Posts Tagged ‘Wipro’

Indo-US trade wars Part 1: The great outsourcing debate

November 14th, 2014

No issue has the ability to spark an online conflagration as much as a debate on outsourcing. So you can well imagine how much of a role it could actually play in either strengthening or destabilising US-India relations. After all, all of India’s tech biggies, from Infosys to Wipro, to TCS, to Cognizant, and many of its smaller players (Mindshare, Happiest Minds, Tech Mahindra) have their futures firmly in Uncle Sam’s backyard. Any attempt to jeopardise that trough of revenue is likely to cause shrill alarm, while the continued trend of using low-cost tech labour — specifically H-1B workers — by shipping them over to the US to work at clients’ sites will continue to get the American techie worked up.Outsourcing33

It is a greatly divisive issue that could have major spill-over effects, with disastrous tit-for-tat outcomes — but Narendra Modi and Barack Obama would fervently hope that it doesn’t come to that, since the business stakes are high for both countries.

It doesn’t help that the recent Immigration Reform Bill (S744), passed last year in the Senate by a comfortable 68 to 32 margin, has simply poured jet fuel over this issue. However, the temperature is going to really shoot up into the stratosphere if the House of Representatives decides in the coming months to go ahead and pass what is essentially a very similar-looking Bill.

Meanwhile, the Indian software industry is on tenterhooks. The Indian American Advisory Council (IAAC) which advises US House of Representatives on India-related issues, estimates that the Indian economy could take a $30 billion hit if the Bill goes through.

On the other side of the debate, US observers say the Bill could be disastrous for US tech workers, who in effect are being let down by American companies as well as their governments. Who to believe depends on what kind of math you end up doing. (Ironically, it’s probably the first time in recent history that both parties in a rancorous debate on protectionism are in agreement.)

Broadly speaking, the proposed Immigration Bill actually boosts the number of H-1Bs from the current 85,000 to 195,000, but that’s just candy coating that hides the bitter medicine underneath, say pro-outsourcing critics of the Bill. This cohort is horrified by the clause that states that a company with more than 15 percent of its workforce on H-1Bs will be barred from placing H-1B workers at client sites. Companies using L-1s (another short-term visa similar to the H-1B) would have to prove that it didn’t replace any American workers in the same field 90 days before or after the L-1 filing. Lastly, no company can use L-1s or H-1Bs to make up more than 50 percent of its workforce after October 2016.

If this weren’t bad enough, say pro-H-1B critics of the Bill, the killer blow is in the fees that would be levied on companies currently exceeding the future caps: $2,250 for L-1 petitions and $2,000 for H-1B petitions for companies that have more than 50 percent of their workforce on these visas. That fee would rise to $5,000 per visa in fiscal 2015 for companies with 30 to 50 percent of employees on these visas, and a whopping $10,000 per employee for a company that has 50 to 75 percent on them. To add to all of this, there is a requirement that employers pay H-1B workers no less than the mean wage for the occupation that could boost a $60,000 per year entry-level job to $92,000.

No Indian company thought that when Barack Obama used the tagline “Say no to Bangalore and yes to Buffalo” in 2009, in an effort to revive the post-meltdown American economy, it would come to this.

“The Senate Bill unfairly targets American companies trying to remain globally competitive by reducing their ability to contract with global IT service providers and restricting their access to the international expertise they need,” said Ron Somers, former president of the US-India Business Council, a year ago. He also cautioned that it could strangulate innovation and job creation, and compel businesses to move jobs outside the country.

Not true, say anti-outsourcing critics of the Bill, who think that in reality, this is just one more nail in the coffin of the American tech worker who has a long history of being replaced by low-cost H-1B workers. That is apparently because of what has been widely dubbed as the Facebook Loophole — a clause in the Bill stating that if companies help their H-1Bs and L-1 workers to apply for Greencards (which can take a few years to materialise), they can reclassify them as “immigrants in waiting”, and duck the new requirements altogether.

“I think it’s a pretty large loophole, and it defeats the purpose of trying to get these firms that are heavily dependent on H-1B visas to hire American workers. Now, they have an additional way to avoid hiring American,” said Ron Hira a year ago, a policy guru who researches outsourcing at the Rochester Institute of Technology. “Really, the tech industry wrote it.”

Even if this loophole wasn’t exercised, whatever these companies fork out in additional fees is a trifle compared to how much they would save because of the cheaper labour that they utilise, say pro-labour critics like Neeraj Gupta, CEO of the IT services company Systems in Motion.

