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Back in 2004, George Will wrote in his column in the New York Times, that it is outsourcing and free trade alone that explains the manufacturing of Mercedes-Benzes in Alabama, Hondas in Ohio, Toyotas in California. That was 2004. And that was a good time for the world economy. Fast forward by four years... and you will have President Obama saying, I would want more jobs in Baffalo than Bengaluru. This is 2009, and it is certainly not a good time for the world economy.

What is apparent is that no views on outsourcing have been unanimous since the time of the inception of this industrywhile the conservatives said one thing, the republicans said something else. The reporters begged to differ from editors and the analysts vehemently opposed the economists. And then came the downturn. And like for everything else, it proved to be momentous for the outsourcing industry because it merged hundreds of discordant notes into one songthat predicting the doom of the whole industry.

Needless to say that anyone back home wasnt too pleased with this prophecy. But the fear of its coming true any day was too apparent. And the bad humor that the US industry in general, and BFSI in particular wore during much of the last year further accelerated the bad news. But there was good news waiting just beyond the horizonthat the Indian IT exports industry not only managed to survive the last year, but it also proved its mettle beyond doubt.

Gandhi Vs Roosevelt
Despite the cynicism, the IT exports managed to fare quite well. The IT exports segment grew by 26.1% in FY 09, minutely above 25.7% growth that it clocked last year. But that is in rupee terms. The rupee-dollar dynamics have been more complex than ever in the past two years and if Oscar Wilde finds the R (since we dont have an official Rupee Symbol) Vs $ game confusing, then we should probably not try to go into much details.

However, two things are clear: while rupee went on appreciating in FY 08, the operating margins of the export companies suffered. And when dollar decided to answer back in FY 09, it spelled good news for the industry. Keeping that in mind, a 9.6% growth in dollar terms looks highly unimpressive. By all means, it substantiates the fact that the industry was affected by the slowdown, more so in the latter half of the year.

CyberMedia Research                                                                                                      DQ Estimates

The list has remained unaltered since some time now, though the rankings keep shuffling. IBM is the undisputed leader and HP a distant second, thanks to its EDS acquisition. The likes of Fujitsu, though very prominent a few years back, have descended further. No Indian name appears in the top five, though TCS would surely figure amongst the top ten

When we look at it through Gandhis perspectivethe rupee perspectivethe picture seems rosy. Engineering services grew by 30%, semiconductor design grew by 11%, and BPO exports by 19%. Mr Roosevelt brings these down considerably. And we are talking about a year in which dollar appreciation gave the export companies enough reason to smile.

So, while there is no second opinion about the impact of the slowdown on IT exports, there is enough reason to believe that the worst is over and the Indian IT exports have braved it out, if not with spectacular but still with modest growth figures, which seem rather good if measured in rupee terms.

Some Shone, Others Withered
If exports scenario looks gloomy, one should probably look at the hardware story. With no growth whatsoever, hardware is to exports what black sheep is to the white and woolly one. Pick up our volume I for more insight. While Lenovo exited the Top20 club, and Samsung recorded a negative growth (-40%), export giants like HCLT, Wipro, and Infosys blossomed. Even tier-2 companies like Aricent and Prithvi recorded good growth. But the limelight was stolen by relatively unfancied players like Mascon Global, BirlSoft and MindTree that made it to our Top50 club this time. Another highlight was the stupendous growth of MphasiS (64%) that helped it make it to our Top20 club for the first time.

CyberMedia Research                                                                                                      DQ Estimates Note: Across the World (Including Managed Network Services and BPO)

Again IBM and HP steal the show by figuring as leading vendors across all three geographies. Amongst the Indian names, Wipro, Infosys and TCS do us proud by emerging as leading vendors in two of the three geographies. Also, as many as six of the top service companies in APAC are Indian

Another big matter of speculation was the exposure to BFSI, more specifically in the US, which has traditionally been very high in the industry. With BFSI witnessing most of the high profile bankruptcies of the slowdown, many predicted that the doom will pay a visit to IT exports sitting on wings of banking and financial services.

But the truth of the matter is that none of this happened. Wipro and Polaris, who had clients like Lehman Brothers, AIG, and Citibank (big victims of the slowdown) in their kitties also managed to fare quite well. Moreover, contribution from the US, instead of shrinking down, increased by 1%.

Although most companies put the usual de-risking strategies in place, the business wasnt seriously affected. A cautious approach was something that was prevalent across the industry, but the only impact it seemed to have had was a long decision-making process. But this negative sentiment did hurt some segments like retail and automobiles.

