Thursday, February 19, 2009
Saturday, February 7, 2009
Friday, February 6, 2009
Tough to hit $10-b target by 2010: TCS
| Consumer confidence at its lowest in ‘peculiar’ downturn: Ramadorai. |
Mr S. Ramadorai, CEO and MD, TCS
Will the country’s largest software exporter, Tata Consultancy Services, achieve its target of $10 billion in revenues by 2010 as targeted?
“Probably that would be difficult given the current economic environment,” Mr S. Ramadorai, Chief Executive Officer & Managing Director, said in an interaction with Business Line here on Friday. However, he did not give a restated timeframe (for becoming a $10-billion firm) as TCS does not give guidance.
The software major generated $5.7 billion revenues for the fiscal ended March 31 2008. Mr Ratan Tata, Chairman of the Tata Group, had unveiled his ‘Vision 2010’ for TCS at the annual general meeting of TCS’ shareholders in 2006.
Being a $10-billion company would place TCS in the envious league of the top-10 IT companies in the world.
Those were the days when TCS and other players in the IT industry were growing at around 28-30 per cent on a yearly basis, courtesy the increasing IT client spend across industries.
However, the global financial meltdown - that triggered the collapse of several larges institutions such as Lehman Brothers, Bear Stearns and Washington Mutual - has impacted the business of Indian IT companies which generate maximum revenues from the banking and financial services space.
Spend squeezeAnd the downturn is not restricted only to the financial services space; even companies in sectors such as automobiles, telecom and manufacturing are clamping down on IT spend because of the financial mess they are in, according to Mr Ramadorai.
Mr Kris Gopalakrishnan, CEO and MD of Infosys Technologies, had said recently that the Indian IT sector would grow by only 15 per cent.
‘Very disturbing’“This particular downturn is very disturbing as multiple sectors across the world have been impacted. It is a peculiar cycle where suddenly, on a global basis, consumer confidence is at the lowest.
Moreover, the number of jobless people, especially in countries such as the US, is very high,” Mr Ramadorai said.
And even geographies such as Europe, India and Asia Pacific are not immune to the global happenings.
According to a forecast from IDC, worldwide IT spending will grow only by 2.6 per cent year over year in 2009, down from IDC’s pre-crisis forecast of 5.9 per cent growth.
In the US, which is the largest market for Indian vendors, IT spending growth is expected to be 0.9 per cent in 2009, much lower than the 4.2 per cent growth forecast in August.
IT, BPO market in for ‘slowest’ growth
| New, innovative services to drive Phase 2 growth: IDC. |
exports, there seems to be bad news in store for the domestic IT and BPO market.
According to market intelligence firm, IDC India, the local IT and BPO market is expected to grow at 13.4 per cent in 2009, the slowest since 2003. This will come largely on the back of slower IT consumption in some key verticals including retail and financial services.
In fact, the Indian domestic IT and BPO market is slated to see 16.4 per cent CAGR in the coming five years leading to 2013, compared with 24.3 per cent growth recorded between 2003 and 2008.
The forecast also suggests that key structural changes taking place on the back of a global economic slowdown would propel a new ‘market order’ in the domestic IT and BPO industry.
Phase 2IDC said that the next phase of growth would be different from the earlier phase, in which the domestic market had witnessed unprecedented growth, nearly tripling the market size from Rs 34,000 crore in 2003 to Rs 1,01,031 crore in 2008, a CAGR of over 24 per cent.
The new growth Phase (2.0), expected to evolve from 2009 onwards, will be built on the back of new and innovative services sought by consumers and enterprises alike. The technology behind these services — infrastructure, applications and connectivity — would need to orchestrate and re-orient completely in order to support their mass adoption.
IDC said that the combined domestic IT and ITeS market grew by 17.3 per cent in 2008. The IT market grew at 15.4 per cent in 2008 to Rs 94,185 crore; and the BPO market grew 53.2 per cent in 2008 to report revenues of Rs 6,846 crore.
Revenue growthHowever, the overall IT and ITeS revenue is expected to grow at a slower 13.4 per cent in 2009 to Rs 1,14,574 crore. While the IT market is projected to grow at 11.4 per cent, the BPO market is likely to notch 40.8 per cent growth.