Who to believe? That’s a tough call. The widespread stereotype on the American side of the fence is of Indian engineers of poor calibre replacing boatloads of talented American techies who are denied what is rightfully their jobs. These workers also bring wages down, it is believed, and since they are willing to work for peanuts, they help foster unfair work practices.

For instance, a Zogby International poll conducted many years ago discovered that 71 percent of Americans felt that outsourcing jobs overseas negatively impacted the US economy, while 62 percent said that the US government should tax or legislate to try to stem the tide.

Conversely, the pro-outsourcing side of the fence says that the myth of low-quality Indian engineers is way overblown (“look at all the people who work in Silicon Valley — they come from the same stock”, they say). Many Americans are simply not qualified for these jobs, whose technical requirements change rapidly, and that many Americans are simply not interested in these entry-level, grunt positions that are not capable of paying back debilitating student loans that Americans are often saddled with. Indeed, many American employers complain that retaining an American, who often take flight to jobs that pay a few dollars more, is a monumental pain and an expensive proposition.

So, where does the truth lie? For a real measure of the economic impact of H-1B workers on the American jobs, it is probably only logical to analyse the job market and wage growth for this sector. It turns out that Ian Hathaway, research director at Engine, an American economic research outfit, has conducted an analysis that shows the job market in science, technology, engineering, and mathematics fields (STEM), as well as computer and math sciences (CMS), is actually a whole lot tighter — which means a lot more jobs available per unemployed worker where employers must compete to get employees — than for other fields. Apparently, At the end of 2012, there were 2.4 CMS job openings for each unemployed CMS worker, and 1.4 STEM openings for each unemployed STEM worker versus four unemployed workers in non-STEM and CMS fields per job opening.

What’s more, Hathaway shows that wage growth for STEM and CMS workers with at least a bachelor’s degree was far more “robust” in the last 12 years compared to other fields. “Not only did wages grow at the median for these fields while wages in all other professions fell substantially; that growth also reached workers with a broader set of income levels,” pointed out Hathway. In fact, it is “irresponsible for researchers to claim there is an oversupply of STEM workers,” he added.

Hathaway also pointed to another study, conducted by William R Kerr, a Harvard business professor, who examined 300 American companies and found little empirical evidence that pointed to American engineers being displaced by foreign ones. In fact, Kerr’s study suggested quite the contrary, where the growth of immigrant workers apparently “helps younger American technical workers — more of them are hired and at higher-paying jobs — but has no noticeable consequences, good or bad, on older workers”. Kerr also said that “In the short run, we don’t find really any adverse or super-positive effect on the employment of Americans,” adding that “People take an extremely one-sided view of this stuff and dismiss any evidence to the contrary.”

This is more or less borne out by another study done by academics at the University of California at Berkeley, which says that foreign-born STEM workers increase employment and wage opportunities for high-skilled native-born American workers (STEM and non-STEM).

The study found that over the span of a decade in an urban area, a 1 percentage (of total employment) increase in foreign STEM workers during a decade actually increased the wages of native-born American college graduates by 4 to 6 percent, with small effect on their employment. Moreover, “the technologies introduced in the period 1990-2010 by STEM workers likely increased total production, and even more strongly the productivity of college-educated. We also found that college-educated natives moved in response to foreign STEM workers to more human capital-intensive sectors of the city economy, they increased the ‘creative’ skills used in production, and their house rent increased, eroding part of their wage gain.”

This is all startling stuff and an overwhelming refutation of the widespread scaremongering regarding outsourcing and H-1Bs. The inevitable conclusion, then, is that the American tech worker has no reason to fear H-1Bs, regardless of what they hear through the grapevine or their own occasional bitter experiences. What these studies overwhelmingly point to is that paradoxically, H-1Bs actually help them.

There are other reasons for outsourcing opponents to perhaps revisit their positions. Today, as this New Republic piece points out, many large global American firms in fields from finance to healthcare have gargantuan back-end systems that require careful tending to, something that the lower-end H-1B worker is perfectly suited for, allowing American tech workers to focus on climbing the employment value chain. Not doing so could stymie growth prospects for these companies, thereby making it even harder for American workers to find the kinds of jobs they want.

Several hundred years ago, economist David Ricardo postulated his theory of comparative advantage by saying that the essence of a sound, free-trade system is that which allows countries to focus on their core skills, thereby producing something that they are the most efficient at, instead of a product that someone else is better at churning out. Here, outsourcing is simply a service instead of a good, and by protecting low-end service jobs instead of trying to create higher-end ones, the US is simply being more inefficient.

