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Why throw away a good slowdown?

June 7, 2009

First the bad news. The latest Gartner Report predicts 5-20% drop in the outsourcing services costs in 2009-10 owing to the uncertain economic conditions, IT budget restraints, and general market weakness.
Now the good news.
The Gartner report implies that although this drop will imply internationally, there would be huge discrepancies in the price cuts across geographies, vertical businesses, and customer size, with smart vendors suffering the least, if they somehow manage to negotiate better deals for themselves. New vendors can make the best of this intensifying competition by keeping a tight vigil over their income and margins.

Undoubtedly, the US financial services slump was a wake-up call for Indian outsource vendors. In 2006-07, the dollar averaged Rs.45.05 to a dollar. In 2007-08, it averaged Rs.40.4. That’s when many Indian tech and BPO services exporters began to look beyond North America to Europe, and Asia, including Japan. Happily for them, recession continued to fuel the outsourcing trend although it did reduce the ticket size of individual projects and the existing Service Level Agreements began to be renegotiated in favor of the clients.

Thrive in economy recession

Certain Indian sectors in fact starter growing faster during the slowdown. The ten Indian sectors that are predicted to perform well during the current slowdown are:

  1. the food processing and retail sector (likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025)
  2. railways (Indian Railways registered 13.87% growth in revenue to Rs 57,863.90 crore in the first nine months ended December 31, 2008)
  3. PSU Banks (A report “Opportunities in Indian Banking Sector” by RNCOS, forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23.3 per cent till 2011)
  4. education (D E Shaw, a US$ 36 billion, global private equity firm is planning to invest around US$ 200 million in the Indian education sector)
  5. telecom (In 2008 the subscriber base was 228 million that is likely to add at least another 90 million subscribers in 2009 despite recession, making India, the second largest telecom market globally by 2010)
  6. IT (As per a Confederation of Indian Industry (CII) report, the sector is growing at an annual rate of 35% especially in providing value-added services relating to copy editing, project management, indexing, media services and content deployment making the publishing BPO industry worth US$ 1.46 billion by 2010)
  7. health care (The US$ 35 billion industry is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017)
  8. luxury goods (According to a recent research on luxury trends, the number of families with annual incomes of more than $230,000 will have more than doubled from 20,000 in 2002 to 53,000 by the end of 2005 and will grow to 140,000 by 2010)
  9. M&A & marketing consultants (According to Ministry of Commerce and Industry’s estimation, the current size of consulting industry in India is about Rs.10000/- crores including exports and is expected to grow further at a CAGR of aprox. 25% over the next few years)
  10. media and entertainment (According to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18% to touch US$ 23.81 billion by 2012).

Small wonder that “in the medium to long-term, 12-24 months and beyond–cost efficiencies and business transformation in companies will likely gain greater precedence than ever,” according to Kumar Parakala, a consultant with KPMG.

All said and done, this slowdown could be a big opportunity for Indian vendors to focus on local outsourcing market, provided they remain focused on their core value proposition.

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Written by Radhika · Filed Under Outsource Blogs 

Comments

One Response to “Why throw away a good slowdown?”

  1. tam on June 12th, 2009 8:31 am

    Already Indian outsource companies are started concentrating local market and I’m sure that this trend will accelerate in the near future. If IBM and Oracle can win outsourcing deals from Indian companies, why not Indian outsource vendors can win?

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