Recession and Indian IT services industry

This guest post is bought to you by Prabhu. He covers Indian startups on his recently started blog Desi Startups.

Mark (name changed) wanted to outsource some of his development work. A typical outsourcing process starts with bidding, where companies from different cheaper countries including India would bid for projects. He asks one of his manager (An Indian abroad), to take a look at the different bids and choose the cheapest one. After looking at the bids, our Desi manager goes speechless!

The bids received from Indian companies are almost equal to hiring a team abroad and getting the work done! getting the similar work done from countries like Brazil and Mexico is so cheap that they are quite comparable to an amount a typical Indian would spend during casual shopping or when they go out for a party with friends!

The reasons for this are quite simple.

Rupee appreciation (although negated in last couple of months) against the dollar plus Increasing salaries. The services companies are forced to bid higher and higher, in order to maintain margins or at least prevent lay offs, not to mention the hiring process has slowed down to the core.

There are confirmed reports that IT budgets in a number of industries in the US and UK, have been nearly halved. A number of Indians in the US have been sent back, after project cancellations, lay-offs etc. Recent survey from Reuters has also proved the recession that we all are going to witness. The report also says that unlike the previous one, which lasted for just 8 months, this one is expected to last longer.

On one hand, even though some services companies are happy for the fact that they have managed to increase their H1B pool, this recession may literally suppress all this happiness straight!

Kumar (name changed) a typical software engineer in a services company in India is happily welcoming this recession. Even though, this might appear strange, he has some strong points behind. He says, just like US Houses price drop, we are likely to see a price drop here as well. (How in the world an IT guy will be able to pay back huge home loans if his job has no future!). Prices of other commodities are also likely to come down, most of them partly inflated because of IT (Auto fares?).

It will be interesting to see what strategies our services companies adopt to overcome recession and also stay profitable at the same time. Let us wait and watch.

What is your opinion?