And while the new areas of tech employment, rife with self-driving cars, bots, and other forms of artificial intelligence may be disruptive and appear to be “anti-people”, they actually require a whole new wave of techies to code, build, and manage them. This is the emerging, new world of employment, along with analytics and big data, that Americans should be focused on conquering, instead of fretting over the inconsequential lower-end ones.

As David Clark, a senior research scientist at MIT’s Computer Science and Artificial Intelligence Laboratory, has observed, “the larger trend to consider is the penetration of automation into service jobs. This trend will require new skills for the service industry, which may challenge some of the lower-tier workers, but in 12 years, I do not think autonomous devices will be truly autonomous. I think they will allow us to deliver a higher level of service with the same level of human involvement.”

Getting replaced by someone else at work is a humiliating experience. If it happened to me, I would probably be angry, bitter, and vengeful. And I would, if I were American, not be able to appreciate the thick irony that the biggest proselytiser and enforcer of opening up markets, especially in developing countries, has been the US.

However, considering all of the evidence that points to outsourcing and H-1Bs having a negligible — indeed, a positive — impact on the US worker, never mind the US economy, maybe it’s time for the American tech worker to deep-six his or her understandable animosities toward H-1Bs and the likes, and focus on ruling the emerging technology landscape, just as their predecessors have been doing for decades.

Which means that any debate on the Immigration Bill going ahead should take this into account, lest a flawed conception of what H-1Bs do to the American economy result in torpedoing what could be a fertile era for Indo-US trade and cooperation.


Wipro secures $143 million outsourcing deal from Levi Strauss

November 13th, 2014

IT services major WiproBSE 0.69 % has bagged a $143 million 5-year outsourcing deal from Levi Strauss as the US-based denim apparel maker looks to cut 500 jobs in a restructuring exercise. Outsourcing28

The move, first announced in March 2014, is expected to generate net annualised cost savings of $175-200 million once fully implemented.

Levi Strauss & Co has entered into a Master Services Agreement with India’s third-largest software services firm to outsource “certain global business service activities within the functional areas of information technology, finance, human resources, customer service and consumer relations.”

“The initial term of the agreement is five years with activation of certain components of the Outsourced Services commencing during the first quarter of 2015. The company has the right to renew and extend the agreement for up to two additional one-year periods.

“The company will pay Wipro for the services through a combination of fixed and variable charges, with the variable charges fluctuating based on the company’s actual need for such services. The company expects to pay Wipro a minimum of approximately $143 million over the initial term of the agreement,” Levi said in a regulatory filing to the US SEC.

Earlier this week, Levi had said that its next phase of the global initiative includes “elimination” of around 500 positions primarily reflecting the Outsourced Services as well as a further reduction of management layers, an increase in spans of control, the removal of duplicative roles and other structural changes.

“The company anticipates the elimination of positions will be substantially completed within the US within the second half of fiscal 2015 to accommodate the transition of Outsourced Services to Wipro.

“The Final estimates for headcount, timing and charges in certain areas of the international business are subject to completion of applicable local works counsel and other consultative processes.”

The San Francisco-based jeans maker said it expects to incur restructuring and related charges in the range of $45-55 million, the majority of which will be recognised in the fourth quarter of 2014.

In a statement, Levi said: “In this next phase of the productivity initiative, approximately 500 positions will be eliminated, primarily due to the decision to partner with Wipro.”

Wipro will provide support for certain business services within information technology, finance, human resources, customer service and consumer relations, it added.


Buy Wipro; target of Rs 650: PLilladher

October 29th, 2014

“Wipro reported weaker than expected performance for Q2FY15, with revenue and margin missing the expectation. Moreover, the guidance was softer than PLe/Consensus expectation. Management is still confident of improving growth momentum in H2FY15 on the back of large deal wins. Moreover, return of discretionary spend in the US and Outsourcing penetration in Continental Europe makes demand outlook healthier. Retain “BUY”.” Outsourcing50

“Wipro reported Q2FY15 results below expectation. IT Services (USD) revenue grew by 1.8% QoQ (3% @cc, PLe/Cons.: 3%) to US$1,772m (PLe: US$1,792m, Cons: US$1,795m). Overall revenue grew by 4.9% QoQ to Rs116.8bn (PLe: Rs115.8bn, Cons.: Rs116.8bn). Operating margins eroded by 175bps to 18.6% (PLe: 20.0%, Cons: 20.5%), due to wage hike and cross currency movement. EPS declined by 1% QoQ to Rs8.47 (PLe: Rs8.90, Cons: Rs8.61). H2FY15 likely to be stronger, but client specific issues drags near term: Management continues to assert for stronger H2FY15 than H1FY15. However, the weakness in Q3FY15 guidance was attributed to ramp‐down in selected clients in Commodity related sector due to weakness in price. However, there is no loss in wallet‐share with clients. The management sees improvement in deal pipeline along with improved win rate. We expect revenue growth to accelerate in Q4FY15 yielding stronger FY15 exit rate. Wipro total headcount grew by 4.6% QoQ, the strongest since Q3FY10. The company continues with their JIT hiring along with equal mix of fresher and lateral. We see strong employee addition as an early indication of planned ramp‐ups ahead. Moreover, the management sees uptick in utilization from the current level.”

