Outsourcing Pullback
08.27.08, 12:30 PM ETLONDON - A day after India's Infosys announced its first British acquisition, telecom firm BT Group is said to be mulling a sale of its stake in Tech Mahindra, an IT outsourcing joint venture. It's yet another sign that the dynamics of the sector are changing rapidly, amid a slowdown in spending on sourcing, particularly in the U.S.
A representative for BT declined to comment on a report that it was considering selling its 31.0% stake in Pune, India-based Tech Mahindra, a 95.4 billion rupee ($2.2 billion) IT outsourcing joint venture with truck maker Mahindra and Mahindra. "BT has operations and investments worldwide, which we regularly review," he told Forbes.com.
Tech Mahindra investors shrugged off the report, with its shares closing down 1.7%, or 13 Indian rupees (29 cents), at 772.65 Indian rupees ($17.59), Wednesday, against a 1.3% drop in the Sensex Index.
There are some reasons to think that BT would want to cling on to its stake: BT Global Services outsources some of its work to Tech Mahindra. In July, BT signed a $700.0 million contract with Tech Mahindra, on top of a $300.0 million contract last year.
Still, a number of multinationals have begun to pack up their own outsourcing divisions. In July, British insurer Aviva announced that it was selling its offshore services operations to WNS for 115.0 million pounds ($210.8 million), which would continue to provide the services.
Amid the downturn in the global economy, the once-booming IT services outsourcing sector has begun to look decidedly less attractive as American companies cut back spending. Infosys' acquisition of Axon has been seen as an attempt, not only to expand its SAP consultancy expertise but also to move away from its dependence on the American market. A sign of the more downbeat market was the significant decline in the number of new employees taken on by Infosys, which fell to 25,000 for 2008 from 32,000 a year earlier. Last month, reporting a 21.0% rise in first-quarter net profits, Infosys warned that IT spending would be impacted in the short term.
However, analysts are less gloomy about the long-term prospects. In a note published in May, analysts at ABN Amro said that though revenues in the first half of 2009 for Indian IT services companies would be "muted," they expected revenues for the year to "match or exceed" 2008 figures.
BT set up the joint venture with Mahindra & Mahindra back in 1986. BT did not participate in an initial public offering of the venture two years ago; as a result, its stake fell by 6.0%, to 37.0%.
08.27.08, 12:30 PM ETLONDON - A day after India's Infosys announced its first British acquisition, telecom firm BT Group is said to be mulling a sale of its stake in Tech Mahindra, an IT outsourcing joint venture. It's yet another sign that the dynamics of the sector are changing rapidly, amid a slowdown in spending on sourcing, particularly in the U.S.
A representative for BT declined to comment on a report that it was considering selling its 31.0% stake in Pune, India-based Tech Mahindra, a 95.4 billion rupee ($2.2 billion) IT outsourcing joint venture with truck maker Mahindra and Mahindra. "BT has operations and investments worldwide, which we regularly review," he told Forbes.com.
Tech Mahindra investors shrugged off the report, with its shares closing down 1.7%, or 13 Indian rupees (29 cents), at 772.65 Indian rupees ($17.59), Wednesday, against a 1.3% drop in the Sensex Index.
There are some reasons to think that BT would want to cling on to its stake: BT Global Services outsources some of its work to Tech Mahindra. In July, BT signed a $700.0 million contract with Tech Mahindra, on top of a $300.0 million contract last year.
Still, a number of multinationals have begun to pack up their own outsourcing divisions. In July, British insurer Aviva announced that it was selling its offshore services operations to WNS for 115.0 million pounds ($210.8 million), which would continue to provide the services.
Amid the downturn in the global economy, the once-booming IT services outsourcing sector has begun to look decidedly less attractive as American companies cut back spending. Infosys' acquisition of Axon has been seen as an attempt, not only to expand its SAP consultancy expertise but also to move away from its dependence on the American market. A sign of the more downbeat market was the significant decline in the number of new employees taken on by Infosys, which fell to 25,000 for 2008 from 32,000 a year earlier. Last month, reporting a 21.0% rise in first-quarter net profits, Infosys warned that IT spending would be impacted in the short term.
However, analysts are less gloomy about the long-term prospects. In a note published in May, analysts at ABN Amro said that though revenues in the first half of 2009 for Indian IT services companies would be "muted," they expected revenues for the year to "match or exceed" 2008 figures.
BT set up the joint venture with Mahindra & Mahindra back in 1986. BT did not participate in an initial public offering of the venture two years ago; as a result, its stake fell by 6.0%, to 37.0%.
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