Mid-size IT cos to gain as US firms offshore more
Despite Barack Obama’s efforts to discourage offshoring by US companies, there is some evidence to suggest that now even smaller companies in the country are increasingly looking at outsourcing to regions like India to cut costs.
And given that smaller companies would prefer to deal with smaller vendors to get the attention they seek, the beneficiaries are expected to be mid-size IT companies in India.
Aditi Technologies, which focuses on providing software services to companies with revenues of between $50 million and $2 billion, has seen a 300% increase in its sales pipeline in the past two months, compared to the four months prior to that. The company said it had closed “multiple high potential deals” in these months.
Sonata Software recently won an order from a $50 million, 400-people company in Muncie in Indiana, US, the first time that this 25-yearold company has offshored work. B Ramaswamy, MD of Sonata, told TOI in November that he expected many more deals like this.
Sunil Gupta, VP in ITC Infotech, a company that has a greater focus on Europe, said more and more mid-size companies in that continent too are becoming first time outsourcers.
“As of now, we have seen evidence in terms of enquiries. The budgets are still in the approval stage. We’ll get a better picture in the second quarter of this calendar year,” Gupta said. Divyabh Mishra, directormarketing in Aditi, too added a caveat: “I’m not sure if the better pipeline now is a reflection of a new trend, or simply the end of the recession.”
But some independent analysts believe the trend of smaller companies outsourcing will gain momentum this year. Investment advisory and research firm Tholons said the primary reasons for this were cost optimization and better synergy between core competence and market requirements.
“These businesses will find that not offshoring may well translate into competitive threat. If one firm offshores, which helps to increase its margin from say 8% to 20%, then it immediately gains a huge advantage over others in the business,” says Avinash Vashistha, CEO of Tholons.
Mid-size IT vendors in India are expected to be the biggest beneficiaries of such a trend. “To use a cliched term, they would not like to be a small fish in a big pond,” said Gupta. The ability of a mid-size vendor to give individual attention and its willingness to cede more control to the client is seen to give more comfort to the small outsourcer.
Vashistha predicts that 2010 will see service providers gearing up to enhance their capabilities to assist SMEs through the entire lifecycle of outsourcing, “as these businesses are still largely immature in offshoring”.