However, Mr McCarthy said there was already an impression that the financial services sector was over-staffed. Mergers and acquisitions and the conversion of large investment banks into commercial banks meant there would be fewer employees, fewer vendors and less extravagant IT budgets.

eBay may cut 1,500 jobs

US online auctioneer eBay Inc may cut 1,500 jobs, according to an article in Barron's weekly, citing a report published last week by investment-research firm Wedge Partners. The Wedge report, according to Barron's, said eBay's business was "deteriorating" and the company was readying layoffs that could affect 10 per cent of its 15,000 employees. Wedge Partners and eBay could not immediately be reached for comment.

Now, TCS postpones promotions

It seems the financial turmoil sweeping the global markets has finally started hitting the Indian software industry. After a number of murmurs about impending job cuts and delayed appointment letters across top tech companies, the country's No. 1 IT services company Tata Consultancy Services has delayed promotions. Sources told Indiatimes Infotech that in a message on the company's internal website on Monday, the company's global HR head and vice president Ajoy Mukherjee, communicated the company's decision to employees. According to the note, Mukherjee has said that "considering the recent upheavals in the US financial markets that had global impact on the financial sector, we feel it would be prudent to wait for clarity in the business environment before we take a decision on promotions. As a result, the promotions will not be effected in second quarter this year." However, the company communique added that TCS had completed the assessment process of selecting the individuals eligible for promotions, but was holding back promotions in view of the "current business environment which remains challenging and is expected to remain so for the near future." When contacted by Indiatimes Infotech for their version of the news, the company's PR representative said that the company's spokesmen are traveling hence cannot be contacted. But sources told Indiatimes Infotech that the process for most employees had been finished way back itself, and they had actually been expecting the good news for the past few weeks. The letters, they pointed out, had been given out by this time last year. The catastrophic events overtaking global financial majors are expected to dent the revenues of Indian outsourcing companies, both in terms of the expected business and contracts they have already undertaken. Many of the affected investment banks are expected to pull out of some of their outsourcing contracts. Analysts are of the opinion that TCS is likely to be hardest hit by the US financial crisis because of its significant exposure to Merrill Lynch, which analysts say ranks among top five financial services clients.

Satyam, Wipro, TCS & Infosys go slow on hiring, defer joining dates

Recruitments, which are a strong indicator of the expected business for software firms, have suffered a significant drop while placements for the coming season are reflecting the uncertainty in global financial markets. The top four IT exporters have nearly frozen hiring of experienced professionals and have deferred the joining dates for many freshers, analysts said. Around a week or two back, number one software exporter Tata Consultancy Services (TCS) reportedly sent out letters postponing joining dates by six to nine months, people familiar with the situation said. “This quarter, we don’t immediately see a drop in revenues. But we expect the next quarter to show flat to negative growth for some of the top firms,” said an IT analyst, adding that TCS had the highest exposure to financial services among the top tier firms with around 43-44 % of its revenues coming from financial services. According to a survey conducted by brokerage CLSA in 45 colleges, the class of 2009 has received 17.4% lesser job offers compared to the previous year’s figures. Offers from Satyam and Wipro were about 33-50 % lower while that of TCS and Infosys Technologies were 16% and 12% lower, respectively. Regarding the class of 2008, the study noted, “Companies have pushed out the joining dates for the graduating class of 2008. Admittedly, the class of 2008 was given job offers in 2007, pre-slowdown and companies have ostensibly over-hired relative to demand.”

IT INDUSTRY UPDATES

International economic slowdown will not affect Indian software majors:

The international economic slowdown would not affect Indian software majors as the domestic market is growing at a good pace and the country has been recognised by multinational companies as one having global delivery capability, a top official of Birlasoft (India) Ltd said. Venkatesan Seshadri, vice president of the company, told reporters here that Indian companies now doing consultancy would be among the top 20 global companies in 15 years. The challenges facing organisations was the economic impact, GDP, competitiveness, availability of quality infrastructure and the need to have global competitive skills, he said. Stating that it was incorrect to say that the IT industry had slowed down or reached saturation point, he said there was uncertainty in the market. "We are waiting and watching. India's share in the software market is meagre and hence there is scope for more and more development"

Meltdown may mean more business for LPOs:
Even as the global meltdown casts its spell on India, there is one sector which could see more action in the coming months. Legal process outsourcing (LPO) is set to witness a surge in business, with more corporate houses and investment banks from the US turning to them for legal advise. Bankruptcy filings in the US have gone up in the last couple of months and that inturn has raised the demand for lawyers. Corporate houses in the US are increasingly shifting their credit crisis-related work to lawyers in India as it is a more viable and cost-effective option. Leading LPOs such as Pangea3, Quislex and Mindcrest, among others, have seen a significant jump in the number of outsourced projects in the last few months. “The demand for LPOs is on the rise as legal work related to bankruptcies in the global market has increased,” said Pangea3 VP Legal Services Antony Alex. Industry experts said the turmoil in the financial services sector is driving more legal outsourcing to India. “Since appointing a lawyer is expensive overseas, specially in the US and UK, it is natural for corporates to shift higher value work to India at this time of crisis,” said a source.

Goldman, Morgan's switch to banks means more biz for IT cos:

When Goldman Sachs and Morgan Stanley gave up their independent investment banking status, it gave reason for Indian IT vendors to smile. For, more regulations, as a commercial bank, could mean more business for software service providers. While the collapse of the other investment banks in the past few months sent jitters among the software vendors in India, government control of Goldman Sachs and Morgan Stanley gave the Indian IT some reasons to cheer. Because, morphing into a full-fledged bank not only implies greater access to funds but also more regulation. And tighter regulation could mean tweaking their existing technology by adding more software and processes. They would have to adopt systems in areas such as retail banking, consumer banking, cards and corporate banking.