FT : Indian Outsourcers Expecting “Crisis Dividend”

Wednesday, September 30, 2009

After facing one of their toughest years on record over the past 12 months, Indian IT companies are expecting a turnround in business as western financial groups look to outsourcing to help recover from the credit crisis.  Banks in developed countries are now seeking to implement new IT platforms to consolidate recent acquisitions.  At the same time, legislative changes in the US are expected to force through cost cuts in the credit card industry, and potentially in healthcare, that could benefit outsourcing groups.  “We are seeing banks ‘re-platforming’ at the moment,” said Steve Cardell, president of enterprise applications and consulting at HCL Technologies, which paid £440m ($700m) for Axon of the UK last year in the Indian outsourcing industry’s biggest overseas takeover.  “Partly because there were a lot of acquisitions that happened during the credit crunch, suddenly there’s a lot of work around merger integration in financial services.”

India’s outsourcing companies were hard hit by the first phase of the global economic crisis, when banks put on hold outsourcing deals, ranging from the implementation of new software to contracting out business processes such as handling mortgage applications.  Industry leaders such as Infosys Technologies, Wipro and Tata Consultancy Services reduced headcount, in contrast to their pre-crisis workforce growth rates of about 30% a year.  But most Indian IT companies are now predicting that the wave of cost-cutting that inevitably follows a recession will eventually result in a “crisis dividend” for their industry – increased outsourcing to countries such as India, where costs are lower.  US president Barack Obama’s crackdown on credit card practices and proposals for healthcare reforms are both expected to result in more work for Indian outsourcing companies.  Markets have cottoned onto the change in sentiment.  Indian IT stocks have risen 85% this year, beating a 63% rise in the benchmark Bombay Stock Exchange Sensex Index.  Ananda Mukerji, chief executive at Firstsource Solutions, predicted that rules to be introduced in the US next year – which would cap the interest rates and fees that can be charged on credit cards – would lead to greater outsourcing.  “It’s going to reduce the revenue opportunities for a lot of credit card issuers, so all the issuers are trying to figure out what the model is going to be,” he said.  Mr Mukerji said the other potential windfall for Indian business process outsourcing groups would be healthcare reform, which, if the proposed reforms are passed, could result in pressure on hospitals to reduce costs and a push to bring more people under the insurance net.  But analysts caution that it may take several quarters before these structural changes in clients’ business benefit Indian IT companies’ bottom lines.

Reference : http://www.ft.com/cms/s/0/6e3e12ba-ad17-11de-9caf-00144feabdc0.html

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