Posts Tagged ‘TCS’

Indian IT at inflection point

November 6th, 2015

For T.K. Kurien, the 57-year-old boss of Wipro Ltd, running India’s third largest software services exporter is becoming more challenging with every passing day.outsourcing17

“There is this huge change…the way clients are buying technology, the impact it is having on the way we have traditionally worked,” Kurien said in a recent interview.

Kurien, who is based out of Bengaluru, spent just 13 of the 90 days in the quarter ended September in India—the most he has spent travelling in a quarter since taking over as Wipro’s chief executive officer (CEO) in February 2011. He spent most of the time in meetings with executives at Wipro’s 1,000-odd clients, trying to understand their technology needs and how the company could help them become more efficient.

Vishal Sikka, boss of Infosys Ltd, Wipro’s cross-city rival in Bengaluru, is more eloquent in his description of the way technology is impacting India’s $146 billion software services industry.

“I believe that the traditional model of IT (information technology) services is dying,” Sikka has said repeatedly in the 15 months since taking over in August 2014 as the first non-founder CEO of Infosys, the 34-year-old firm set up by N.R. Narayana Murthy and six friends in 1981.

“This is the biggest phase of technology disruption I am seeing,” said Natarajan Chandrasekaran, CEO of Mumbai-based Tata Consultancy Services Ltd (TCS).

The change and disruption Kurien, Sikka and Chandrasekaran—who helm companies that together employ more than 650,000 engineers and posted over $30 billion in revenue for the year ended March 2015—are referring to is the way commoditized IT deals are changing.

Historically, engineers at Indian IT vendors traditionally managed the computer infrastructure of clients and wrote codes for some of the largest banks, including Citigroup Inc. and retailers, such as Wal-Mart Stores Inc.

With the advent of cloud computing—in which clients buy computing power and services over the Internet from a third party—almost all IT vendors have rapidly built up their capabilities to offer these shared services or tied up with cloud service providers such as Inc. and Microsoft Corp.

Indian IT vendors have also started deploying small teams to evaluate the potential of some of the disruptive technologies—TCS and Infosys, for example, are looking to build applications around blockchain technology, which is essentially an electronic system currently being used by crypto currencies, including Bitcoin and Ripple, and helps in authenticating transactions.

Sarvesh Sharma/Mint
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These investments come at a time when banks and other financial firms—their customers—are looking at the use of disruptive technology, including blockchain technology, to cut settlement times and lower costs tied to international payments.

At the same time, IT vendors are being forced to bring in elements of disruptive technology in their service offerings, promising to offer greater efficiencies for their clients, and introducing new approaches, including user-centric approach of Design Thinking in their engagements with clients.

Remaking IT firms

IT vendors themselves are cutting their dependence on engineers and increasing their focus on non-linear growth—which means growth in revenue is not linked to growth in the number of employees—by automating a lot of traditional tasks. Finally, most software services exporters realize that not all technology innovations can come from within the organization and they need to partner with start-ups, thereby enabling them to take the technologies of some of these start-ups to their clients.

“We are seeing a big shift in adopting the culture of innovation from Silicon Valley and the rest of the world,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “There is a big push to remake the IT services firm as a strategic partner on co-innovation and co-creation.”

“It is becoming a challenge,” laughs Kurien. “How do you balance it all and, at the same time, keep recording higher growth rates?”

Growth in the short-term is not just a challenge for Wipro but even for firms like TCS. Wipro hardly recorded any growth in the first quarter April-June period of this fiscal year and TCS, too, grew at just 3.5% in US dollar terms in the first quarter and 3% in the second quarter period.

This has worried a few analysts, who believe TCS may actually struggle to grow at over 10% in US dollar terms and less than 12-14% in constant currency terms, as projected by software services industry lobby group Nasscom, during the fiscal year ending March 2016.

“We have to live and re-calibrate to what you call is the ‘new normal’ growth rates—growing at 13-15% annually. I don’t think any Indian IT firm is even factoring a 20% annual growth in the next two-three years,” said a senior executive at TCS, who declined to be named as he is not authorized to speak with the media. “But, certainly, as more digital contracts come up, and new investments are being made (by all IT firms), one can again look to clock growth of 15%-plus in three-four years’ time”.

