Outsourcing honeymoon is over, but the marriage is still strong
While the simple fact is that India can and probably will take up the matter as a trade barrier at the World Trade Organisation (WTO), it is also pertinent to look at some of the hard facts on IT outsourcing, writes N Madhavan.india Updated: Sep 12, 2010 23:02 IST
It was American humourist Mark Twain, who once famously said: "The rumours of my death are greatly exaggerated."
That thought came to mind last week after President Obama made speeches reinforcing a Ohio state government order against outsourcing of IT services to firms that create jobs outside the US, while also thundering against tax breaks to firms that ship jobs overseas.
While the simple fact is that India can and probably will take up the matter as a trade barrier at the World Trade Organisation (WTO), it is also pertinent to look at some of the hard facts on IT outsourcing.
In brief, taking off on Mark Twain’s famous line, I think the "rumours" about the demise of IT outsourcing are greatly exaggerated.
First, I have a thing against the gross American misuse of the term "outsourcing." Outsourcing refers to services contracted to a partner outside of a company on the ground that the service in question is not a "core competence" – and this can cover anything from security guards to caterers. Information technology is one such aspect. By invoking the concept of "country as company" the US is subverting the terminology.
Second, while it is true that the US accounts for 61 per cent of India’s IT and IT-enabled service exports, it must be remembered that most of the money comes form the US private sector. The Obama rhetoric mainly asserts the right of the US state governments as customers. This can potentially hurt e-governance contracts, but not private demand.
True, the removal of tax breaks for private firms can hurt the budgets of US firms, but that will not alter the basic cost or value advantages of doing work with Indian firms. Do you stop shopping for cars because the excise duty goes up? Yes, but a deterrent is not a ban. Tax breaks can only go thus far.
Third, Indian firms have systematically increased their IT presence in places including Latin America and China, while Europe has emerged stronger as a focus area. For example, Infosys has this year stepped on the accelerator with country manager appointments for European nations.
Indian IT majors now are big enough and smart enough to seek a "Blue Ocean strategy" in looking for new markets.
Last, but not the least, the emergence of new paradigms and ideas in IT, such as cloud computing, mobile applications, grid computing, collaborative computing and computing in languages other than English are throwing up new opportunities for Indian software companies, which they are well aware of.
In fact, India’s problem now lies in generating enough talent to meet the emerging needs for skilled workers.
It is true that the obscene profit margins that Indian IT companies got from doing work for the now-fallen Wall Street bank are now a thing of the past. But don’t confuse the main course with the dessert. The honeymoon may be over for Indian IT, but the marriage is not.