IT outsourcing companies bet on Obama’s healthcare reform to boost revenue growth

By: | Updated: July 8, 2015 3:02 PM

India's IT outsourcing firms are betting on US President Barack Obama's healthcare reform to rev up revenue growth which is slowing as the $146 billion industry's key financial and manufacturing clients spend less on software services.

it-780The United States is the biggest market for the outsourcing industry, which is dominated by Tata Consultancy Services Ltd , Infosys Ltd and Wipro Ltd.

India’s IT outsourcing firms are betting on US President Barack Obama’s healthcare reform to rev up revenue growth which is slowing as the $146 billion industry’s key financial and manufacturing clients spend less on software services.

The United States is the biggest market for the outsourcing industry, which is dominated by Tata Consultancy Services Ltd , Infosys Ltd and Wipro Ltd.

It also accounts for 90 per cent of all healthcare related contracts, which researchers Everest Group expect to more than double to about $68 billion in 2020 from nearly $31 billion two years ago, largely due to “Obamacare”.

“In terms of technology maturity, other sectors like manufacturing, banking, are a lot more mature than healthcare,” said Rajib Bhattacharya, head of a healthcare software unit that India’s fifth largest outsourcing firm Tech Mahindra Ltd set up last month.

“I think it’s a huge opportunity,” he recently told Reuters.

Average revenue growth for India’s top five outsourcing firms by market value is expected to slow to 13.3 per cent year-on-year in the quarter that ended June 30 from 18.6 per cent growth in the same year-ago period, Thomson Reuters data shows.

The slowdown is largely due to banks, manufacturers and financial firms cutting down on IT spending amid uncertain prospects for the global economy.

By contrast, US states have to upgrade healthcare programs and build online exchanges where buyers can evaluate and select service providers under Obamacare, creating outsourcing opportunities worth hundreds of millions of dollars.

Health care deals currently account for less than 10 per cent of the sales of market leader TCS, which will be the first outsourcing firm to report first-quarter earnings on Thursday.

Last year, its annual revenue growth shrank to 13.6 per cent from almost 30 per cent growth in the previous year, the Reuters data shows. Rival Infosys also reported slower annual revenue growth of 6.9 per cent from 24.2 per cent in 2013/14.

Both TCS and Infosys declined to comment ahead of their quarterly results.

Researchers Gartner estimate global IT spending will this year fall 5.5 per cent from a year ago to $3.5 trillion, which means competition for booming sectors like healthcare will be fierce.

Analysts, however, say Indian outsourcing firms must address US concerns about privacy, and spell out how they intend to protect sensitive medical and personal data for US patients that will be processed half a world away in India.

“The best chance that Indian companies will have is to make acquisitions of companies that specialize in healthcare technologies,” said Kevin Parikh, chief executive of US-based management consulting firm Avasant.

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