Citi deal may increase worries for Indian IT

BANGALORE: General Motors chief information officer Randy Mott in July last year said his company would cut the quantum of its IT outsourcing from 90% to 10% in three years.

Now, a media report says that Citibank has called for a bid for a $1 billion IT contract, which mandates an onsite-offshore ratio of 90:10. Such a high proportion for onsite is very unusual. In financial services contracts, the proportion tends to be 50:50, and the general outsourcing trend is to have a sharp skew towards offshore - to countries like India -- because that's where costs are lower and talent available in plenty. Citibank declined to comment on the matter, calling it a market rumour.

But if this is true, it has potentially serious implications for Indian IT. Their business models are currently not designed for such high proportions of onsite work. TCS, HCL, Infosys, Wipro and Cognizant are said to have put in bids along with IBM, Accenture and Dell for this contract, but if they have to make good the delivery, they would necessarily have to significantly scale up hiring in the US. It's not clear whether they have the capacity to do such hiring. And even if they do, it will come at the cost of margins. The bigger worry for them is, could this be the beginning of a trend?

Analysts are currently inclined to think it is not. Sanjay Dhawan, leader, technology, PwC India, said, "Typically, offshore-onsite ratios are decided based on many factors including the nature of the work, criticality of contract, the amount of interaction the project demands, and time zone preferences . What we read from the market is that customers are not under any undue pressure now to bring down the offshore portion. So let's not look at it as a trend.''
The Comprehensive Immigration Bill introduced recently in the US has clauses that are designed to slow down offshoring of jobs. But Siddharth Pai, president of consulting firm ISG Asia Pacific, said US clients would not take decisions on outsourcing based on the US' economic situation or political pressures. "The mix (of onsite and offshore) is decided by many elements like the customer's history, the management's preference, talent/skill availability to get the project done locally," he said.
Analysts say it will continue to be a mixed bag depending on the sensitivity and criticality of the work. Some think that a high onsite component will push Indian IT companies to become multinationals, which would be good for them in the long term. "Onsite heavy contracts may not give much cost arbitrage, but it will help them grow in client locations,'' said Pradeep Udhas, partner & head, IT/ITES in KPMG India.

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