As the Indian IT industry approaches an inflection point, the bosses at these companies are shaking up the way the firms have traditionally operated and make each of their firms future-ready—and, thereby, aim to post higher growth rates in the future—by investing in new-age technologies.

“Infosys, Wipro and others were all behind about three years ago. They suddenly got religion and are working furiously to catch up (with their global peers). They (Indian IT firms) still have to keep the old business going, but the shift to the front end of design and strategy is happening and the Indian IT services firms are now seen as more strategic than where they were three years ago,” said Wang of Constellation Research.

One of the ways the three poster boys of the Indian IT industry are making themselves future-ready is by re-skilling their existing workforce to learn competencies in these new-age technologies. Infosys has already made 54,000 of its existing workforce attend day-long classes in “design thinking”, the user-centric approach which has helped the company win more than $100 million deals and helped its engineer write better codes.

Wipro is in the midst of re-educating its workforce on new languages, while TCS aims to train more than 100,000 of its engineers in this fiscal year in cloud computing, machine learning and other areas of digital technologies.

Renewed optimism

And again, the early results are encouraging. Since Sikka took over in August last year, Infosys is a more confident, 180,000-strong company now than it has been for some time. Rivals are seeing a more aggressive Infosys when IT vendors are making pitches to clients, even if the company is winning new business at the expense of margins.

It was not a surprise when Infosys’s sequential growth outpaced TCS for the second successive quarter in the July-September period; the last time Infosys’s revenue growth was higher than TCS for the first two quarters in a row was in the April-June and July-September quarters of 2008.

This renewed optimism is explained by a series of steps taken by Sikka. Sikka first won the trust of his employees and, eventually, brought down attrition rates. It was no easy task. Infosys was haemorrhaging talent, with one in five employees leaving the company between April and June last year. Now, Infosys has the lowest attrition rate among the Big Three IT firms.

Sikka then put his trusted lieutenants in important roles, went for a management and organizational restructuring earlier this year, and started to marshal his team to win the confidence of clients. It helped that in the April-June period, it recorded 4.5% sequential revenue growth in US dollar terms, and 6% in the second quarter.

Agreed, Infosys has warned of a softer third and fourth quarters. Still, most analysts believe that the investments being made by Sikka should help transform Infosys into a $20 billion next-generation IT services firm by 2020.

Not for nothing, both Sikka and Kurien believe that Infosys and Wipro should see the “first meaningful impact” of automation on the company’s results by the start of fiscal year 2017. This truly would be a big step in Indian IT’s embrace of non-linear growth.

“The catch-up mode India-centric vendors continue to operate in places greater pressure on their abilities to balance innovation and sales growth,” said Bozhidar Hristov, an analyst at US-based technology research firm TBRI. “Recent investments in ‘new’ technologies illustrate their aspirations to depart from their status of low-cost outsourcers.”

At the $15.5 billion TCS, the single biggest challenge ahead of Chandrasekaran is to find ways to generate close to $2.5 billion in new business this year, if the country’s largest software exporter expects to outpace the average growth of 12-14% Nasscom has forecast for the IT services industry in FY16.

It is an onerous task as companies across the world are pressing their IT vendors for cost savings and there is intense pricing pressure for deals that are coming for re-bids.

“TCS clearly has reached a point where generating more business from some of its largest clients is nearing saturation,” said the head of research at a domestic brokerage who spoke on condition of anonymity. “Some of its largest clients bring in more than $700 million in annual revenues. How do you continue growing with such large accounts?”

Client mining

TCS itself is trying different approaches to keep up with higher growth rates. The Mumbai-based firm introduced its artificial intelligence (AI) platform, Ignio, which identifies, diagnoses and learns from issues in the IT infrastructure and automates basic technology work, thereby doing away with the need for engineers.

TCS set up a new business unit called Digitate dedicated to its recently launched Ignio platform and other next-generation products, and believes it has the potential to become a multi-billion-dollar business. The move makes TCS the second IT firm globally to carve out a separate unit focused on products using disruptive technologies; International Business Machines Corp. (IBM) set up IBM Watson, an AI supercomputer system, last year.

