Source:www.business-standard.com

The earnings of Indian IT companies in rupee terms are dwindling with every upward movement of the currency. The domestic currency has risen by 11.6 per cent this year to touch a nine-year high today.

Moreover, with the global IT services players such as IBM and HP cannibalising the home turf by winning multi-million dollar deals, the Indian IT companies are taking a serious look at the domestic market.

The Indian domestic outsourcing market is estimated to be around $2.2 billion, if one considers only deal sizes above $50 million.

Hedging alone is not enough. “Margin pressures are affecting even large players. Hence, the domestic business is a viable proposition,” said Sudin Apte, senior analyst and country head, India, Forrester Research.

Large MNCs such as IBM “do not shy away from picking up work that only gives them 5-10 per cent margins”.

MNCs have an expertise in multiple verticals and emerging markets, while the Indian IT companies are experienced primarily in the North American markets, reasons Apte.

The scene is changing gradually, though. The Mumbai-based IT services provider Tata Consultancy Services (TCS) is a strong case in point as 9.4 per cent of its revenues (excluding CMC figures) in 2006-07 came from India.

Venkatramani S, VP and Head (India), said, “By design, we do not vend low-margin equipment. As the rupee has appreciated, the prices of hardware (servers, etc) have dropped since most of the equipment is imported. Hence, margins go down further. As 80 per cent of our domestic revenues come from the pure services business, the margins are not only comparable to offshore work, but are also on the upswing.”

TCS has done government work (MCA-21) and has prominent clients including the NSE, BSNL and Mumbai airport. “We understand both the application and domain side of the business,” said Venkatramani, adding that e-governance is “an interesting area” for the company.

Wipro Infotech (the India, Middle East and Asia-Pacific business), which contributes about 16 per cent to Wipro’s annual revenue, fetched about $658 million from the domestic market in FY07 as against $454 million in the previous financial year, an annual growth of 45 per cent.

Suresh Vaswani, president, Wipro Infotech, said, “Businesses are leveraging IT to transform and differentiate themselves through efficient operations, superior customer services and ability to launch new products and services quickly.”

Wipro Infotech’s Indian clients include HDFC Bank ($80 million over 10 years), Yes Bank, Dena Bank ($60 million over 10 years), Colgate Palmolive and Sanmar.

Satyam Computer Services too has seen its domestic business growing by 4 per cent in 3 years. HCL Technologies’ Asia-Pacific business accounted for 15.3 per cent of its revenues at the end of June 2007 (13.3 per cent in the corresponding period last year).

Infosys has raised its revenue share from India in the first quarter of the current financial year, from 1.6 per cent to 1.8 per cent ($928 million). The company is now banking on Finacle to increase its pie in the Indian market. The Finacle Core Banking product enjoys 70 per cent market share among the leading banks in India.

“We focus on markets where we get the best returns for our resources. India is just opening up and it could be an interesting market in the near future,” according to Balakrishnan, CFO, Infosys Technologies.

The Indian market is an important part of strategy for Mumbai-based BPO Firstsource too.

“While the domestic business accounted for a little over 2 per cent in end-March, 2007, we expect it to account for nearly 10 per cent in this financial year. We see the BFSI and telecom sectors driving the growth,” said CEO and MD, Ananda Mukerji. The company recently won a large contract from Hutchison.

“With the signing of a number of multi-million dollar deals last year, the domestic IT industry has come of age. The renewed interest in the domestic industry is a result of those deals. But the industry is still in its infancy, with growth rates lower than that of the export-based industry,” said S Sabyasachi, senior director, neoIT.

He, however, noted that most of the major domestic deals had been clinched by service providers which offer a range of services from hardware infrastructure to data centres and software services. The Indian IT companies seem to be taking the cue.

Source:www.contractoruk.com

New evidence emerged yesterday that offshore outsourcing is reducing the number of IT jobs being created in the UK.

Within the last year, the number of new roles for software designers, software developers, helpdesk technicians and systems engineers has fallen.

The database of ReThink Recruitment shows paid opportunities are down six per cent for software developers and three per cent for helpdesk staff.

Although the decline in new jobs for systems and network engineers is slim, the agency noted demand has also slumped for some programming skills.

And though its database shows 6,000 new IT jobs are available this year, its managing director, Jon Butterfield, hinted that the slump in certain IT roles was telling.

He said: “The fear that IT helpdesk jobs simply represented the thin end of the wedge, and that higher value technical roles would be sent offshore next, is not new.

“But it is now having an impact on the IT jobs market.

“Some UK financial services businesses are now shifting application development offshore to low cost locations. This is lessening new demand for some programming skills in the UK.”

However because offshore outsourcing raising “quality control issues”, the demand for UK managers and consultants to manage processes has increased, the agent said.

In fact, the number of new roles for consultants has risen to 8.1% this year from 6.8% last year, while management and administrator roles are up almost 3% over the same period.

Demand for consultants is partly being fuelled by the high level of IT work needed after mergers and acquisitions, as well as “growing public sector outsourcing requirements.”

The outlook for consultants from ReThink Recruitment, an online jobs agency, confirms a reading from the Management Consultancies Association this week that confidence remains high.

The agency also showed new jobs for analysts and architects have crept up from 11.9% last year, to 16.2% this year, says its database of 29, 614 jobs as of June 2007.

Last year in June, the database stored 23,392 live IT jobs, with software development/design leading the pack – a trend that has now eased significantly.

Trying to explain this decline, Mr Butterfield pointed out that software engineers in India can be set to work for as little as £6,500 a year, according to data from Mercer.

For business, this compares favourably with the average salary for a UK-based software engineer of £32,000, according to estimates from ATSCo/ The Skills Market.

But as offshore outsourcing experts have warned, the advantage of India, and other offshore hot-spots, is only temporal.

“When wages for software specialists in India reach around 40% of the UK rate and you factor in the cost of maintaining two offices, travel expenses, time differences and so on, the financial case for offshoring begins to unravel,” Butterfield said.

So what does this climate mean for non-permanent IT workers? ReThink advised IT contractors should update their business and tech skills if they want to “help guarantee their future income.”

And positively for contract software developers working in small-scale teams, whose clients are less able to benefit from economies of scale by offshoring work, there may be less vulnerability.

ReThink said: “Software developers working in-house are much more likely to be seen as creating value for the business, which means there is greater reluctance to relinquish control to an offshore supplier, whereas the IT helpdesk is inevitably viewed as a cost.

“This could make the UK software development industry more resilient to offshore competition.”

Yet the agency cautioned that the UK is specialising in project management and consultancy, while developing countries take a greater share of work in more technical areas, suggesting a “global division of labour is emerging in IT.”