“We see improvement in the win rate to drive revenue momentum in CY15, along with available margin levers that would accelerate earnings momentum. However, we see near term weakness in stock due to weaker than expected guidance. We retain “BUY” rating, with a revise TP of Rs650, 16x FY16E earnings estimate,” says Prabhudas Lilladher research report.


Wipro plunges over 4% as Q2 results disappoints Street

October 24th, 2014

Shares of WiproBSE -3.60 % plunged over 4 per cent as the market opened for Samvat 2071 muhurat trading as the Street was disappointed with its second quarter results.Outsourcing36
The company reported a consolidated net profit of Rs 2,085 crore during July-September quarter, down 0.9 per cent, against Rs 2,103.2 crore in previous quarter.

Sales in during the quarter increased to Rs 11,816 crore, up 12.4 per cent, from Rs 10,508.3 crore, QoQ.

The company sees Q3 IT services revenues at $1,808-1,842 million. Q2 EBIT margins stood at 22 per cent vs 22.8 per cent, QoQ.

“Wipro reported weaker than expected performance for Q2FY15, with revenue and margin missing the expectation. Moreover, the guidance was softer than PLe/Consensus expectation. Management is still confident of improving growth momentum in H2FY15 on the back of large deal wins. Moreover, return of discretionary spend in the US and Outsourcing penetration in Continental Europe makes demand outlook healthier,” said Prabhudas Lilladher report.

The brokerage has revised its target price to Rs 650.

“We see improvement in the win rate to drive revenue momentum in CY15, along with available margin levers that would accelerate earnings momentum. However, we see near term weakness in stock due to weaker than expected guidance,” the report added.

At 06:30 p.m.; the stock was at Rs 557.60, down 4.14 per cent, on the BSE. It fell 4.7 per cent intraday to touch a low of Rs 554.30.


Wipro Sees Rosier End to Year as US Clients Spend

October 24th, 2014

India’s third-biggest software services firm Wipro Ltd , under pressure to improve lacklustre sales growth, said it saw a rosier end to the year as more confident US clients increase spending.Outsourcing35
Wipro, which provides outsourcing services for big-name clients such as US bank Citigroup, posted an 8 percent increase in second-quarter net profit on Wednesday, narrowly missing expectations. It said it continued to face “headwinds” in key accounts, particularly European clients.

But chief executive TK Kurien, appointed in 2011 to turn around the technology firm, said there were improvements ahead as discretionary spending returns in North America.

“We expect the revenue to come back in quarter four of this year or maximum quarter one next year,” Kurien told reporters. “But it will come back.”

For the quarter ended Sept. 30, Bangalore-based Wipro posted consolidated net profit of 20.85 billion rupees ($340.4 million). Analysts, on average, were expecting Wipro to make 21.09 billion rupees, according to Thomson Reuters I/B/E/S.

Total revenue rose to 118.16 billion rupees from 109.91 billion rupees in the same period last year.

“Overall the demand environment continues to hold steady. In North America we see discretionary spend returning,” Kurien said. He added the group saw opportunities in continental Europe, where outsourcing has yet to expand to US levels.

Wipro added 50 new customers during the quarter.

Kurien was picked to lead the company more than three years ago by founder chairman Azim Premji, after Premji sacked joint CEOs Suresh Vaswani and Girish Paranjpe.

Wipro, however, has struggled to catch up with rivals such as Tata Consultancy Services and Cognizant Technology . Peer Infosys has itself been hit by management changes over the last couple of years, but has reassured investors with a new chief executive. [ID:nL3N0S51OA]

“Infosys has now laid out their plans, so we know what the idea is. Wipro has talked about plans for some time, but it does not show on results,” Ankita Somani, analyst with MSFL Research said.

Wipro said it expected revenues from its IT services business to be in the range of $1.81 billion to $1.84 billion in the current quarter. For thee quarter ended Sept., the unit saw revenues of $1.77 billion.