“TBRI expects TCS’s Ignio AI platform to impact revenue growth positively in the next 12 months as the platform will play a core role in process automation within the company’s infrastructure services unit. Ignio had a sixfold increase in paid pilot client projects, from three to 18, in the past six months,” said Amy McLaughlin, another analyst at US-based research firm TBRI.

Chandrasekaran for now declined to share by when Digitate can become a billion-dollar business for TCS. However, executives at TCS believe that Digitate should become a $1 billion annual business by 2019-20.

Infosys and Wipro, in addition to investing in these new-age technologies, are also giving a fillip to its client mining or ability to generate more business from their existing clients, through a clutch of measures. This has started showing early benefits. Infosys managed to increase business from its top 10 clients in April-June by 5.7% from the January-March period; during the second quarter, too, the share of business from its top 10 clients was the same as in the first quarter.

Although Wipro’s two largest clients outsourced less work to the IT vendor, the company managed to increase business from its next eight largest clients by 2.8% during the July-September period.

Two of the biggest challenges ahead of Indian IT firms remain in areas where all of them are renewing their focus—re-skilling the existing workforce and how many IT firms are able to monetize their new products and platform offerings.

“Talent management, including both training and re-skilling existing employees, will remain a key investment initiative as the development and delivery of new technologies require different skillsets compared with legacy outsourcing services,” said McLaughlin of TBRI.

As more outsourcing deals have elements of digital technologies, Indian IT vendors need to evolve from back-end outsourcing firms to “thought leaders”, says Wang of Constellation Research. “They have to change how they engage with customers by being proactive in solution design vs reactive, and they can do this by hiring more digital artisans.”

According to Thomas Reuner, managing director of IT outsourcing research at HfS Research, supporting clients in their digital transformation requires broad investments in skills and capabilities.

“Indian providers remain selective, if not coy, following the likes of Accenture (Plc) and IBM in their investment strategies,” said Reuner. “The likes of IBM and Accenture have broader and deeper industrialized vertical assets while Indian providers are more selective in terms of verticals and assets. Hence, there are no simple answers as to the winning strategies. Much will come down to balancing transformational capabilities and commoditized delivery of services. Crucial will be devising new governance and management approaches to help clients in their digital transformation.”


Wipro joins Infosys for a bright second half

October 22nd, 2015

Wipro Ltd, India’s third-largest information technology (IT) services firm, on Wednesday joined larger rival Infosys in forecasting higher growth in the second half of the current financial year than the first. The company, however, cautioned that lower productivity for clients during the holiday season in the US and Europe could hit business in the October-December quarter.outsourcing8

The firm reported seven per cent net profit growth in the September quarter to Rs 2,235 crore. With a revenue of Rs 12,513 crore, it met the lower end of its guidance. Margins, at 20.7 per cent, were slightly lower than the 21 per cent reported in the previous quarter. The impact of wage increases given in June also showed in the results for the September quarter.

Wipro’s 3.1 per cent revenue growth for the quarter was lower than those of larger rivals TCS (3.9 per cent) and Infosys (5.9 per cent). While HCL Technologies’ dollar revenue had grown a mere 0.5 per cent on a sequential basis, TCS, Infosys and Wipro reported growth rates of three per cent, six per cent and 2.1 per cent, respectively.

Wipro forecast its revenue in the December quarter to be in the range of $1.84 billion to $1.88 billion — year-on-year growth of 0.5 per cent to 2.5 per cent — as it anticipated unprecedented closure at its clients in the manufacturing, retail and banking sectors during the holiday season. The Street had been expecting a growth guidance of 2-4 per cent.

Analysts say Wipro might meet the upper end of its guidance due to stability in the energy vertical, which had been down due to low oil prices and reduced global demand, and client additions.

“It seems the company was hinting that the financial year (2016-17) will be a better one. The commentary remains similar to those of other players. Wipro, too, is saying that the second half will be better. TCS, Infosys and HCL Tech have maintained that their order books are much stronger,” said Sarabjit Kour Nangra, IT research head, Angel Broking.

