Evolution & Challenges in Outsourcing....Part1

Saturday, February 14, 2009

Would anybody thought or predicted in 1990 that in less than 2 decade, Indian IT service sector will rule the world? The evolution of Indian IT sector was mind blowing.

In 1990's, software service sector was at nascent stage in India, if you had asked any engineering graduate about software companies then, he would have mentioned CMC (A govt sector company taken over by Tata's), TCS and Wipro alone. It was only cream of engineers who made it into these companies and yearly intake was about few hundereds. Then came Clinton's Era around mid 90's, as US corporate were looking for cost effective computing solution and hence flood gates where opened for H1 Visa . The concept of 'body shopping' was born, Indian American and the American influenced by cost effective solution started poaching young Indian brains with American dream and processed their H1 to be taken into US as "programmer". Internet usage become aggressive in later /end of 90's even basic graduate with some knowledge of HTML were brought into US to create/maintain website. This was followed mild recession which led to 'Dot Com' burst which rendered many of these programmers job less. Again cost effective solution were looked upon by American corporates, with availability of internet through which you can connect to computer across world, 'offshoring' was though as a cost effective solution. Hence, since early 2000 to till date tier 1 and tier 2 companies recruited in 1000's and quarter after quarter, year after year the offshoring companies where able to achieve 20 to 30 percent growth and even most of the time beat the expectations. Above all, consultants were offered promotions & huge salary increase, which directly fueled the inflation.

Year 2007 gave warning signals about the subprime crisis in US and later in year 2008 bankruptcy of Lehman brothers signalled the start of recession with Job cut happening across the Globe. The Indian IT sector which was going strong till had to think about freezing new recruitment and growth. To every one surprise, came the disclosure of Ramalinga Raju, this triggered the Indian Govt to step in the avoid further fall of the booming IT sector.

So now comes the million dollar question as whether the Indian IT sector can sustain the same amount of growth it has shown over the years or can it maintain the same resource bases?. Some of the IT services companies has expressed difficulty in this quarter.

Some quotes from tierI & tier 2 companies

  • The IT clients have delayed allocation of budget and this is likely impact our earning in the current quarter.
  • We are putting certain precentage of our employees under "performance scanner".
  • Our IT clients are facing challenges, hence they want to reduce our billing rates.
  • We are putting certain percentage of resources on "Virtual Bench".
  • We will go in for Just-in-Time hiring.

In certain companies, they were not able to absorb freshers who had been provided with offer letter about a year back.

This shows all is not well in this sector .... couple of bad quarter results can be catastrophic. Rather than competing against themself on just IT services, its time for the IT services sector to be more creative and innovative to survive and overcome this recession. Will it...?

Later, I would like to write, as what could be the options available with IT Services sectors...till then have a nice time....

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