Friday, October 05, 2007

India still rolling in the outsourcing money ...but spiralling costs need to be contained


India, the world’s leading software outsourcing destination, makes almost four-fifths of its annual R288bn revenue from software and back-office transactions from exports, with the US accounting for at least half of the sales of the top firms, like Satyam and Wipro, says Neels van Tonder, CEO of UCS Software Manufacturing (UCSSM), the specialised software outsourcer in the JSE Securities Exchange listed UCS Group Ltd stable.

"While the Indian outsourcing market remains exceptional," says Van Tonder, "the outsourcing industry is left with a preponderance of US dollar revenue - with local spending remaining denominated in rupees. One of the challenges India is facing is that white collar salaries are increasing rapidly - and they are paid in rupees. Costs are set to rise dramatically in the short to medium term."

Van Tonder adds that, due to the favourable exchange rate, in relation to the USA, Indian software firms are showing some very high net-profit margins at the moment. But spiralling costs need to be addressed.

Speaking in the press recently, Ed Cohen of Satyam Computer Services, India’s fourth-largest software exporter, said his company is looking at ways to "rebalance the business portfolio".

Satyam is Centurion-based UCSSM’s business partner in India and the Asia-Pacific region, with the duo currently working on a number of potential software outsourcing business deals.

For the industry overall, rebalancing India’s business portfolio will entail seeking additional business in Europe and Asia-Pacific. But Cohen believes the home market is also offering more opportunities.

As rapid economic growth accelerates (India’s GDP grew by 9,3% in the quarter to June this year), capacity shortages are created across the Indian economy. But the under-developed market for technology sales is starting to look more buoyant.

Tata Consultancy Services, India’s market leader, notched up a $140m deal in early September with state-controlled telecommunications company, Bharat Sanchar Nigam. Indian companies also believe that large outsourcing deals are also on the cards from Indian banks and railways.