Wipro added 67 customers in the September quarter to take its total tally to 1,100.

Infosys expects its full-year growth to be between 10 per cent and 12 per cent. Its CEO Vishal Sikka had said on October 12 after announcement of the September quarter results: “Even if we are flat (in July-September) we will end up at the higher end of the 10-12 per cent guidance… the second half traditionally has seasonal dips in growth, so we are going to work very hard to make sure we buck the trend.”

TCS, which does not provide revenue forecast, was cautious. On October 13, its CEO N Chandrasekaran said: “In terms of our outlook for the rest of the year, we expect a tapering of sequential revenue growth in the second half, like in earlier years.”

Indian IT services firms are faring better than their global peers, even as their biggest market, the US, is showing higher economic growth. On Tuesday, IBM, the world’s largest computer company, saw its third-quarter revenue declining 14 per cent to $19.3 billion, a 14th straight quarter of shrinking sales. IBM’s services revenues, which Indian IT firms benchmark with, were also down. Its global technology services fell 10 per cent to $7.94 billion. IBM Chief Financial Officer Martin Schroeter said the strategy shift towards cloud computing and data analytics had an impact on existing business, but the future seemed bright.

Wipro CEO T K Kurien said in an interview on Wednesday: “We see that the US market is clearly on the upswing for us. If you see the share of the US as part of the overall business, it has grown to 52 per cent from around 48 per cent a year and half ago.”

Wipro said it was witnessing faster growth in businesses using digital technologies, with more transactions from customers in lower value deals, but there was an opportunity to mine those for increased business. This was also due to a reduction in larger deals from customers who traditionally rolled out tenders of hundreds of millions of dollars to IT vendors.

“We continue to see strong competition around large deals and there is pressure on pricing with respect to new deals. The deal sizes are getting smaller and the number of multi-hundred-million-dollar deals has reduced in the market place,” said Kurien.

Like peers TCS and Infosys, Wipro also said its digital business was doing well. Wipro HOLMES, its cognitive intelligence platform, is engaged in 12 projects in business-critical areas for marquee customers. “There is no large outsourcing deal in the digital business. It is a series of small deals that drive business,” Kurien said.

What continue to be pulling down the company are its energy and utilities verticals (constant currency growth of 0.3 per cent) and the Europe geography. The company, however, said the verticals like health care and life sciences had bounced back with 4.2 per cent sequential growth. Global media and telecom grew by 4.4 per cent sequentially, though the company did see some pressure going ahead. The US grew 3.6 per cent and Europe was soft at 1.4 per cent.

During the September quarter, the company’s headcount increased by 6,607 to 168,396.

Ahead of the announcement of the quarterly results, the Wipro shares on Wednesday closed at Rs 577.9 apiece, 1.04 per cent higher than their previous close. The BSE IT Index rose 47.8 points, or 0.43 per cent, to close at 11,284.36.


Infosys Q2 profit rises 9.8%, firm lowers FY16 dollar revenue growth forecast

October 13th, 2015

Infosys Ltd cut its full-year revenue growth forecast in dollar terms on Monday, citing the potential adverse effects of cross-currency movements, although it reported higher-than-expected revenue for the second straight quarter.Outsourcing45

India’s second largest software services firm lowered its revenue growth forecast for the year ending 31 March 2016 to a range of 6.4-8.4% in dollar terms, from an earlier forecast of 7.2-9.2%.

The revision jolted investors. Infosys shares fell 3.88% to Rs.1,122.50 on BSE on a day the benchmark Sensex shed 0.65% to 26,904.11 points.

Infosys retained its earlier revenue growth forecast of 10-12% in constant currency terms for the fiscal year, but warned that growth in the October-December quarter may not be better than the 0.8% increase in the year-ago period.

“Our endeavour, our wish is to be (better than the year-ago period) but our visibility is that it will not be,” Vishal Sikka, who took over in August 2014 as Infosys’s first non-founder chief executive, said in an interview.

