True, India's biggest outsourcing firms continue to rake in the profits, at least judging by the latest earnings season. The top five players -- Tata Consultancy Services, Infosys, Wipro, Cognizant, and Satyam -- reported robust profits in the quarter ended June, 2007. And executives generally forecast strong growth ahead.
"We're very happy with having beaten the forecast," said CEO and Managing Director S. Ramadorai of the $3.1 billion Tata Consultancy Services in Bombay. "TCS, as the leader, is doing well." Ramadorai predicts $60 billion in tech-services exports for the industry by 2010, nearly twice the current $35 billion, plus $20 billion in revenue from domestic business.
Yet behind this show of supreme confidence lurks deep unease. A confluence of adversities is at play. They include an appreciating rupee that is cutting into earnings, a severe shortage of qualified talent at home, and a cap on H-1B worker visas to the U.S., along with pre-2008 election protectionism threats.
On top of that, there is the end of preferential industry tax benefits at home and the growing success of multinational competitors such as Accenture and IBM on Indian turf. Perhaps most challenging for the Indian players is the pressing need to move up the ladder into business consulting, a domain that companies such as IBM have dominated for decades. Indian outsourcing firms need to invest heavily to secure a position in this arena, and that will erode their fat profits, at least in the short term.
For the first time, industry insiders are asking: Is the outsourcing game over for Bangalore? "The Indian I.T. companies have had an unusually long run in profits and growth," says Siddharth Pai, partner and managing director of global tech advisory TPI Advisory Services India. But that's "an anomaly," he adds. "As they mature, they can't expect the same kinds of returns."
And mature they must. For the past decade, Indian software-services firms, which pioneered the business of delivering tech services to the developed world from India efficiently and at 40% of the cost of companies such as IBM, have grown exponentially. Revenues exploded from a mere $1 billion in 1997 to $35 billion in 2007.
feature on the future of Indian outsourcing. While healthy revenues and profits are still prevalent, many challenges now confront these firms. To me, the greatest challenge is that multinational firms like IBM are now aiming to "cut the middleman" by setting up shop in India themselves. In addition, the strong rupee doesn't help things. Here is an excerpt, though the entire article is well worth going through if you're interested in the topic: