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Monday, February 19, 2007

Supply Crunch @ Offshore Majors

The supposed talent shortage in India is again making the rounds. While talking about some difficulties in the sourcing front,the Tier 1 Indian headquartered offshore majors – TCS, Infosys, Wipro & Satyam all have exceeded guidance for the last quarter and have revised their guidance upward for the financial year. All the four Indian majors are working almost at near peak loading, as reported by them. The results of Cognizant, another significant player with substantial presence in India shows more strong trend confirming this. The Tier 1 Indian headquartered firms continue to make huge strides and despite some attendant difficulties in scaling up(which they are addressing quite well) they are seen to be executing very well, restrategising and as needed realigning their approach - seen from an operational, financial, competitive value add, efficiency perspectives. The middle tier enterprises are getting hurt and may eventually get squeezed out - the possibilities look higher on this front. The surging confidence is palpable. As I wrote recently, on all conventional financial metrics – Growth, margins, offshore firms have established new records. Average attrition levels at offshore firms are far less than that reported by the likes of Accenture – across quarters – an important trend to watch. Talk of some having mastered the global delivery model gets decimated by the fact the average billing rates for firms in the commercial firms stand approximately three- four times more than that of the offshore firms. The expanding opportunity for offshore services is indeed real for all to see. A model built to study this interplay and to evaluate various scenarios for different industries shows that approximately 35 percent of the work that could potentially be offshored, worth $110 billion and divided equally between IT services and business processes, actually will be offshored by 2010. Mckinsey believes that India's offshoring industry, which has captured two-thirds of the current global market for offshored IT services and almost half of the global market for offshored business processes is poised to grow faster, The spotty area is of course means to correlate productivity increase. Industry captains exude confidence about the Indian education system with some rejig can help in the supply situation and help maintain the leadership position. The sustainable advantage and favorable drivers are indeed proving to be real and gaining strength.

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