Barack Obama has once again raised the bogey of outsourcing at a time when the banking, financial services and insurance (BFSI) sector is on the rebound in the US, contributing significantly to the fortunes of Indian software companies as seen in the results of quarter ended December. The populist pitch about moving jobs from Bangalore to Buffalo, taking tax preferences away from firms that outsource and giving tax preferences to firms that create jobs in the US was first raised last year. The IT industry in India continues to remain optimistic, as companies in US will still need cost-effective services. Numerous studies have reiterated the fact that the money saved from outsourcing could be invested in research and development by companies, which could then be reinvested to create high-end jobs in the US. A recent McKinsey study estimates that 34% of global Fortune 500 companies expect to offshore some of their IT infrastructure services over the next three years, especially to India, and companies can save as much as $500 million in wage bills every year. That?s a significant amount of money given the challenging times companies in the US have seen in the last two years.
For US firms, India still remains the most attractive destination for outsourcing. A Boston Consulting Group survey of global companies found that error rates in accounting were reduced by 60% when the work was outsourced to India and companies have been able to save about 40% for most services by outsourcing to India because of access to a large talent pool, better employee productivity and low taxes. It remains to be seen whether Indian software companies can still remain competitive if their clients have to pay higher taxes. Indian software companies, even though the overall macro drivers are strong and outsourcing still remains a compelling proposition, will have to gear up to move up the value chain in IT and BPO services if they have to stay ahead of the curve. They will have to invest to develop patented software for the global markets and look for new opportunities in infrastructure management services in Europe, Asia and Middle East instead of their overdependence on the BFSI segment in the US, which accounts for about 60% of their current revenue.