In the three months ended 30 September, Infosys posted 6% growth in revenue on top of a 4.5% increase in the June quarter. It added 82 clients in the quarter to take the total number of active clients to 1,011.

Infosys’s revenue jumped 6% sequentially to $2.39 billion.

Worryingly for the country’s $146 billion outsourcing sector, slow demand growth that Sikka referred to was on account of clients across industries holding back on technology spending— a factor that’s not limited to Infosys.

If it pans out, this could mean that Infosys’s larger rival Tata Consultancy Services Ltd (TCS)—which posted a 3.5% sequential revenue growth in the first quarter—could find it challenging to match the 12-14% year-on-year growth that industry body Nasccom has forecast for the software services sector this fiscal year.

TCS is scheduled to report its second-quarter earnings on Tuesday.

“Traditionally, Infosys is the first to actually give any trend of any industry slowdown. Since the company has said it is seeing softness in demand, this actually puts TCS under pressure,” said a Mumbai-based analyst at a domestic brokerage firm. “It remains to be seen if the company will be able to grow even at 14%.” He declined to be named.

Infosys’s new chief financial officer Ranganath D. Mavinakere said that even if the company experiences “flat growth” in the third and fourth quarters, the company will still be able to end the year with growth at the “upper end” of its 10-12% forecast in constant currency terms.

Infosys appointed Mavinakere, formerly head of strategic operations and CEO’s office, as the new chief financial officer, after Rajiv Bansal decided to quit. Bansal will be an adviser to Sikka and his team until the end of December.

For the July-September period, Infosys’s net profit improved 10% sequentially to Rs.3,398 crore and revenue jumped 17.2% to Rs.15,635 crore in rupee terms.

A Bloomberg poll of 22 analysts estimated that the company would post a net profit of Rs.3,287 crore and revenue of Rs.15,211 crore.

Infosys’s growth was led by a 6.1% improvement in the US, which accounts for more than 60% of the company’s total revenue. Revenue growth in Europe, which brings in about one-fourth of revenue, improved 8.3% in the July-September period.

The banking, financial services and insurance sector, which accounts for 33% of the company’s revenue, grew 5.2% over the three-month period; business from retail and consumer clients saw a 7.9% improvement.

“It is an excellent set of numbers, as it’s more broad-based growth, across industries and geographies,” said the second Mumbai-based analyst working at a foreign brokerage firm. He didn’t want to be named.

Operating profit margin widened 1.52 percentage points sequentially to 25.54%, on account of improving utilization rates and an added 70 basis points gains made on cross-currency movements. One basis point is 0.01%.

Since taking the helm, Sikka has been pushing the company to embrace automation and other new technologies to stay competitive amid pricing pressure for traditional IT work.

Infosys is also making its engineers adopt the user-centric approach of problem-solving called design thinking, to open new revenue streams.

“I’m very optimistic and we are already seeing the benefits (of the changes put in place),” Sikka said, after the company reported its earnings.

But some experts said that it is still early to say if Infosys under Sikka has indeed made a turnaround and it could be a “long bumpy road” ahead for the current management.

“Ever since Vishal took over the reins at Infosys, we cautioned that the road to recovery will be a bumpy one. Its Q2 results appear to underline exactly that. Sound quarterly results were clouded by a softening in the outlook,” said Thomas Reuner, managing director of IT outsourcing research at HfS Research.

“The key issue is change management, both with a set a clients and also as the company internally shifts to embracing automation as it is disrupting Infosys’s workforce as Vishal pointed out. Crucially, we have to remember that the secular macros have not changed. Vishal and his management team continue to have their work cut out.”


David D’Lima to lead integrated services and solutions group at Wipro

August 21st, 2015

Wipro Ltd’s chief operating officer Abid Ali Neemuchwala has entrusted a former Tata Consultancy Services Ltd colleague with the task of leading a new initiative that promises to improve account mining or ability to generate more business from existing clients.Outsourcing28

David D’Lima, who joined Wipro in June from International Business Machines Corp. and worked for over 16 years at Mumbai-based TCS, will lead a 15-member integrated services and solutions group that will mentor teams at each of the company’s five service lines to cross-sell offerings to its 1,071 clients.