However, when we look at the overall scenario, the exports sector fared quite well compared to others. In fact, the top ten export companies of India grew by an average of 29.5 %, which by no means looks like a recession hit figure.

Year of Maturity
FY 09 was, in many ways, the year in which our IT exports industry came of age. Not only was it a turbulent year, it was also a year of learning and redefining, both at the micro and macro level. While most companies chose to redefine and re-brand themselves in the face of tough conditions, industry bodies like Nasscom also channeled their efforts to recognize and champion the cause of the industry.

The most prominent segment for re-branding this year was engineering services. A lot of companies decided to jump into the segment, while most others started paying special attention to it by measuring engineering services as a completely different horizontal. Infosys is a case in point. It started measuring engineering services separately and the figures that it arrived at made it jump to third position in our ranking, just a little behind #2, HCL.

Also, a lot of non-Indian companies forayed into the space. IBM is one example. Accenture and Perot Systems also made clear their intentions of entering this space. While the process is not yet clear and no one is openly speaking about specialized acquisitions, we might see a couple of such acquisitions in the coming year.

Other activities in this space were the re-branding of Tata Technologies, and the re-branding of Hinduja-acquired engineering services firm Ashley Design and Engineering services as Defiance Technologies.

While so much happened in favor of engineering services, the biggest hit to the exports industry also came from therethe fall of Satyam, which had a strong engineering services practice. The incident did little good to a struggling industry, and added the question of credibility to the many economical pressures that the industry was already withering in. In a year like last, the revelations of Ramalinga Raju led many to declare, and not without basis, that the May day of the exports industry is round the corner, and can pay a visit any time. That Wipro was banned by the World Bank didnt really help the dipping confidence of the world in the Indian exports industry.

However, the industry proved its maturity and its inclination to brave the crisis. All the topmost giants opened up and introduced more transparency in their processes. The concept of corporate governance gained momentum like never before and the industry became more vigilant and clear about their financials and auditors, in order to win as well as safeguard the trust of their customers. A more credible job was done by an unlikely partner, the government. By appointing a new board for Satyam that comprised people of impeccable records and major accomplishments, it did more good than can be sized up. If a lot of Satyams customer base was retained and if the industry didnt suffer a global letdown post the Satyam saga, the government has a lot to be thanked for in dealing with the situation in just the right manner.

These apart, the industry showed other signs of maturity as well. That the contribution of ADM to the overall pie went down to reach a figure of 46%, from the mid 60s that it loomed in a couple of years back, is a big proof of the rising maturity curve in itself. And for the top four players, this contribution was even lesserTCS at 38%, Infosys at 42.4%, Wipro at 41%, and HCL Tech at 33%proved that the Indian IT services exporters were truly evolving. While a lot of it can be attributed to the pressing need for innovation and diversification that the slowdown brought about, it is also a consequence of the evolution that happens over a period of time in all segments. Also substantiating this claim of maturity are the increasing contributions of engineering services and remote infrastructure management.

However, if there is one area that disputes and challenges this stance, it is product development. With a share of only 1% in the pie, it declared noisily that a lot still remains to be done.

Delayed Decoding
Most would associate the term with Joseph Conrad, but this is one term that explains best the pace of decision-making during the last year. All decisions involving a substantial cost were put on hold, and thus, not many new deals were cracked.

That put the onus on existing customers and all the service firms directed a lot of energies in getting more business from the existing clients. That had both a good and a flip-side as well. While the flip-side is clear, the good thing was that it made a lot of companies do some reality check. As a result, process efficiencies rose up. Moreover, the price competitiveness of our nation ensured that the business never really stopped coming. Yes, it was delayed and the processes were excruciatingly slow. This is more relevant for Q3, when the recession was at its peak, that any new business virtually stopped coming. That is when the onus was put majorly on existing clients. But things started improving from next quarter onwards, and though delayed, the decisions mostly worked out in Indias favor.

All this made AT Kearney declare India as the most preferred destination for companies looking to offshore their IT and back-office functions. And despite growing salaries in India, and concerns about manpower, India also retained its low-cost advantage and was among the most financially attractive locations when viewed in combination with the business environment it offered and the availability of skilled people.

The threat from other emerging outsourcing hubs also wasnt much of a concern, as India remained among the top three outsourcing destinations together with China and Malaysia.

With so much working in favor of the whole industry, much of the circumstantial misfortunes were well accounted for. And a panoramic view of the industry only reveals a simple analysisthough there were challenges and speculations, the Indian IT exports industry continued to grow. Perhaps the biggest ailment of the last year was delayed decision-making, but the healthy buffer stock of the industry sufficed for that delay as well!

Mehak Chawla
mehakc@cybermedia.co.in

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