“The issues in the short run, more pronounced throughout 2009, will be productivity, cost savings and customer retention. This would eventually pave way for innovative services (for both consumers as well as enterprises) by leveraging the existing infrastructure built so as to align with emerging opportunities,” Mr Kapil Dev Singh, Country Manager, IDC India, said.
product categoriesThe major product categories expected to grow at a rate higher than the industry average include collaborative applications (23 per cent), storage software (19 per cent), system and network management software (19 per cent).
Within the ambit of IT services, segments reporting higher than average growth include desktop management (22 per cent), information systems outsourcing (32 per cent), network management (23 per cent) and application management (20 per cent).
Within the IT solution categories, the faster growing ones would be virtualisation (28 per cent), unified communications (25 per cent) and business continuity services (20 per cent). All these categories point towards the need for better management of IT infrastructure for their most optimal deployment and use in achieving enterprise business goals, it said.
It’s a bumpy ride for BPO cos
| Players in BFSI space have to contend with thinner margins, lower billing rates. |
‘Cost reduction’ and ‘productivity improvement’ were two most commonly heard words in BPO circles this year.
The ride just got bumpier for Indian BPO companies in 2008. However, the smarter ones took this opportunity to diversify and tweak their business models.
The Indian BPO sector generates majority revenues from the banking and financial services space, which has been badly impacted courtesy the worldwide liquidity crunch.
In the last 10 months, several major financial services giants in the US, namely Bear Stearns, Lehman Brothers, Washington Mutual, filed for bankruptcy protection due to credit losses related to the US sub-prime mortgage crisis
As a result, there has been a slowdown in BPO spending globally, according to Mr Navin Joshua, Executive Director, vCustomer Corporation. New deals in the banking and financial services space are being put on the back burner for the time being. “There have been a delay in contract renewals and a temporary freeze in awarding new contracts,” said Mr Joshua.
Players in this space now have to contend with thinner margins and lower billing rates. “We have not seen any impact on existing contracts but rates of future contracts may be impacted,” said Mr Susir Kumar, CEO of Intelenet Global Services.
Telemarketing bizWithin the BFSI space itself, the telemarketing business – which involves telephonic marketing of credit cards and other financial products – has been impacted the most.
Recently, the city-based ITeS firm Silverline Technologies had said that it would put its Canada-based BPO outfit (which specialises in outbound calls) on the block as the business of outsourcing to this unit has been impacted.
However, companies that invested in innovative billing models such as ‘outcome-based pricing’ or ‘pay per transaction’ witnessed a spike in revenues.
High customer anxiety (due to the sub-prime crisis) leads to an increase in the customers’ telephonic interaction with the bank, thereby increasing call volumes. And this spike in volumes benefits companies that bill on ‘per transaction’ basis.
In spite of the turmoil in the BFSI space, Indian companies seemed to be keen to increase their overall exposure to this sector through inorganic growth play.
AcquisitionsIn October 2008, TCS acquired 96.3 per cent stake in Citigroup’sBPO outfit (Citigroup Global Services Ltd) for $505 million in cash. This deal also ensured the company of assured business of $2.5 billion from Citigroup over a nine-and-a-half-year period. In order to ensure that its $2.5-billion deal is protected given the international financial situation, TCS protected itself contractually.
“If somebody buys Citigroup, it will be binding on them to pursue our contracts,” Mr N Chandrasekaran, Chief Operating Officer & Executive Director, TCS, had told Business Line.
In July 2008, WNS (Holdings) Ltd acquired the UK insurance major Aviva’s BPO business Aviva Global Services (AGS) for around $228 million (Rs 980 crore).
‘Cost reduction’ and ‘productivity improvement’ were two most commonly heard words in BPO circles this year.
As Mr Pawan Sharma, President, KPIT Cummins Global Business Solutions, says: “If my turnaround time was 24 hours before, focus now is whether I can make my turnaround time 22 hours. If one employee used to process 10 invoices in day, then can he process 12 invoices?”
Thankfully, the financial crisis has not yet impacted BPO players in the Indian domestic market. Genpact announced its foray into this space early this year. “The rural areas present a dynamic scope for growth and the intelligent BPO companies will be amongst the pioneers in settling bases in the remotest corners of the country,” said Mr Kumar of Intelenet.