“We have initiated a new organization called integrated services and solutions group which brings all the services together,” Neemuchwala said in an interview.

Under this new group, D’Lima has formed a team by getting two executives from each of Wipro’s five service lines—product engineering, business applications, business process outsourcing (BPO), cloud computing and analytics. Additionally, D’Lima has got five executives from outside Wipro, who have a “good experience in integrating” service line offering, according to Neemuchwala.

“So if you are going to a bank and telling him that I’ll reduce your turnaround time to give a loan, it may need mobile technology, infrastructure solution, which will need cloud, for application solution, you need web server, and this may need BPO. So to solve one problem of a client, all these services have to brought together,” said Neemuchwala.

“It is an enabling organization. So every vertical will eventually do this in future. But for now, we need to transform and hence this will play a role of mentor to other service lines to do it themselves,” said Neemuchwala.

To be sure, this is the second such step Wipro has undertaken to improve its client mining. At the start of the fiscal year in April, CEO T.J. Kurien linked every account manager’s variable pay to their ability to sell at least three of the five service lines offerings to existing clients, Mint reported on 8 May.

Analysts cheered the measures being rolled out by Kurien. Neemuchwala, though, said that such steps take at least “six months” before the benefits are reflected on growth numbers.

“Historically, the second half of fiscal year is stronger for Wipro. So if the company does better in period starting October this year compared to last, then we can gauge the success of these measures. But it is good that the firm is taking all these measures,” said a Mumbai-based analyst working at a foreign brokerage.

“To truly rejuvenate growth, IT services firms need to hire and develop new talent, with ability to bring more tailored offerings to clients. That said, services firms that place disproportionate effort into mining existing clients, versus hunting for brand new clients, is a good step,” said Rod Bourgeois, founder of DeepDive Equity Research, a US-based equity researcher.

Wipro concedes that its inability to get more business from existing clients is one reason why it has underperformed its peers in recent years. Since taking over as chief executive in February 2011, Kurien has helped Wipro almost quadruple the number of customers who bring more than $100 million in revenue for the company. Wipro has 11 clients that bring in more than $100 million in annual revenue now, versus three such marquee clients in March 2011. However, in the same time, Wipro has struggled to record annual revenue growth of more than 7%.

Wipro’s focus on generating more business from existing customers puts the spotlight on account hunting and account mining, as the country’s software service providers grapple with the challenges of slowing growth.

Wipro’s cross-city rival Infosys Ltd is focusing on client hunting as CEO Vishal Sikka looks to improve the effectiveness of sales teams by incorporating elements of design thinking, among other measures, while making pitches to prospective clients.


Why Indian IT firms want to shift outsourcing projects from offshore to onshore model

June 15th, 2015

With the advent of automation at the heart of India’s $146-billion information technology industry, the sector’s biggest customers are starting to rethink their strategy around outsourcing and debating whether to shift some outsourcing projects onshore – a development that has the potential to make the offshoring versus onshoring debate irrelevant. Outsourcing15

With automation having the potential of reducing costs by as much as 80% in commoditised service lines such as computer infrastructure management, customers of Indian IT are starting to initiate conversations around whether they can move more projects to onsite locations, without significantly disrupting the traditional offshoring labour arbitrage model of Indian IT in the near term.

“When you have the potential to automate certain projects, what difference does it make whether that project is onshore or offshore? It makes that debate irrelevant,” said a chief information officer of a European bank that outsources projects to one of India’s top three software firms. He requested anonymity as these discussions are private and confidential. The development, if it kicks off consistently, will signal a considerable shift for Indian IT firms such as TCSBSE -0.17 % and Infosys, which have for years thrived on the offshoring model where they built large campuses to house thousands of engineers to help bring down the cost of software development and maintenance.

“After more than a decade of achieving value through the offshore labour arbitrage model, one would think that mature organisations that have built GICs or captives, or organisations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation,” said Peter Bendor-Samuel, CEO of outsourcing advisory Everest Group, in a blog post last week. “But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work,” he added.

