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One Nation's Meat…

In a bizarre twist, September 11 and the recession in the US economy is turning out to be good news for the Indian infotech sector

One Nation's Meat…
illustration by Jayachandran
One Nation's Meat…
For software professionals in India, there is a ray of hope. No, more than a ray, definitely a beam. The Indian software industry is making a fresh start. When the mood worldwide is of gloom, doom and despair and software pros are being laid off left, right and centre, Indian companies are actually on a frenetic recruitment binge.

Putting the recession and 9/11 behind them, several Indian software companies and Indian arms of multinational corporations have started employing people for fresh projects. Most have also started expanding offices and operations to take care of the increase in project flow into India. Some have even taken recourse to recalling retrenched staff.

How is India going strong while the rest of the world finds it difficult to manage? Experts feel costs have multiplied in a recession-hit US, making project development unmanageable. This has forced them to send projects offshore to cut costs. And India is a natural choice. Says Arjun Malhotra, chairman, Techspan: "The slowdown in the US motivated a lot of people, who earlier didn't think of it, to go offshore. This has accelerated after 9/11 and we are seeing business going up in India." Says Sapient India managing director Amit Govil: "Officially, the US is in recession, yet Indian IT companies are expected to grow by 25-30 per cent. With a definite increase in acceptance of India as a software destination, there is a trend in the US to leverage India for software projects."

The effects of recession have been severe on the global software sector in the last few months. Companies across the world have downsized, laying off hundreds of software professionals to make numbers look healthy. The September 11 attacks on the US made matters worse. Indian firms, which are heavily dependent on American corporations for their survival, had to bear the brunt too for some time. With companies recording less than normal orders, analysts across the board scaled down growth projections for Indian companies. The sector, which has always recorded handsome growth—in 2000-01, it grew by about 50 per cent—was expected to take a beating this year. According to Nasscom estimates, it was expected to grow by only about 30 per cent in this year.

But with American companies focusing on India again, it may be time to rework on those calculations. "The slide is finally over. We were all expecting Q3 results to be flat but the flurry of activity in this sector has made us believe that it will be much better than that," says Sunil Mehta, vice-president, Nasscom. Malhotra, whose company plans to double its workforce in 2002, agrees: "We see a flattening out of the depression. Things will only look up from here."

The recruitment spree more than endorses this view. According to Nasscom, while over 185 Fortune 500 firms are outsourcing their software needs from India, more MNCs are setting up shop or expanding operations in India post-September 11. Consider this:

  • IBM Global Services, Bangalore, has bagged a 10-year project from AT&T. More than 5,000 people could be working on this project.

  • Sun Microsystems has identified its Indian operations as one of the top five locations with potential to earn over $1 billion revenue over the next five years. Its manpower in India may increase from 400 to 4,000 in the coming years.

  • Cisco has bought 29 acres of land in Bangalore and plans to invest Rs 900 crore over the next few years in expanding operations.

  • HSBC plans to hire 1,400 people for software development and IT-enabled services.

  • GE plans to invest $800 million in IT and expects software exports from India to rise to $3 billion by 2004 with software outsourcing expected to account for a third of the export targets.

  • Intel is investing $25 million in India for a technology development centre in Bangalore and could expand engineering staff by 50 per cent.

  • Computer Science Corporation is setting up development centres in Noida and Hyderabad with a staff strength of 400 people.

  • Accenture, which recently started its new technology development facility in Mumbai, plans to expand.

  • Consultancy firm Cap Gemini Ernst & Young is planning to set up its second software development centre in India, which will double its employee strength.

Others in expansion mode and hiring include Sapient, Silverline Technologies, Technova and Hewlett-Packard. In fact, Silverline is reported to have recalled 40 per cent of its retrenched staff and Sapient is hiring here even as it lays off in the US. It has taken new office space in Gurgaon near Delhi.

Suresh Rajpal, president and CEO, Technova, feels that traditionally a market moves six months ahead of the actual scenario. When the market showed recession, no one was ready to accept that. Things are now turning around. Says he: "Markets have come back last month, so we can expect that in six months, normalcy will return." Adds Arun Thiagarajan, president, Hewlett-Packard India: "Customers have started visiting India again. As more US companies work towards regaining competitiveness, they will move projects offshore and India has a clear cost and skills advantage."

According to a Goldman Sachs survey, the cost saved by shifting from in-house to offshore development of computer applications could be as high as 70 per cent. It feels India will remain the world's geographical focus for this: "India remains the primary focus, and we expect this to be the case for the foreseeable future. Although other countries are used to varying degrees (China, Eastern Europe, South America), India offers the best combination of same language, cultural fit, the possession of a large, highly-skilled workforce and favourable tax holidays."

It also says that post September 11, there was a tendency among US corporations to go "near-shore" to countries like Canada and Mexico, but the capabilities in newer technology application development were improving in offshore firms, primarily in India. Says Govil: "With the Afghan crisis over, the trend is changing and 'near-shore' is giving way to offshore, specially India." Adds Rajpal, "9/11 is three months old and people are getting back to the business of business."

To add to India's edge, several international consultancy firms have, in the last two months, re-endorsed India's prowess in this field. Said a report from the Forrester Group last month: "Simply put, other developing nations lack India's advantages including more than a decade of offshore experience, high levels of English fluency, supportive government policies and a focus on CMM and ISO 9000 quality processes."

McKinsey & Co declared in October that the "productivity and quality in remote processing centres in India was higher than that achieved in parent countries". According to McKinsey, costs in India were 30-80 per cent lower compared to development in Europe and the US and almost all Indian software professionals were familiar with state-of-the art development technologies.

IT research company Giga Information Group's November report says offshore outsourcing will grow by at least 23 per cent in 2002 with India dominating. It says: "As companies struggle to do more with less, they will realise the incomparable quality and cost benefits that India has to offer. Indian vendors will continue to move up the value chain by offering architecture, design and high-level strategy services." Says Mehta: "Typically, the annual billing rate of a software professional in the US is $200,000. In India, it's $60,000."

India has 32 software companies with a Level-5 certification from SEI-CMM—the ISO equivalent in IT—with another 19 in Level-4 and six in Level-3. Says Mehta: "More than half of the world's SEI-CMM certified companies are Indian." Govil adds his bit: "Although India is not the cheapest destination, the skill level and quality education brings companies here."

With the world standing behind India for software development, the sector seems to have regained—if not extended—its global superpower status.
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