Attrition rateMoreover, all companies in this space have reported a fall in attrition levels because of the uncertain economic environment. For WNS, attrition rate in 2008 reduced by 10 per cent, said Mr Neeraj Bhargava, Group Chief Executive Officer, WNS Global Services. Intelenet`s attrition rate has dropped to 37 per cent in the second quarter of the current fiscal from 45 per cent in the third quarter of fiscal 2008.
Healthcare, telecom and legal outsourcing are some of the sectors that have not been impacted by the current slowdown. In fact, all legal process outsourcing firms have witnessed at least 50 per cent growth in the second half of the calendar year, due to increased outsourcing of legal work related to the M&A activity in the US. Recessions and depressions reduce the tolerance for high legal fees which means more business for other markets, according to Mr Bhaskar Bagchi – Country Head of LPO firm CPA India.
Global law firms with more than 25 per cent of their lawyers based oversees have suffered less because their international presence is more diversified, he said.
Mr Bhargava said that WNS’s LPO business has grown by over 50 per cent year on year, in terms of headcount. In the last 5 months (July till date), CPA has added 156 employees and expects to employ about 2,000 people by 2010.
Slowdown forces Nasscom to lower export growth target this fiscal
Mr Som Mittal
India’s IT and BPO export revenue would grow only 16-17 per cent during FY09 to $47 billion as against close to $50 billion estimated at the beginning of the fiscal. The cut in annual forecast by Nasscom comes on the back of global economic turmoil and tighter IT spends. The export revenue stood at $40.4 billion during FY08.
Nasscom had stated earlier that total software and service revenue (domestic and exports combined) will grow by 21-24 per cent in FY09. Now with the financial meltdown taking its toll, the software and services revenue outlook has been revised downwards – it is expected to touch $60 billion, as opposed to $62-64 billion anticipated earlier.
More importantly, the much-touted target that the industry had set for itself – of touching $60 billion exports by FY10 – too has been pushed back. IT and BPO exports are slated to hit $60-62 billion mark in FY11.
Commenting on the revised numbers, Mr Som Mittal, President of Nasscom, said, “India offers the best solution to manage resources and IT budgets and improve competitiveness, even in today’s difficult environment.
“However, factoring the impact of the global economic crisis in the second half of 2008-09, the industry is expected to grow by 16-17 per cent by March 2009. Also, the cross-currency fluctuation – dollar’s appreciation against the pound and euro – has shaved-off nearly 2.2 per cent growth from the export growth figures.”
HiringsNasscom denied that there were any large-scale lay-offs in the IT and BPO sector, and emphasised that the industry remained a “net hirer”. The direct employment in Indian IT and BPO industry is estimated to touch 2.23 million employees (2 million in FY08); indirect job creation is estimated at nearly 8 million.
“The net addition will continue to take place and campus offers have already been made. In fact, the industry would do one lakh in net hiring in the next one year,” Nasscom Chairman, Mr Ganesh Natarajan, said, adding even in case of poor performance by certain employees, companies were offering outplacement services or retaining employees on training albeit with lower wages.
Nasscom said after recording a 24 per cent growth in the first half of 2008-09, the second half performance was impacted by the global economic downturn. Additional headwinds included cross-currency fluctuations, terror attacks and issues on corporate governance (in the aftermath of Satyam incident) and US elections.
It said that the domestic IT and BPO in FY2009 are expected to grow at nearly 20 per centand over 40 per cent respectively.
The BPO export is estimated to grow 17.5 per cent to $12.8 billion in FY09; IT services export 16.5 per cent to $26.9 billion; and Software products and engineering services at 14.4 per cent to $7.3 billion.
“BPO will be the driving engine as the end to end requirements which are non-discretionary in nature ill need to be serviced even in a downturn,” Mr Pramod Bhasin, Vice-Chairman of Nasscom and President and CEO of Genpact said.
Economic uncertainty: Pointing at the uncertain demand environment, Nasscom said that the worldwide IT spending growth is expected to come down in 2009, and that the wait and watch stance of buyers was delaying decision-making. “The industry is taking measures such as enhancing productivity levels and higher utilisation of resources for greater cost efficiency,” Nasscom added.
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