Sharing the Pain

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

I spent last week in India, meeting with leaders of several prominent India-based IT/BPO services companies.  I also met with a few reporters.  You can only imagine the number of times the same question was asked:  What’s the likely impact of the U.S. financial services crisis on the IT/BPO ecosystem in India?

Financial services firms have been among the most prolific employers of the India technical populace.  While their loss to bankruptcies and acquisition over the recent weeks doesn’t directly translate into job impact in India, the fact of the matter is that pain will be shared across the globe.

Without any specific attribution, I will tell you that there is a decidedly alarmed tone among the corporate leadership in India.  Forget about particular client relationships, such as amounts owed by Lehman Brothers to its service providers.  Rather, the concern is as much social as it is corporate.

The India-based IT/BPO economy has been growing without interruption since the fuel injected by the Y2K and Dot-Com coincidence.  These two adjacent eras fueled a dramatic rise in the employment of young, educated professionals.  The rising tide elevated captive offshore operations and outsourcing alike.

One senior executive of an India-based service provider offered the perspective that there has been little social groundwork laid in India for job displacements. If a captive operation closed its doors, the displaced workers will find themselves without much of a social support system.  Further, the stigma of seeking public assistance is something that the Indian culture doesn’t tolerate, especially among educated professionals.

On the bright side, recruiting plans are already being adjusted.  I suspect that new graduates will continue to be brought onboard and that displacement will occur more commonly among those who just began to enjoy the prosperity of a job in the outsourcing and offshoring industry. 

Globalization is a sword with two edges.

Comments

[Dinesh Goel]

Hi Peter, While this is true that there corporate leaders associated with outsourcing industry are anxious about the consequential impact on their businesses, the reality is that globalization wave for services is irreversible and is not dependent on any specific industry or country. In the short term, there may be pain for both providers as well as employees who will be impacted, but the trend is too powerful to impact the medium term growth of the industry. Globalization sword may have two edges, the other edge fortunately does not appear to be as sharp -good for everyone.

[Rahul]

Though the current financial crises is causing drop in confidence and comfort level, outsourcing and outsourcing industry will continue to grow, motivations would change. From innovation as it was during last 3-4 years of boom focus would shift back cost as the US financial industry faces doom. Indian IT industry has faced this situation twice in last 10 years - end of Y2K and end of DotCom. Fundamentals are still strong!!

[Phil Fersht]

Peter,

This credit squeeze and likely recession is going to hasten consolitation between several IT-BPO providers. Ultimately, cash is now king, and those providers which can help their clients streamline transition costs over the course of a contract will be successful. The amount of consolitaion we're seeing in the financial sector, and likely to have knock-on effects into other industries, which will drive new needs for global sourcing models. Complexity, disruption and increased globalization drive change, and outsourcing is one vehicle that can help many companies reach a global support infrastructure quickly.

While it is understandable that many of the Indian-HQed providers are concerned, this economic situation is going to create new opportunities for the well-resourced providers with scale and global delivery capability.

PF