The global economy is taking a step towards recovery and large firms are becoming comfortable with spending. As the transition takes place, Peter Bendor-Samuel, CEO of Everest Group, a leading management, consulting and research firm feels that India will maintain its position as a top outsourcing destination, notwithstanding competition from other locations such as Philippines and China. ?The reason why buyers are investing in other countries is over concentration and involvement in one location?India. But these countries will not detract work from India. Therefore, we don?t see the central role of India changing,? he adds. In an interaction with Diksha Dutta, he discusses the changing dynamics in the outsourcing landscape. Excerpts:

How much effect will the US president Barack Obama?s protectionism policy have on the outsourcing business?

There will be very little effect and the reasons are many. The US president Obama has been talking about this to his core constituency, but there is no legislation to it. Moreover, his legislation is stuck with other issues right now. Healthcare, economy and immigration are the priorities on his long list of focus. Protectionism or legislation around outsourcing is far behind. Even if it is on the list, he might be able to take some initiatives with the Federal government. Still that will not slowdown the present scenario.

Indian government?s budget 2010 has not extended the tax holiday under the STPI scheme. Will companies shy away from coming to India?

It is always helpful to have a tax advantage. Not having it will definitely affect the profitability of doing business in India. This will cause a problem for companies to reinvest at a later stage. However, I don?t see any company extracting their investment out of India because of non-extension in tax holiday. India continues to attract investors because of outstanding talent pool at lower costs.

But there is a lot of offshoring to Philippines and China. How do you see India maintaining its position as a top outsourcing destination?

The reason why buyers are investing in other countries is over concentration and involvement in one location, that is, India. Firms are investing in potential locations like Philippines because it has a stable labour pool.

It is very unclear whether China will be a competitor to India or not. China has substantial linguistic and cultural issues. There is no meaningful acceleration in export work coming out of China inspite of many efforts by the Chinese. Therefore, we don?t see the central role of India changing.

But what will be the impact of emerging technologies like cloud and software as a service on the client market?

Cloud represents a new kind of service that allows providers to offer services in new areas. If we were to take an example, we have a lot of growth coming from new markets and exports in remote infrastructure management outsourcing. There is a limit in how far you can extend remote into an infrastructure. With remote infrastructure management, you can attack only a certain cost structure ?maybe one-third labour cost. But cloud creates a larger market and more control for the customers, so they are comfortable in using it.

Cloud is behind the thought of why Dell bought Perot, while Hewlett-Packard is driving EDS. Even IBM offerings are having its front in bringing cloud infrastructure services to the market. Cloud offers both challenges and opportunities for providers. Overall, it is a good change.

Consolidations between hardware and software companies (HP EDS, Dell-Perot) could also have a bearing on competitiveness in the market?

This movement will clearly affect the market. IBM first demonstrated the trend and it is evident that they successful in leveraging their hardware in software services. This created a competitive response from HP and now from Dell. Both these companies are formidable adversaries. They have existing customer relationships; they can combine services and hardware in innovative ways. With time, this will be a very significant development.

IBM has done the consolidation very well, but HP is now digesting EDS and driving into the next level of cloud.We haven?t seen the competitive tension unleashed yet?of a truly effective HP. But, Mark hurd is a superb CEO and we can look forward to a more competitive Hewlett-Packard this year. Dell is behind Hewlett-Packard in this process. It is going to take them a while to absorb, understand and adapt the business. Indian firms have targeted infrastructure as one of the growth areas and it is going to be tough for them with these consolidations. We will see HP and Dell becoming more competitive in application, especially HP. Infact, in many transactions that we have had with our clients, HP has been a low-cost bidder. This is a brand new phenomenon. Historically, TCS, Wipro or HCL would be the ones with low cost bids. Thus, HP has a strong brand and now a low cost advantage. It also represents that growth is going to be harder.

Will Indian IT firms feel the impact of these consolidations?

The major Indian IT firms (Infosys, TCS, Wipro, HCL) are well positioned to realise the challenge. The ones going to be pressurised are tier 2 and tier 3 firms. These firms will have a problem surviving in a competitive market place. As enterprise customers clearly prefer to shrink the number of providers?they are going to need HP equipment or IBM equipment, and hence will not have a provider portfolio without it.

I feel India wins either way as Hewlett-Packard and IBM are going to develop most of their work from their India operations. Therefore, the country is in a no lose proposition. In the past, we have seen only winners; now we are going to see some losers.

We also see the trend of IT-backed BPOs. What is the future of pure BPO players?

When we talk to customers, they are increasingly less concerned about having specialist BPO providers and specialist information technology outsourcing (ITO) providers. They are looking for synergies between the two. If you are asking me in five years time will we have BPO providers? I think we will have fewer specialist BPOs and there is going to be convergence. Wipro, Infosys, Cognizant (UBS captive acquisition) and TCS are clearly demonstrating that they can do BPO excellence.

As far as pure BPO players are concerned, take the case of Indian heritage BPO?Genpact is a machine. They have outstanding leadership, great processes and happy customers. But it does not mean that it cannot be combined with another firm. IT firms can easily absorb BPOs. If they want to be a major player, industry consolidation makes sense.

As the key economies are headed towards recovery now, what trends do you foresee in the global outsourcing Industry?

We are clearly coming out of recession and experiencing a nice bounce. The company spending is recovering. Companies will become more comfortable with outsourcing. As the market matures, decision-making is going to push down at a lower level?junior and middle levels who are price conscious. There is going to be more pressure on price. Last year, we saw some industry consolidation that is probably going to slowdown this year.It is going to be more outsourcing, but with fewer providers.