The Hindu : Outsourcing by U.S. telcos offers new hope to Indian IT firms

Online edition of India's National Newspaper
Friday, Dec 06, 2002

Business

Business

Outsourcing by U.S. telcos offers new hope to Indian IT firms

By Preeti Mishra

BANGALORE DEC. 5. Derisked exposure. This manoeuvre was utilised by Indian IT companies to offset losses from the telecom sector, U.S. in particular. Over the first two quarters of fiscal 2002-03 and fiscal 2001, software companies witnessed a downward trend in revenues from the telecom sector.

Infosys Technologies, for instance, suffered a decline in telecom revenues at 15.4 per cent, 15.2 per cent and 14.6 per cent recorded during fiscal 2001-02, Q1 and Q2 of 2002. The reason: over-dependence on the U.S. market (both telecom equipment manufacturers and telecom service providers) for projects and profits.

During the Q2 announcements, Infosys's Head for Worldwide Sales and Senior Vice President, Basab Pradhan, reflected that U.S. telco firms had overshot IT-spends on broadband and other technologies, which would take some time to rectify. The implications for Indian firms: U.S. clients were cautious and projects were slow to come by.

However, during the same period (Q2 of 2002), Wipro Technologies showed a 5 per cent growth from its telecom business since `U.S. telcos have moved out of the uncertainty mode,' leading to a double deal for Wipro from Storage Tek and Ericcson, including one total outsourcing project.

And this is the new buzz that is expected to bring back the earnings for Indian software firms, offshore outsourcing projects both for software applications and (product) research and development.

The National Association of Software Service Companies' (Nasscom) VP, Research, Sunil Mehta, told The Hindu in an e-mail interview, "True, we are witnessing a trend where a majority of (U.S.) firms are considering offshoring part of the outsourcing strategy. In fact new outsourcing product development and maintenance assignments have shown an upward increase during the last one year". Besides this, business intelligence and business analytics applications such as churn analysis and credit scoring have enabled firms such as SAS to "cope with the downward telco market. Our intelligence solutions have helped firms to address issues such as lower costs and improve revenue performance," Bernard Ngoh, Business Consultant, Telecom, Business Solutions Group, Asia Pacific, SAS, said. Expectedly, SAS' revenues from the telecom segment at 15 per cent last year saw 209 telco clients and `increasing by the day'.

Putting matters in perspective, Mr. Ngoh said mature markets such as the U.S., Singapore and Australia due to increased acquisition costs as a result of aggressive marketing, price wars with thinning profit margins and increased customer expectations are no longer the markets to pursue. His message: Look homewards, meaning domestic markets like China and India with low tele-density and high spends on infrastructure which offer exciting and unchartered avenues for Indian firms.

Tentative opportunities for Indian firms range from new services identification, product conceptualisation, system designing, software development by identifying various application development requirements like CRM, chip designing to testing which could include functional, integration and system testing.

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