The emergence of robotics automation, as has been widely reported, has the potential to disrupt the traditional “pyramid model” of Indian IT. Recognising the need to gain an edge in the battle for automation, the sector’s top companies such as TCS, US-based Cognizant and InfosysBSE 0.70 % are investing heavily on building tools and platforms that can afford large-scale cost benefits to demanding customers who are tightening technology-spending budgets with each passing year.

For instance, Infosys’ new automation platform has the potential to generate productivity improvements of about 40-50%, Infosys’ head of platforms Abdul Razack said in an interview last week. Similarly others like IPSoft’s cognitive computing system Amelia has the potential to perform routine, commoditised tasks at a fraction of the cost and time it takes a human engineer.

The fact that the cost of automating software services has come down rapidly over the years is also playing its part in this debate. “Previously, about 10-15 years ago, the cost of automation was much much higher – now that those costs have come down, you can afford to keep more projects onshore,” said Sid Pai, Asia-Pacific head at outsourcing advisory firm ISG.

To be sure, this does not mean that customers will move work away from third-party vendors such as TCS and Infosys. What is likely to happen is what is commonly referred to as “rebadging” — the process where third-party vendors take over the assets of a customer and replace personnel with their own staff, experts say.


US government goes tough on Indian IT outsourcing; deals with Disney, Fossil under lens

June 15th, 2015

After reports that the US government is investigating an outsourcing contract involving utility firm Southern California Edison and India’s largest software exporters, Tata Consultancy Services and Infosys, similar pacts signed now or recently are coming under the scanner, people familiar with the matter said.Outsourcing13

The latest contract to be scrutinised is one with Walt Disney, which recently signed a deal with US-based Cognizant Technology Solutions. Other recent deals with companies like Fossil are also being investigated, people familiar with the probes said.

On Sunday, IT industry body Nasscom said an investigation could have long-term ramifications on future contracts between US corporations and Indian IT firms and that it would intensify efforts to resolve the issue. “Undoubtedly (these probes) would have a damaging impact on future business. It is a serious concern,” Nasscom president R Chandrashekhar told ETon Sunday.

“This has the potential of seriously destabilising the way the sector does business…and frankly, we are also dismayed by the way a hostile business environment is being created,” Chandrashekhar said.

Cognizant did not immediately respond to an email seeking comment. Indian IT companies have vehemently denied wrongdoing.

On Sunday, communications and IT minister Ravi Shankar Prasad told PTI the government would intervene in this issue of alleged visa violations if the need arises. He said the government was confident that TCS and InfosysBSE 0.78 % would address the matter.

The US Labor Department plans to investigate whether top outsourcing corporations can use H-1B visa workers to replace fulltime technology workers, according to US media reports last week, citing Senators Dick Durbin and Jeff Sessions.

“A number of US employers, including some large, well-known, publicly traded corporations, have laid off thousands of American workers and replaced them with H-1B visa holders. To add insult to injury, many of the replaced American employees report that they have been forced to train the foreign workers who are taking their jobs,” the senators said.

Southern California Edison laid off about 500 workers, beginning August last year, and replaced them with H-1B visa holders from TCS and Infosys.

India’s $146-billion information technology industry is undergoing the biggest transition in its history amid a rapidly evolving landscape. The sector is struggling to match the explosive growth rates that it enjoyed in the 2000s amid volatile currency fluctuations that hammered profits and margins of all top Indian IT firms in the March quarter.

According to a Computerworld story last week, the Disney ABC Television Group cancelled a plan to farm out about 35 application developer jobs, amid a widespread outcry against outsourcing.

“Disney is also part of the overall investigation —it’s quite worrying for Indian IT firms, since a lot of other contracts that are being signed now are also going to be in the spotlight,” said an analyst with a top US-based research firm.

Experts said the politically charged debate on outsourcing is bound to heat up over the coming months with the US elections on the horizon. Infosys and TCS issued statements on Friday saying they are fully compliant with US immigration and visa laws.

