Dwindling Fortunes of Indian IT Giants
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Indian IT giants are as susceptible to the ups and downs of the U.S. economic crisis as any other company that has foreign exposure. The real estate financial crisis in the United States has gradually turned into a large scale economic crisis with a global impact. Barnie Frank and what he did to Fannie Mae and Freddie Mac is another subject.
IT & ITES-BPO Services
Companies such as Infosys (NYSE: INFY) and Wipro (NYSE: WIT) have allowed India to gain a foothold as a successful supplier of IT services and software to countries all over the world. As compared to most other developing countries, India has a larger supply of skilled labor and has become a major exporting entity when it comes to IT and IT enabled services. Over the last few years, IT enabled services have become a large part of the foreign exchange earned in India. ITES-BPO’s (IT enabled services – business process outsourcing) have offered millions of Indians an avenue for gainful employment. The economic crisis has spread its web to Indian IT giants as well and their fortunes seem to be dwindling in the aftermath.
Signs of a Downturn
Statistics show that around 61 percent of the revenue earned by the Indian IT industry stems from U.S. based clients. While most of these Indian IT giants are trying to propagate the idea that all is well on the financial front, there are a few sure signs of an impending economic downturn for them.
Infosys has seen revenue increase at just a rate of 4.8% in the first quarter of 2012. Owing to this, they have further lowered their revenue expectations of 2012 from 8-10% to just 5%. This slowdown seems characteristic of the Indian IT market. National Association of Software and Services Companies (NASSCOM) has predicted a further drop in the IT exports sector. As compared to a high 16.3% projected growth rate in 2012, NASSCOM predicts just an 11% or so growth rate for 2013.
IT giants such as Wipro and Infosys have been responsible for creating job opportunities on a large scale. After recording the first quarter financial reports, these companies have decided to stall the recruitment of new professionals for a period of three months. Instead of undertaking full scale campus recruitments in the month of July, they are hoping to recruit a smaller number of candidates in September 2012. This indicates that all is not well with these heretofore booming companies. This is not just bad for India; this further reflects the recession in America never really ended and American companies are not confident that America is on the right path.
Wage Increases
India’s IT sector has experienced a sharp increase in wages. On the other hand, the U.S. wage increase has been at a bare minimum. Statistics show that U.S. wages have increased by a dismal 12% over a period of 21 years from 1989 to 2010. The difference in wages and pricing power has been the trump card for Indian IT giants who have tried to consolidate their position as suppliers in the software and IT industry. However, the wage freeze in the U.S. and the subsequent loss of pricing power for India has already resulted in much of the U.S. IT business making its way to countries such as the Philippines instead. Well, no one who understood business ever said competition was bad.
If the fortunes of the leading export sector of India continue to decline, the Indian IT giants stand to be reduced to a mere shadow of their former selves. Or, they will learn to adapt and evolve which is part of the human survival process. Perhaps they can take a page out of IBM’s book.
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