When Backlash Is Good

New Delhi,Bangalore | Updated: Mar 22 2004, 05:30am hrs
The rules of the game for the Indian software service sector are set to change. The backlash in the US is expected to help evolve alternative outsourcing strategies and business models.

While clients in the US are asking for a larger local onshore component and rapid transition process (transferring work offshore), Indian firms are looking at higher outsourcing volumes, better realisation and possibly, marginally improved billing rates.

Experts at Gartner, KPMG, Wipro and Pricewaterhouse Coopers call this a silver lining in the outsourcing backlash clouds. They also point to the fact that India has gained a much larger mindshare among global CIOs thanks to the outsourcing outcry.

Besides, experts say, new outsourcing models are taking shapes. For example, twin-shore models (two delivery centres: one on-shore and one offshore). Another trend confirmed by alomst all experts eFE talked to is that Indian firms are now seriously looking at the non-US market, a desirable strategy to derisk their business.

Because of the backlash and visa restrictions, the service providers as well as clients want to employ more people locally. Moreover, clients are preferring a quicker transition process as they want to outsource silently with minimum disturbances, says research and consulting firm Gartner India country manager Partha Iyengar.

Moreover, the backlash is also leaving a peripheral impact on billing rates. The billing rates have already stopped going further down in the last six months and I expect the rates will soon start moving up because demand as well as cost of outsourcing services is going up again, adds Mr Iyengar.

Wipro Technologies president of enterprise solutions Sudip Banerjee declined to comment on billing rates.

He, however, agrees that the visa restrictions may result in individuals leaving the US sooner and bring work offhsore much faster (quicker transition process).

Since offshore margins are a few percentage points better than onsite margins, this could again be a stroke of luck for Indian IT services companies, as it could help realisations improve, says Mr Banerjee adding that India has certainly gained much publicity because of the backlash.

Agreeing that the backlash has helped in increasing awareness about India and outsourcing, KPMG executive director R Venkatraman said that the new business models are evolving to balance the onsite and offshore components of outsourcing.

The billing rates in the IT services market may go up marginally because of overall upturn in the outsourcing business but the trend may not be the same in the BPO business, he adds.

The Indian companies have seriously started looking at other markets now. And, I hope that the Indian market will also receive due attention from them now, says PriceWaterhouseCoopers (PWC) executive director Ambarish Das Gupta.

The billing rates may go up marginally only in the software sector but not in BPO, he adds.

Techspan managing director Harsh Singh Lohit sees a positive fallout of the outsourcing backlash in that India and the US are acknowledging their interdependence on each other in the infotech business.

This will help both of them to be more sensitive about their trade policies, he adds. He was, however, more cautious about billing rates going up.

I do not think that there is a scope for billing rates to go up. However, the service providers can command better price by offering domain expertise and better onsite-offshore integration capabilities, adds Mr Lohit.