The Hindu Business Line : US turmoil may not affect outsourcing

Bangalore/Chennai, Sept. 23 Regulatory intervention in US financial institutions such as American International Group (AIG), Freddie Mac and Fannie Mae to avert insolvency, is unlikely to alter the outsourcing landscape for Indian vendors.

Despite being controlled by the US government, these entities may continue to take independent outsourcing decisions looking for technology solutions to cut costs.

“It would be a wild guess to say as to how these entities would behave as US tax payer’s money is used for bail-outs,” said Mr Vineet Nayyar, CEO, HCL Technologies Ltd, the country’s fifth largest software exporter.

“However, if these companies resort to in-sourcing, it will be a very expensive decision as many of them have already outsourced their technology functions” Mr Nayyar said.

Backlash issues

Traditionally, the Indian IT vendors have faced issues working with the state-owned agencies in the US mainly due to the backlash associated with job cuts from such government deals. As a result, the exposure to government sector has been minimal accounting for less than five per cent of revenues for many of the Indian vendors.

“It is too early to comment,” said Mr Siddarth Pai, Managing Director of outsourcing firm TPI’s India operations, on the possible impact of the government control of some financial instituionss. “At the same time, it will be difficult to move those (outsourced) operations back,” Mr Pai said.

Indian IT vendors earn over a third of their revenues from the banking and financial services sector and US accounts for more than half of their total revenues.

“I feel the government is not going to be involved in the decision making process such as outsourcing of technology operations,” said Mr Avinash Vashishta, CEO of Tholons Inc, an advisory firm.

Moreover, there could be selective gains for Indian vendors as consolidation happens in the US financial services sector, Mr Vashistha said. Further, IT buying could increase as investment banks such as Morgan Stanley and Goldman Sachs turn into commercial banks.

Polaris Software Lab Ltd, one of vendors of the troubled-AIG, signed a Global Professional Services Agreement (PSA) with the American firm in August, which it sees as a potential revenue source for future.

“The PSA as on date is valid in its original form. We read the current situation as an opportunity as AIG will be looking for technology solutions led with cost cutting,” said Mr R. Shrikanth, Chief Financial Officer, Polaris.

Overseas buys

Large vendors such as Wipro and Infosys are expanding their overseas delivery footprint by acquiring local companies that should help them bid for government contracts going forward.

Wipro acquired Infocrossing Inc, the New Jersey-based infrastructure management firm, in a $600 million deal last year that had exposure to government agencies. Infosys’ proposed acquisition of Axon should help the company’s improve its exposure to government deals going forward, analysts said.

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