Indian IT may remain immune to Ohio ban
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Tata Consultancy Services (TCS), the country's largest information technology (IT) services company, will remain immune to the US state of Ohio's ban on outsourcing of government IT and back-office projects to offshore locations such as India.
Rather multi-national companies like IBM, Accenture, CSC and HP will be affected more by this.
Though the US government segment has been a recent focus for TCS, the latter does not have a significant presence in this vertical. TCS has a centre in Cincinnati, Ohio, where around 400 people work.
On the other hand, for global companies like IBM, Accenture and HP get at least 13 per cent of their businesses from the US government. For CIBER, which has three centres in India, about 30 per cent of its business comes from the US government.
While it's difficult to quantify how much of the US government contracts are offshored, analysts say almost 35 per cent of the overall work (including other sectors) gets offshored. "Revenue generation by employees at offshore sites (these include not just India) should be in the range of 15-20 per cent of the total US revenues of these firms," said Avinash Vashistha, president and chairman of Tholons, an advisory and research firm.
"I do not think this will impact the Indian IT service providers, as they do not have any significant presence in the government sector in the US...But if other states follow suit, which seems likely, this will impact US IT services firms like IBM, Accenture, HP and others," he added.
While Indian companies are concerned about the ban, many have a different strategy in place to target the US public services, including increasing onshore presence.
"We are concerned with the recent news from the US about banning offshore outsourcing by the Ohio State government departments.
Infosys' initiative in the public services sector is focused on creating a domestic delivery centre in the US, hence this should not be affected," said Kris Gopalakrishnan, CEO and MD, Infosys.
For this, the company is increasing hiring.
In 2010-11, Infosys plans to hire 1,000 people in the US.
"The game plan was to develop local capability and recruit graduate locally and do some of the onsite work in the US from that centre. The centre will also be useful as we start to increase our focus into the government and healthcare segment in the US," N Chandrasekaran, chief executive officer and managing director of TCS, had told Business Standard earlier.
Meanwhile, IBM has been steadily cutting jobs in the US and offshoring works to its centres in India, China and Argentina. According to Alliance@IBM/CWA, the official website for IBM Employees Union, the company laid off at least 1,052 workers, or about 1 per cent of IBM's 105,000-person US work force, in March 2010. In terms of hiring in 2009, IBM hired 13,376 employees in Asia Pacific, 7,112 in Latin America, and 3,514 and 820 in the US and Canada, respectively. Similarly, in case of CIBER, 10 per cent of its overall headcount is in India.
Unlike its global counterparts, for TCS, the banking, financial services and insurance (BFSI) segment contributes over 40 per cent of its revenue, majority of which comes from the US market, and the government segment has been of low prominence. The situation is similar for Infosys and Wipro. Rather Indian IT service providers have been focusing more on the private sector.
"We do have some contracts with the US government, rather this is our new focus area..
. I think such comments and actions are protectionist in nature and they do not fit into the globalised world," said Suresh Vaswani, Joint CEO of Wipro.
Agrees Ganesh Natarajan, ex-chairman of Nasscom and CEO of Zensar Technologies. "Most of us do not have a significant presence in the US government segment or the public services. I think this is more driven by the fact that jobs need to be created in the US."
"More and more politicians are taking a protectionist stand, but this won't really impact the offshoring industry to a great extent. That said, Indian firms have reached a stage where they seriously need to consider truly globalising and creating more employment in countries that purchase services from them.
Besides a small state like Ohio making an impact on a national level seems unlikely. This might change cost dynamics in Ohio at best," said Siddharth Pai of TPI.
Industry body Nasscom said the ban was more to do with election rhetoric.
"While the public sector represents a small fraction in the overall demand for offshored services, it does represent a future focus area.
Ohio's ban on outsourcing can only be viewed as counterproductive to the US government thrust on reducing public deficit and possibly lead to an increased tax burden on its citizens," said a Nasscom statement.
Indian IT may remain immune to Ohio ban
