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Monday, December 01, 2003

IT outsourcing and its backlash

First of all, I want to thank Edward for giving me an opportunity to post to Bonoboland from time to time.

I share the unease of others about the State of Indiana's decision to terminate a software contract that it has previously awarded to TCS (Prashant has a good analysis of the decision here). Unfortunately, I suspect that in the run-up to the election, we are going to have a lot more protectionist noises and actions coming from US politicians. Apparently, eight different US states have initiated actions that would cut down state contracts going outside USA.

Arun Shourie, the minister of IT and communication technologies in India seems to be advising the tech sector to lie low and partner with other companies. There is nothing wrong with partnering with other companies to offer end-to-end solutions. The larger Indian consulting companies already have some successes there. But I don't think lieing low is a hot idea. It presupposes that the problem will go away. India is continuing to get really alarmist press in USA and it is increasing the paranoia of the people. It is not going to help matters if the US job outlook looks bad even after the election.

As I tried to argue elsewhere, Nasscom and the leading Indian software consulting companies need to engage with the US Congress and the media to get their point of view across. Indian IT chieftains are smart, well spoken people. I dont think that we need to worry about putting them in front of the camera.

I am also very encouraged by this week's Business Week story to which Edward linked below. Even a few months back, I used to cringe after looking at BusinessWeek covers. By contrast, this article is even handed and well written. India seems to be making at least some headway.

However, there is no denying the fact that US is going through major structural change. Indian BPO and IT companies need to wake up to that pain and engage with the people and the industry. I may turn out to be naive about this, but I think Ranbaxy's decision to actively seek employees from overseas is a very good and welcome step in the right direction. I don't see very many Americans wanting to work in Bangalore and Hyderabad, but at least Ranbaxy is giving them that option. We need to think outside of the box. In the sixties and seventies, Japanese corporations like Sony responded very adroitly to Western paranoia. We are new to this. But we need to learn fast.

I also think that the political environment is US is going to get uglier over the next year and that this could have a serious negative impact on trade. On the face of it, only 2% of our Indian IT revenue from US come through government contracts. So, governmental action (if it is restricted to government contracts) will not have huge short term impact. But overall, 70% of India's IT revenue come from US. Dell's decision to stop using their Indian call centers for some of their support calls in worrying. We really need to go out of our way to extend our language skills and domain expertise to exploit the other markets which are opening up.

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