Wednesday, December 5

US subprime loss set to spell windfall for BPOs

The sub-prime crisis in the US may turn into a windfall for India’s outsourcing industry. According to consultants and BPO insiders, the new lending laws, being worked out in the US, will significantly increase outsourcing by American banks to India. These new laws will be fairly stringent and will require greater outsourcing as lowering costs assumes prime importance. All of which will be a huge opportunity for Indian BPO and IT companies which already have some of America’s top banks as clients. Said Stephen J Rohleder, chief operating officer, Accenture, “Because of the sub-prime crisis, there will be a litany of regulations for loans in the US. So, that may be an area that will be industrialised, systematised, and outsourced to companies in India. It’s an area of opportunity in the near future.” The pressure to cut costs has mounted in the US following the sub-prime lending crisis and Indian companies are the best equipped to capitalise on that, say players. “Earlier, high cost-pressure in the US used to drive greater outsourcing to India. With the commoditisation of the applications work, it led to some leakage to other locations. With Indian IT companies offering both infrastructure and application services, such work can only come to India where companies have expertise,” said HCL Technologies CEO Vineet Nayar. Over 40% of India’s $8-billion business process outsourcing firms’ revenue comes from the banking, financial services, and insurance (BFSI) sector. About 20-50% of top BPO firm revenues come from this sector. Not only do Indian outsourcing firms provide services to the biggest US banks, global banking firms like Citibank, Bank of America and American Express have their captive centres in India to support their functions. A report by offshoring consultancy TPI said that even if the US economy slips into a recession, American companies presumably would be even more inclined to look for services in low-cost locations. “The sub-prime crisis could even generate additional business for Indian heritage service providers, but almost certainly not at the higher prices the service providers are publicly pining for. And even in this scenario, only those providers with a track record of productivity improvements — in other words, the best of the low-cost — can expect to see the Americans come calling,” it said. There were apprehensions that the US lending crisis would lead to cuts in the IT budgets of American companies. However, IT companies say they see no signs of a budget cut. Wipro banking solutions VP Sriram Srinivasan says there could be a nominal 4-5% increase in IT budgets next year. “Clients are asking for greater efficiency and value-addition. It’s also a sign of maturity of Indian IT companies that we can now offer end-to-end solutions than just being technology or maintenance partners. In the short-term, we only see IT budgets being closely monitored and probably spending on a quarterly basis and not budget allotment in one go. In the medium to long term, it will only benefit us,” he said. Others believe the impact of regulatory tightening in the US would be felt in the long term. “With more stringent norms for loan origination coming into force, the US companies will have no option but to offshore to keep costs low. However, the loan market will pick up slowly. So, we would see increased offshoring over the long term and not immediately,” said offshoring advisory firm Tholons CEO Avinash Vashistha.

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