What's New in Outsourcing

In India, Global Crisis Is Not All Bad News
One Industry Sees Opportunities, Lessons

By Rama Lakshmi
Washington Post Foreign Service
Sunday, October 26, 2008; A22

GURGAON, India -- In the mortgage crisis that has enveloped much of the Western world in recent weeks, Manoj Malhotra's outsourcing company sees an enhanced business opportunity.

As lenders in the United States and Europe move to firm up loans, sharpening quality control and fraud verification, the Gurgaon-based company that Malhotra heads has designed a Web program to help them do just that.

"The loan processing industry needs less of manual intervention and subjectivity and more of technology-based solutions, especially in the current climate," said Malhotra, who launched the program at a mortgage industry conference in San Francisco last week.

His company, Salient Business Solutions, is not the only one in this country to see opportunities and lessons in the global financial meltdown.

Indians working in information technology and outsourcing have long shared a joke: "When America sneezes, our industry will catch a cold here in India."

But as the credit crisis drags down the U.S. economy, India's booming technology and outsourcing industry is taking steps to boost its resistance to infection. Taking the crisis as a warning, it is hastening efforts to reduce dependence on U.S. and European companies, scale up high-end products and services, find new ways of billing and move beyond merely leveraging the low-cost, English-speaker advantage.

About 60 percent of India's outsourcing business comes from the United States, and 40 percent of the work is in the banking, insurance and financial services sectors.

"We now have to look at other regions of the world, like Japan, the Middle East and the Nordic countries," said Som Mittal, president of the National Association of Software and Services Companies, or Nasscom. "The current crisis has sharpened our realization that we cannot put all our eggs in the U.S. basket."

The industry revised an estimate of 30 percent annual growth to 24 percent this year. But it has undergone a transformation in the past five years, and many observers say that will help provide a cushion in the U.S. crisis. Besides trying to diversify into other parts of the world, India's outsourcing industry has tried to wean itself from the banking and finance industries, attracting work from American health-care, aviation and utilities companies.

Perhaps the biggest and most sustaining change has been its climb up the value chain of services in recent years -- from back-office support functions to what the industry calls "knowledge process outsourcing," which includes legal services, hardware network management and engineering design.

The ubiquitous tech-support and customer-service call centers and software coding services are, in fact, considered the low-end level of the industry, although they still constitute about 60 percent of India's offshoring business.

One of the country's biggest technology companies, Bangalore-based Infosys, has been making a deliberate effort to scale back assembly-line software development and ramp up more technically complex services such as engineering design.

"It is a strategic shift we began making some years ago," said S. Gopalakrishnan, the company's chief executive officer. "Our efforts to expand our services to include high-end consulting, systems management and product engineering and design work may help weather the storm."

Infosys's fastest-growing business is in product and machine design for American aerospace, automobile and construction firms, but the company has also set up consulting businesses in China, the Middle East and Mexico.

Meanwhile, the legal services branch of India's outsourcing industry is experiencing a boost as a direct result of the global crisis, as bankruptcies, mergers and acquisitions proliferate and demand grows for help with litigation.

"It is difficult to find lawyers now -- there is a shortage," said Anand Maheshwari, director of Intrust Global eServices. "This wasn't the case three months ago. The litigation work is booming in this chaos and crisis."

Still, the industry has not escaped ill effects of the crisis. Gopalakrishnan cut back Infosys's revenue estimate for the year by about 4 percent. He said his clients have slowed launching new projects and investments. Infosys is offering a pay-as-you-use business model to clients faced with a cash crunch. Under this model, the client will pay only for the software service and not for hardware and maintenance of the program.

To cut costs for their clients, many in the industry are thinking of shifting away from the seven big, booming and expensive Indian cities where 90 percent of offices are located. The industry forum, Nasscom, has urged its member businesses to go deeper into the hinterlands and identified 43 second-tier cities they might consider.

Fresh hiring by the industry has slowed in the past three months, although there have been no layoffs yet.

"There is already a drop of 20 percent in hiring from engineering campuses. Nobody is making big hiring commitments," said Pratik Kumar, executive vice president for human resources at Wipro, a large information technology and outsourcing company. "Companies will no longer maintain large benches," he said, referring to the practice of keeping engineers on standby for anticipated offshoring work.

Many new graduates are being told to wait longer before they can step into their first jobs.

For engineering graduate Pooja Shetty, 22, the wait will be almost a year. She was offered a job, but now the software company wants her to report for work in April.

"The company said there is no immediate requirement," Shetty said. "There are very few jobs now. I have no choice but to wait. This is the only thing we talk about in our Yahoo friends group these days."