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Bharat Kumar

CHENNAI, Feb. 4

HIS was the lonely voice of dissent among a panel of eight that debated whether an impending US slowdown would affect the Indian software industry.

Everyone else said the politically right thing: that India, with its skills and other advantages would actually get more business thanks to the slowdown than otherwise.

You can't find Mr Jason Pontin, editor Red Herring magazine, in the speaker's list for Nasscom 2002. Visitors to the conference this year would probably miss him. Miss him not for his entertaining addresses but for his bizarrely accurate predictions.

In 2000, when the dot.com mania was at its peak, he predicted a crash. When he returned in March 2001, people grudgingly gave him his due, but still raised eyebrows when he warned that the US slowdown could hit India badly. His reasoning: "India, with its skills in offshore services, may get a larger share of the pie. But the pie itself is shrinking."

So, did offshore outsourcing not come to India with the vehemence that the top guns in the Indian industry predicted in early 2001? Business Line took a look at the revenues of a few software companies, among the top and middle strata of the industry.

Net incomes have grown at slow rates, especially quarter-on-quarter, as is seen from the table attached. Some companies have even failed to meet their own previous year's performance. However, the offshore-onsite mix has changed mostly in favour of offshore outsourcing. Except in the case of Infosys and Wipro, companies have shown a distinct shift towards offshore outsourcing.

Onsite revenues for Infosys formed 49.9 per cent of revenues in the nine months ended December 2001 as compared to 51.4 per cent in the same nine months the previous year. Satyam Computer Services' onsite revenue has gone up from about 41.38 per cent in Q1 of the current fiscal to 47.78 per cent in Q3.

Interestingly, Wipro's revenue mix has increased in favour of onsite from 52 per cent in the quarter ending December 2000 to 56 per cent in the latest quarter. A spokesperson ascribes this to the Lattice group order.

For HCL Tech, it has gone up from 29 per cent to 37 per cent in the third quarter of December 2001. Polaris, it was 33.9 per cent for the December 2001 quarter and 49.3 per cent for the same quarter in the previous year.

It may also be inferred that existing business is shifting offshore while big chunks of new business - in value terms - is hard to come by. This inference stems from the fact that incomes haven't risen to match expectations of increased outsourcing while the offshore portion of revenues has increased. Shifting of business from onsite to offshore will also mean that the top-line will be hit, thanks to lower margins. Says an industry-watcher, "It is easier for existing customers to increase their outsourcing bit to India. But new customers who have no experience with outsourcing are certainly not going to dish out projects to Indian companies in a hurry."

The logic is this: if a CIO (chief information officer)'s job is on the line, he isn't going outsource to India just to reduce costs. Outsourcing to a foreign country is seen as a perceived risk. A CIO isn't going to increase the already-existent risk of poor returns on investment, especially when the atmosphere is gloomy and tight, cash situations abound.

Real estate space

Further, the tilt towards offshore business is evident in the real estate space that companies have added in the last three to four quarters.

Interestingly, Tata Consultancy Services, India's top software services company is upbeat on the prospects for offshore outsourcing. Says Mr S Mahalingam, executive vice-president, TCS, "Our offshore numbers have shown a 30 per cent growth in the last year. We have taken up additional space in excess of 200,000 sq ft across our centres in India this year. Well above 50 per cent of this is in Chennai itself. This year, we have added about 3000 people."

According to him, if a company is able to meet the revised revenue growth projections of 30 per cent, it could actually mean a growth of about 60 per cent, since a company could have earned much more had it been onsite.

The table shows the space taken up by companies. Assuming that one software developer needs 100 sq ft of space, the manpower strength added in their Indian operations is considerably lower than would justify the space taken: another indication that manpower is shifting from onsite to offshore centres. Time to take Mr Pontin seriously.

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