The Hindu Business Line : India advantage thinning: Forrester

Food for thought
15 per cent of revenues will be at risk in the first half of 2008.
There is an increasing chorus of dissatisfaction against Indian vendors.
Lack of alternative geographies keeps India going, in spite of growing dissent

Our Bureau

Bangalore, Feb. 12 The broad mood in the offshoring industry is a bit dull, in the wake of the mild economic recession in the US.

A pall of gloom and uncertainty will loom over the future too, at least for the first half of 2008, according to the Forrester report on offshoring. The report also has a word of caution for India – the India advantage is thinning as clients express concerns over the functioning of Indian vendors.

The uncertainty in 2008 will centre around the offshoring budgets of clients. Discretionary spends will get cut.

There will be slowing growth for US purchase of IT goods and services in 2008 (from $537 billion in 2007 to $162 billion in 2008).

Total IT purchase will change 2.8 per cent in 2008 from prior year (it was 6.2 per cent in 2007).

“New projects may suffer. About 5-6 per cent of new business may be hampered in H1 of 2008. 15 per cent of revenues will be at risk. There will be a slowdown in larger deals in the first half. H1 will be tough,” pronounces Mr Sudin Apte, Senior Analyst & Country Head – India, Forrester. But things will improve in H2. “There will be potential acceleration in Q4,” he adds.

Clients’ response

So, what are clients doing to handle recession? They have started rewarding outcome and not efforts and efficiency, says Mr Apte. They are issuing penalties for excessive staff turnaround and providers’ inability to staff projects. Clients are also periodically assessing providers’ progress to keep them on leash.

Going ahead, cash-strapped clients will exit offshore investments in captives and vendors. From the vendors’ point of view, MNCs will continue growing the India base to help US clients cut costs.

However, the quality advantage of offshore providers versus large onshore services firms is diminishing. Offshore providers seem to be losing out on the value-for-money count as well.

Reasons for dissatisfaction

There is “an increasing chorus of dissatisfaction” against Indian vendors. Reasons range from the obvious to the surprising! They include mounting costs (such as power, real estate and hotel room rates), poor infrastructure, unrealistic career expectations of Indian staffers, attrition, changed political agenda that has stopped pampering the sector, natural disasters, social tension, disruption of work due to riots, and terrorism.

Increasing complexity of work has exposed the Indian workforce. Skill availability has gone down. Education and skill-building initiatives have not taken off the ground.

But lack of alternative geographies keeps India going, in spite of growing dissent, says Mr Apte. Indian vendors can take heart from the fact that any initiative to look at alternative geographies is only in the discussion stage. “There is lot of discussion, very little action.” But that doesn’t imply Indian vendors can sit back.

Challenges

Indian vendors should ramp up and focus on higher-growth accounts. Also, “specialisation counters competition and bolsters differentiation,” says Mr Apte.

The offshoring game has changed a lot today but lot of Indian vendors have not ramped up their strategy to meet the challenges, says Mr Apte. They need to project more than just the low cost advantage. They need a “dramatic front-end to articulate themselves,” says Mr Apte.

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