Shares in Wipro closed ahead of the results at 583.65 rupees on Wednesday in the Mumbai market.


IT: Prefer Infosys, TCS, Wipro says Prabhudas Lilladher

October 17th, 2014

According to ISG forecast, broader market ACV lagged, but remains strong YTD . The weakness was in‐line with expectation, and they expect to see a recovery in Q4CY14 with continued strength in CY15. They expect 2014 ACV to exceed 2013 by double digits despite tepid quarter.Outsourcing28

ISG highlighted about the challenges faced by IMS players as cloud infrastructure providers are denting the existing businesses of IMS players. However, ADM+BPO proposition sees a renewed sign of life as Digitization adoption drives newer spends in the segments.

Continental Europe continues to see stronger adoption for Outsourcing/Offshoring from geographies like France, Italy, Spain etc. However, the current trend is very different from earlier wave of Anglo‐Saxons outsourcing wherein India became the focal point of outsourcing centres. Current drive of outsourcing from Continental Europe is pushing for global delivery models  with presence in newer locations like Poland, Brazil, Philippines, etc. But, we do not see any loss in competency for Indian Vendors as they swiftly adopt for GDM.

Among the verticals, Financial Services grew strongly in Americas as new scope contracts return. In APAC and EMEA, manufacturing has witnessed strong growth.

Among the mid‐caps in our coverage universe, NIIT Tech and KPIT Technologies got mentioned in “The Breakthrough 10 Sourcing Standouts” (companies with revenue less than $2bn) in Americas.

CY14 has panned out in‐line with the expectation in terms of deal closures. According to ISG, a build‐up of transaction is likely to yield one of the strongest year in the last one decade. We see Digitization drive as an encouraging trend for Infosys that is in‐sync with their current commentary. We prefer Infosys  , TCS  , and  Wipro  among tier‐1


Indian IT firms like Wipro, HCL Tech likely to bid for CSC if it splits operations

October 3rd, 2014

Indian information technology companies, including Wipro and HCL Technologies, could bid for Computer Science Corp if the US-based IT company splits its public sector and commercial operations before putting itself up for sale. Senior executives at both Noida-based HCL Technologies and Bangalore-based Wipro said they could “consider” the commercial business of Computer Science Corp as it will help them scale up their presence in the United States and Europe.Outsourcing42

“Local data centres and existing IT infrastructure business can make for a risky, but good asset to buy—we will surely consider if it’s split,” said an executive at one of the top five Indian software firms. CSC has infrastructure business contributing 35% to its topline while global business services, including application services and consulting, account for 34% while the North American public sector brings the remaining 31%.

“If the business is split, HCL should be the favourite,” said a Mumbai-based analyst at a domestic brokerage, adding hat the company’s own application delivery business has not seen much traction and a buyout should help the company. CSC, which reported nearly $13 billion (Rs 80,000 crore) in revenues last fiscal, has reportedly reached out to private equity group, Blackstone and Bain Capital to gauge this interest in management-led buyout, Bloomberg reported on Tuesday. ET independently could not confirm if the company will split its commercial business operations from those of the government contracts. Both Bain Capital and Blackstone declined to comment while an email sent to CSC remained unanswered. Last year, CSC stitched a deal with country’s fourth-largest IT firm HCL Technologies under which the two firms aim to modernise applications run by their customers. The addressable market for applications services totaled $210 billion in 2014, according to Gartner’s 2014 Market Forecast for IT Services. Some experts, however, remain scepti cal if the company’s efforts in the two years are enough to entice interest from suitors. Indian IT firms like Wipro, HCL Tech likely to bid for CSC if it splits operations “The company has made efforts to transform its traditional consulting and outsourcing business and is embracing an operating model relying a lot more on software assets and platformbased delivery models,” said Frederic Giron, VP and research director, Forrester Research.

“But this is still the beginning of the journey and the transformation will require a lot more freedom of operation. Hence the idea of LBO (leveraged buyout), which would make sense taking the company private—similar to what Dell did.” Giron said the public sector chunk had about $4 billion in annual revenues.

“I believe Indian centric firms are interested in different types of acquisitions: software assets like Trizetto, targeted continental Europe presence like Alti, and potentially some digital capabilities.”

To be sure, twice in the past – 2006 and last year – management at CSC has tried to find buyers for the company but a deal could not be reached. The company, which employs nearly 79,000 employees and counts the US government as one of its 2,500 clients, ended last year with Rs 4,250 crore in cash.


Protected by تهنئة
Get Adobe Flash player