Yesterday, riots again broke out across Indian cities, causing Wal*Mart to delay the opening of its store

Yesterday, riots again broke out across Indian cities, causing Wal*Mart to delay the opening of its store

The going hasn’t been very good for Indian IT firms recently. First, there was the Satyam scandal which exposed many of the fundamental issues with Indian IT companies, corporate espionage, board level corruption, scamming of shareholders etc. Then, what was left of Satyam was to be taken over by a Government-appointed board, but there was a loss of customers and soon after came a significant drop in revenues for almost all major IT companies in India. But that wasn’t all, newly appointed US President, Barack Hussein Obama then pretty much declared war on outsourcing to India by making his now famous, “Say NO to Bangalore” speech. Obama’s war on Indian IT has led  NASSCOM to voice fears that, “[the] clouds are getting darker for Indian IT companies“, while the mainstream Indian press is proclaiming that, “Obama torpedoes Bangalore again“. Meanwhile, the anti-Indian outsourcing sentiment is growing in other parts of the world, including Australia.

During the last couple of years the increasing level of violence in India has also been a concern to outsourcers, and the most recent episode (just 2 days ago) of large scale protests that broke out in the Indian province of Punjab resulted in vehicles being set on fire and shops being gutted. Ultimately, the Army had to be called out, but not before one of America’s largest corporations, Wal*Mart, had already suffered at the hands of the rioters and decided to delay the opening of its store in India. These incidents, as the Times of India points out on its front page, put issues like India’s caste system, disparities and violence in the global spotlight, creating further challenges.

And finally, it’s no longer cheap to outsource to India. East European countries have been taking the lead recently and offer a safer environment, more educated workforce and geographical proximity to the US and Europe. To add to this, Wipro and other Indian outsourcers are warning that changes in US immigration law will lead to diminished business for them. Research analysts predict that the outsourcing industry in India has a “cloudy future“. Indeed, the stocks of all major Indian outsourcers have suffered as this report from India’s NDTV indicates:

Rioting breaks out in India on May 24th, 2009. Police baton charge rioters.

Rioting breaks out in India on May 24th, 2009. Police baton charge rioters.

Outsourcing focussed IT stocks slumped on a firm rupee. India’s second largest software services exporter by sales Infosys plunged 4.48% [...]

India’s largest software services exporter by sales TCS lost 2.54% to Rs 650.30. The stock lost on reports Chrysler, the bankrupt US automaker, plans to scale down its offshore outsourcing of information technology projects to vendors such as TCS in the near term.

India’s third largest software services exporter by sales Wipro fell 2.61% [..]

One of the big issues facing Indian IT is that India has still not produced an internationally relevant, succesful software product company. Since they are not producing leveragable products, the global demand for IT “body shops” is what principally drives revenues for Indian companies. As this demand diminishes due to a variety of factors, including competition, increase in Indian government taxation, increasing violence in India and a US government hostile to Indian businesses, the prospects for the service based IT industry in India don’t look all that great. Let’s wait and see how this unfolds.

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