India’s biggest outsourcers remain fast-growing businesses. TCS, for instance, the largest of the three, saw revenues shoot up 24% to USD 8.2bn in 2011 – a near fourfold increase since 2005.
But while revenue growth still resembles the stellar performance of a decade ago, the companies, operations are now starkly different.
Moving beyond the call centres has meant expansion into “value added” services, from bespoke software development to research, design and consultancy services, while also entering areas such as cloud computing. These activities increasingly replace the more familiar business process and back office outsourcing operations.
The outsourcing companies earn the vast majority of their income from clients in advanced markets – as Infosys proved in its most recent quarterly results, where it earned 64% of its revenue in the US, compared with just 2% in India.
This combination of more complex higher-end offerings provided to big global companies has also seen the companies shift more of their operations abroad. While most of their workers still remain in India, they are increasingly hiring elsewhere: TCS took on more than 1,000 workers in the US last year.
Yet if these businesses are ever-more technologically sophisticated they also face new pressures, often the direct consequence of their own successful globalisation.
The first is a new vulnerability to the economic weaknesses of Europe and the US, where so many of their clients are based. India’s outsourcers were hit in the aftermath of the 2008 financial crisis, as these clients cut their budgets (most obviously in the financial services industry) and this fed through quickly to their own bottom line.
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These difficulties in Europe stem in part from a second success: moving into new geographies. Infosys pushed into Europe to lessen its reliance on its US business, yet it is precisely this move that now makes it vulnerable.
Meanwhile more ambitious attempts to win business in other emerging markets such as China and Mexico bring fresh management and cultural challenges, but as yet not much in the way of significant income.
The final problem is one of new competition. Some of the old call-centre business has moved to other countries, with the Philippines on some measures now boasting more call-centre employees than India.
The result has seen the share prices of the Indian three firms stay steady at best over the past year, with caution over future earnings counteracting the benefits they ought to have received from India’s falling rupee – which plunged by around 20% over the course of 2011.
As once-protected jobs in the education, health, financial, legal, and even the public sectors headed overseas, it is estimated somewhere between 22 and 29% (about 25m-30m) US jobs could end up offshore.
The projections panicked western politicians, but they also partially underpin the projections of Nasscom, an Indian trade organisation representing outsourcers, that the global industry will grow to produce revenues of USD 225bn by 2020, more than tripling in size over the decade.
