If one theme runs through the current presidential campaign in the U.S., it’s that the country needs fixing. That is the opposite of the mood of Indian business leaders at February’s meeting of the National Association of Software and Services Companies (NASSCOM), according to Alsbridge CEO Ben Trowbridge. “There’s a great current of optimism in India, but there was a slight undercurrent of medium-to-long term concern on new issues that will impact sourcing from India,” reports Trowbridge, who spoke on a panel on the consumerization of IT at this landmark global outsourcing event. Trowbridge attributes the mood swings at NASSCOM to two things:
1. Maturity. Trowbridge reports this is the first NASSCOM meeting he attended where he didn’t run into the companies’ founders. The leadership is maturing so that team members can represent their companies at NASSCOM, the organization that sets public policy for the Indian software industry. “This handoff to the new guard has been ongoing for a while but is now reaching a crest of new leadership moves,” observes Trowbridge.
2.Changing nature of work in the U.S. Trowbridge says after more than a decade of offshore work in the American market, the Indian service providers are moving up the value chain when it comes to outsourcing work. “They are challenging the likes of Accenture, Capgemini and IBM, which all have a larger U.S. and western European presence,” he observes.The spirit of the Mumbai meeting was buoyant despite four challenges on the Indian landscape:
3. Labor pool compression. The service providers are “feeling the turn over pain, although it’s not bad yet,” says Trowbridge.
4. Europe. The Alsbridge executive observes that European enterprises are putting off short-term, discretionary engagements. “If they aren’t feeling the pressure to outsource, it’s hard to sell,” he notes.
5. The H1 B visa issue. Given the political climate, it has become increasingly difficult for Indian service providers to get their Indian or other non-U.S. experts into the U.S. to work on engagements. The answer is to create an American center with American workers, just as Genpact recently did in Dallas. This, however, is a more costly option.
6. Tax changes. The Indian government has decided to change the way it taxes Indian providers for the work they do outside India. In addition, the transfer and foreign investment tax changes will make it difficult for providers to make decisions on where to locate their delivery centers. “The tax issues across a wide variety of dimensions will create a 3D set of decisions that is rapidly changing the ground where they compete,” says Trowbridge.
For these reasons, the Alsbridge CEO predicts the Indian service providers will begin to face “a difficult period.” Their revenue projections reflect that. The days of scorching 18 percent year-over-year growth are over. At the meeting the providers predicted an 11-12 percent annual growth rate, an almost 50 percent drop in predicted growth.
The bottom line at NASSCOM: “The global outsourcing market has become more competitive,” says Trowbridge.
What does this mean for outsourcing buyers?
Trowbridge says outsourcing buyers today “must make careful decisions.” He suggests they ask three key questions:
- What do you want to outsource?
- What offshore locations do you prefer (if any)?
- Do the provider’s strengths match your specific needs?
For example, say a buyer wants to outsource the development of a billing application to improve its customer experience. It favors a company known for building these applications successfully. For language reasons, this company prefers to outsource this project to eastern Europeans. But its preferred provider choice has no presence in eastern Europe.
Is this a good fit? What is more important? The answers to these kinds of questions help buyers select the most appropriate outsourcing partner.