US slump fears loom on final day

Day 3 @ NASSCOM 2008: INDIA LEADERSHIP FORUM

Delegates feel a recession in that country will affect net margins of the IT sector.

Concerns over the financial impact on the net margins of IT-BPO firms due to the slowdown in the US did dampen the overall enthusiasm of the 2,000-strong audience even as the three-day Nasscom Summit 2008 concluded amid much fanfare today.

Right from day one, the delegates were faced with external odds over which they had little or no control. For instance, would the Software Technology Parks of India (STPI) scheme be extended beyond 2009? They could only take home the assurance that minister for communications and IT, Thiru A Raja, was on their side.

The new Forrester report did not offer much succour either. It says, "A US economy in, or near, recession will be the main cause of slower 2008 growth, pulling down growth in IT purchases both in the US and with major trading partners in Europe and the Americas. IT purchases in the US will grow less than 3 per cent, while growth in western and central European purchases will slow to 3 per cent. IT purchases in the rest of the Americas will expand in local currencies at 6 per cent rates."

The major issues revolved around: To what extent would the margins be hurt due to the US slowdown and rising rupee against the US dollar (from where IT-BPO firms get almost 60 per cent of their revenue).

Is the India cost-arbitrage option finally over or is there hope for the India offshoring story yet?; How do we resolve the "employable" talent issue?; Can wage increases continue to be the norm in a dipping economy?; and what strategies do we adopt to move up the value chain?

While speakers and panelists attempted to address these issues in different tones, the general refrain was summed up well on the very first day by Lakshmi Narayanan, Chairman, Nasscom, who is also the vice-chairman of Cognizant.

"The journey through the next five years is not without its share of challenges. Key among them are increasing the employable talent pool in the country, sustaining growth momentum in an uncertain tax holiday structure, harnessing the promise held out by the domestic market, leveraging innovation as the next drawing point, and ensuring better growth for the small and medium-sized companies," he said.

The heartening fact is that in the next five years alone, 75 million young people will be entering employment. "If you consider these numbers, they can turn out to be show-stopper. However, there is this huge segment which is just not able to participate in it," said Harsh Manglik, chairman and MD, Accenture India.

But attrition poses a huge challenge. Raman Roy, chairman and MD, Quatrro, reasoned: "Attrition is only a symptom of what disease the BPO industry is suffering from...that is why we need more people or else the industry will be struggling in future. Twelve weeks is what it takes to hire an employee today. Imagine what will be the condition five years down the line."

Despite the odds, Nasscom offered solace. Som Mittal, President, Nasscom, said: "What started as a low-cost support industry, is now a sector specialising in knowledge-intensive processes. The IT-BPO sector has taken the opportunity beyond the metros to Tier 2 and 3 cities, thereby developing them as future economic hubs. Every job in IT-BPO industry creates four jobs in other sectors."