“Infosys is committed to complying with US immigration laws. The US Department of Labor (DOL) regularly selects a percentage of visa and labor condition applications for extra scrutiny in this industry, and we work closely with the DOL to assist them in this activity in the ordinary course of our business. We have received no indication of any broader investigation of Infosys visa practices,” Infosys said. TCS said that the company “maintains rigorous internal controls to ensure we are fully compliant with all regulatory requirements related toUS immigration laws.”


India prods China on IT, ITeS access

May 28th, 2015

New Delhi will soon send a reminder to Beijing on the hurdles faced by Indian IT/ITeS firms in getting greater market access in China. This follows concerns raised by industry bodies Nasscom and CII in meetings with the Union government about the difficulties in qualifying for bids put out by Chinese government and state-owned enterprises (SOEs) for IT/ITeS projects.Outsourcing10

In the aide memoire to be sent to China, sources said, India would also urge China to strengthen its intellectual property (IP) regime to protect Indian firms’ IP rights.

As per the 2013 Nasscom-KPMG study, of the estimated $46-billion Chinese IT/ITeS market, India’s share is less than $1 billion, despite its global reputation as a major export of IT-related services. China’s IT/ITeS market could cross $84 billion by 2020.

An aide memoire in diplomatic parlance means a note summarising in an informal manner (sans the usual courtesy phrases) the discussions between both sides. It is meant as ‘an aid to memory’, and a gentle reminder, seeking the necessary action on the points discussed. Indian IT firms operating in China include TCS, Infosys, Wipro, HCL, Tech Mahindra, NIIT (Education), Zenzar, Geometric, Mphasis, Mindtree, Birlasoft and KPIT.

In China, the government (at the federal and state/local levels) and SOEs are among the largest buyers of IT-related services. The Nasscom-KPMG study says by 2020 demand from SOEs is likely to be 45% of the total Chinese demand.

To qualify for bids of large projects, an applicant company needs to show that they have helped in the implementation of Chinese government/SOE projects of similar size. “We have suggested that China should ascribe more value to the experience of companies in government projects of similar sizes outside China, ” Gagan Sabharwal, director (global trade development), Nasscom said.

India had, on many occasions earlier and even during Prime Minister Narendra Modi’s recent visit to that country, taken up these issues with China. However, the fact that Beijing was yet to respond favourably to New Delhi’s concerns was recently discussed at a meeting held by the Indian commerce ministry, official sources told FE. The ministry then prepared the aide memoire and forwarded it to the Prime Minister’s Office to be sent to the Chinese authorities, they said.

Nasscom has also suggested that India and China should, on a reciprocal basis, allow easier movement of highly skilled professionals through long-term visas and work permits to enable Indian and Chinese companies to send across such experts to work in each other’s territory.

CII had pointed out that insistence on local entities in some provinces in China to avail subsidies was reducing competitiveness of Indian IT/ITeS firms. Besides, CII said, Indian IT/ITeS firms are facing challenges in staff mobility between provinces in China due to the ‘hukou’ system (a system of household registration that restricts internal mobility of people and ties their future prospects to their place of residence), necessitating local offices in each project area.

To showcase technological expertise of Indian IT firms, CII said certain pilot projects can be chosen to be jointly executed with Indian and Chinese companies. Also, both sides can jointly develop a platform on policy updates and business opportunities for Indian and Chinese companies, it said.

CII and Nasscom also want India to push for a totalisation agreement (on social security payments) with China. This, they said, will help avoid social insurance fees being paid twice by companies for Indian employees being deputed to China — once in India and then again in China. These industry bodies also want New Delhi to take up the issue of the lack of clarity in withholding tax imposed on repatriated profits. Among issues affected the Indian outsourcing firms, CII has pointed out resistance to outsourcing within China due to lack of understanding of benefits and perceived job loss fears in SOEs.

Entering the dragon
* Size of Chinese IT/ITeS market = $46 bn
* India’s current share = below $1 bn
* China’s IT/ITeS market size projected to be $84 bn by 2020
* Chinese govt & soes among potential big buyers of IT services
* By 2020, soes to make 45% of Chinese demand
* Indian IT majors in China: tcs, Infy, Wipro, hcl
* India seeks long-term work visas for IT workers in china
*  Totalisation pact with china proposed


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