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US turmoil to widen outsourcing blues

business Updated: Sep 17, 2008 21:45 IST
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The stunning fall of Wall Street icon Lehman Brothers could have major consequences for India’s outsourcing industry as global banking and financial majors realign costs to turn the corner and prevent going bust.

Analysts and industry leaders said the spectre of lower revenue, job loss and poorer salary hikes loomed large over India’s information technology companies, many of which thrive on lucrative contracts from western financial giants. The distress among the latter appears to be getting worse.

“About 45-50 per cent of the these firms’ revenues come from the banking and financial service industries and revenues will be negatively impacted,” said Amitabh Chakraborty, president Equities, Religare Enterprises.

The National Association of Software and Service Companies or Nasscom said the impact would be short term and company specific.

The news of bankruptcy at Lehman, the world's fourth largest investment bank, and fears that the malaise could spread to other financial firms come at a time when India's IT and BPO companies are already reeling under pressures to cut service fees and tackle wage inflation.

Infosys, Tata Consultancy Services (TCS) and Satyam Computers did not respond to queries seeking their assessment of how the new developments would affect their business.

Raman Roy, chairman of business process outsourcing company Quatrro, said the financial turmoil in the US and its ripple effect in other parts of the world would result in a delay in new contracts coming the way of India's outsourcing industry.

“The time to take decisions by clients would go up and to that extent it could have an impact,” Roy said. The meltdown in the US could result in lengthened sales cycles and delayed projects, but not worsen dramatically, said Partha Iyengar, vice president, of IT research firm Gartner.

The immediate impact is being felt in human resource management.

Many of the troubled finance companies also operate captive BPO units in India. Chances these would be shut down, as it is already happening with Lehman Brothers that emoploys some 2,500 people in Mumbai for handling backoffice work.