1. Analysis & Outlook
Outsourcing Deals Slowing down: Should Indian Outsourcing Industry worry in 2013?
Indian IT-BPO industry aggregate revenues crossed the $100 billion mark and exports reached
$69 billion in FY 2011-2012 and within the global outsourcing industry, India had increased its
market share from 51% in 2009 to 58% in 2011, highlighting India’s continued competitiveness
and the effectiveness of Indian providers in delivering transformational benefits.As a proportion
of national GDP, the sector revenues have grown from 1.2% in 1998 to an estimated 7.5% in
2012, says NASSCOM.The industry has seen a tremendous growth earlier but since past few
years the year on year (YoY) growth rates have been falling reflecting the effects of the
2008financial crisis and also the present European Sovereign Debt crisis.Continuing on the
decline the $100-billion IT industry is expected to meet the lower end of 11-14% growth
projection in FY2012-2013, according to NASSCOM and the revenue from IT exports is
estimated at $75-77 billion for the current fiscal year.
Analyst firm Ovum said that the total contract value (TCV) of outsourcing deals fell a record
30% during the Q3, 2012; lowest in nine years and TCV of IT services deals announced in the
three months ended September 2012 was $18.9 billion, down 33 per cent on the same period in
2011. The volume of deals fell sharply to 332 from 438 last year, representing the least activity
in five years which highlights that companies are no longer aggressively outsourcing their IT and
business processes, which also hit an 11 year low. TCV is a measure by which outsourcing deals
are valued. Add to that the fact that public sector or government-owned companies have also
reduced their outsourcing spends, which, according to Ovum, is at a three-year low. This
dataalso highlights the fact that the Indian IT sector is facing one of its most turbulent years in its
short history.
Infosys told analysts that the demand environment continues to be weak, and led some of them to
conclude that the company may lower its annual growth guidance to 3.5% compared with the
current growth target of 5%. Even the star performer Cognizant that has been consistently
growing by 20% YoY has recently announced that its board had set a revenue growth target of
16% for 2013, which will be used as a base to determine whether its top executives will earn
100% of their equity incentives for the year which shows that their growth will also slowdown
from 20%. Tata Consultancy Services (TCS) on the other hand is positive and hopes to keep up
its double digit growth for the current year. Both TCS and Cognizant have said growth is
expected to be lower in the December quarter, 2012 and in FY2013, respectively. The recently
announced results of Accenture too indicated slowdown where the growth of outsourcing
business segment has seen fall in growth compared to previous quarter and consulting services
flat.
The National Association of Software and Services Companies (NASSCOM) has said that the
Indian IT industry is likely to meet the lower end of its growth forecast of 11-14% for FY2012-
13 as customers tread cautiously on technology spending due to global economic uncertainty and
companies in United States, who are the largest outsourcers to India and businesses in Europe
that are increasing their outsourcing to India are curbing spend and reducing their IT budgets in a
difficult business environment.The statement, made for the second time since September, comes
after several IT firms gave guidance which was lower than the industry body’s forecasts.Banking
Financial Services and Insurance companies that dominated outsourcing to India are facing
severe troubles in their businesses and are forced to reduce their outsourcing spends.
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com/