After years of being blamed for job losses in the US and elsewhere, India’s high-tech companies and outsourcing firms are going through a downturn of their own. The global slowdown is forcing them to reduce hiring, freeze salaries, postpone new investments and lay off thousands of software programmers and call center operators.
While some industry insiders insist the global crisis will actually benefit companies in India, as Western businesses seek to cut costs by moving jobs overseas, right now the sector is gripped by an unfamiliar sense of uncertainty.
“It’s certainly not irrational exuberance,” said Nandan Nilekani, co-chairman of Infosys, one of India’s best-known technology outsourcing firms. “There is a lot of introspection about what does this mean and when does it end.”
The downturn is exposing a deeper concern — India has become the world’s front office, handling customer service calls, and its back office, helping to process payments and run accounting and other computer systems. But it has not yet become the head office — making major new products, pioneering marketing techniques or helping to shape corporate strategy.
Rather than drowning US technology firms or work forces with a vast supply of cheap engineering talent, as some had feared, India — and Bangalore, its Silicon Valley — have continued to largely serve as the information economy’s version of manual labor.
“Historically, when it comes to innovation, Indian companies are relatively weak compared to the IBMs and Accentures of the world,” said Partha Iyengar, the head of research in India for the Gartner Group, which analyzes trends in the tech sector. “It has been their chronic Achilles’ heel.”
Last week’s coordinated terrorist attacks killed hundreds and brought Mumbai, India’s commercial capital, to a virtual halt. But long before that brutal shock, the country had been suffering the effects of the global slump, losing capital as Western investors fled to the security of US Treasuries, undermining Indian banks and company balance sheets.
Infosys recently scaled back its earnings projections for the year, telling investors that it now expects revenue to expand 13 percent to 15 percent, instead of the 19 percent to 21 percent it had forecast and far below the 30 percent annual expansion the company had been used to.
Like many of India’s outsourcing companies, Infosys is heavily dependent on the financial sector, deriving a third of its revenue from banks like Citigroup and Bank of America and other financial clients. Its fate is also closely tied to the US economy — two-thirds of its business comes from the US. Neither factor bodes well for the company’s prospects.
Technology Partners International, a consulting firm that publishes a widely watched index of global outsourcing deals, says its index is at a 10-year low.
“People think that outsourcing is a recession-proof industry. It is not,” said Siddharth Pai, a partner at the firm.
That realization has changed the boomtown atmosphere of Bangalore. Young workers still flock to a rooftop terrace on Residency Road every Wednesday night to grind to house and hip-hop music. But lately, the crowds at NYKS, an upscale nightclub, are a little thinner. They drink a little bit less. They talk a little less loudly.
“Now they are thinking twice before spending money,” said Supreeth Chandrasekhar, a 25-year-old disc jockey at NYKS.