Wipro released its revenue results for the second quarter last week. Perhaps not surprisingly it reported that its IT services revenue in U.S. dollar terms had declined by four percent to US$1.1 billion in the quarter against the same quarter last year.
It also revealed that the company's IT services revenue in Indian Rupees for the quarter was higher by five percent from revenue in the same quarter a year ago, because of exchange rate gains. These gains will have an obvious negative effect on offshoring contracts to the country. If one of India’s largest outsourcing providers is experiencing a plunge in revenues, what indication does this have for the omnipotent Indian outsourcing industry as a whole?
It is not only the fate of Wipro that has experienced ramifications from the all-consuming economic depression. Tata Consultancy Services, India's largest outsourcer reported earlier this month a fall in revenue. Similarly, Infosys Technologies, India's second largest outsourcer, reported a decline in revenue. It seems it is a fruitless pursuit when trying to avoid the recession’s unavoidable hold, even in an industry that’s primary focus is to cut costs and increase efficiency.
Ironically it was the spectacular end of the dotcom boom which resulted in the rise of offshoring IT services to lower-cost destinations. Dr Roger Newman, European vice president, Mahindra Satayam concurred; ‘This gave real impetus to the Offshoring boom’. This recession, however, is not treating the offshoring industry so kindly.
David Skinner, a London partner at Morrison & Foerster’s Global Sourcing group explained that ‘Indian providers have suffered an offshoring backlash from the USA and UK because some companies do not want to be seen to be exporting US/UK jobs to India’. He also highlighted the Satyam scandal as contributing to the negative view held by the West about offshoring.
The apparent decline in offshoring processes to India has also resulted in the emergence of new sourcing trends. Converged solutions specialist, Intrinsic Technology Ltd (ITL), has seen a 40 percent increase in companies choosing to implement permanent home-working for employees.
Dave Griffiths, head of the ITL Unified Communications Business Unit, commented on this trend: “Many businesses looking to avoid large overheads and promote green credentials are turning to homeshoring instead of offshore outsourcing as it offers improved manageability.”
All though it seems that all of this doom and gloom is contributing to similar negative predictions about Indian outsourcing circulating the press, there is still a glimmer of hope. Technology Partners International (TPI), an outsourcing consultancy, reported earlier this month that there is pent-up demand in the global outsourcing market that has been deferring decisions in the economic recession. Providentially, TPI expects that the market will begin to improve over the next six to nine months.
Skinner agreed with positive predictions explaining that ‘in ITO, India remains very highly skilled and well priced and so deals continue to be won there’. He continued, ‘Indian companies are also winning more Indian local work and trying to expand their operations in other countries such as China’.
It does look as though the economic downturn has had an unavoidable negative effect on the Indian outsourcing industry. It has also resulted in the diversification of the industry and its offshorings. However, although change is inevitable, the pessimism that has plagued the giants of Indian outsourcing’s revenues will be short lived. The Wipro effect is just a spot in a vast ocean, an ocean that is gaining scope and depth.
