Wednesday, January 28, 2009

Wrapping Up the Indian Outsourcing Industry – For Now

I’ve been blogging about the Indian outsourcing sector for the last few blogs and I’m going to wrap it up with this one, at least for a while. I'm sticking with my point of view that all this questionable business will have an impact on Life Sciences companies considering and/or using these companies in conjunction with their outsourcing/globalization programs. I want to wait until after second quarter earnings come out and see where the big four Indian outsourcers are at before I continue blogging.

I have a few reasons for wanting to conduct a temporary cease fire about the outsourcers:

First, I want to write about other topics. A lot’s happening in the world right now, especially in the life sciences sector, and one thing I like about this gig is being able to research and write about different topics.

Second, some of the events that I’ve been blogging about are still unfolding. Satyam is a case in point. There’s a new board of directors trying to figure out how to plug the hole left in the balance sheet after over a billion dollars or so disappeared from it. Then there’s trying to figure sort out all the potential suitors circling Satyam like sharks around an overboard sailor. According to Business Line, iGate Corp is purportedly interested. Given the current state of the global banking industry, Satyam may have trouble obtaining short term financing. If clients beginning to leave then the cash needs will become even more desperate. I think by early summer something’s going to have to give on that one.

Next, the expanding global recession is going to start hurting the customer base. Large outsourcing deals are expensive. Positive payback, either return on investment or discounted cash flow, generally takes two to three years at best for large projects. So, new large projects probably won’t be coming down any too soon. That means that future revenue growth will be off. Throw in stiffer competition squeezing profit margins and here’s another industry in trouble. Don’t be so smug sitting there, thinking that I don’t know what I’m talking about. I’m old enough remember the computer timesharing business. That was pretty hot for quite a while before it imploded. Sure, different times, different circumstances, but, the end is the same, highflyers streak across the sky like shooting stars and burn out as quickly.

Finally, with every major economy on the planet struggling to put their unemployed back to work, shunting jobs offshore won’t be viewed as a patriotic duty. I’ve blogged earlier about President Obama campaigning on keeping jobs here in the US. He may actually agree with the Republicans on this, or, at least enough in the Houses of Congress to pass his legislation. But, this too will take some time. Also, those healthcare executives who will suddenly rediscover their patriotism may also be worried about the risk arising from terrorism and be somewhat reluctant to move too many jobs overseas for the time being.

So, these are my reasons for leaving India for a few months. I’m confident that will be a lot more to write about in the six months or so.

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Contributed by Guy de Lastin

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