Value of outsourcing deals to dip for Indian IT firms

Indian outsourcers will have to face stringent client scrutiny and probably renegoniate service contracts, post Satyam fiasco, according to analsyts at the Nasscom Leadership Summit here. Peter Redshaw, vice-president (IAS Banking & Investment services), Gartner said their Indian companies could see a dip in the cumulative values of outsourcing deal sizes.

“Although Indian companies understand that a global economic condition has driven their clients to renegotiate contract terms, but post-Satyam they also want the contracts to include stringent security clauses and a clear exit strategy in case of a fraud.”

The analysts also said that while the outsourcing market would depress in value terms, the volume of the deals outsourced to India would only increase in 2009. Acording to Nasscom, Indian IT-BPO industry (software and hardware included) is estimated to garner revenues of around $71 billon in FY2009.

The worst affected would be the banking, financial services and insurance (BFSI) segment, particularly the banks that have large outsourcing contracts with Indian partners. “Sending work offshore to destinations like India will be delayed,” said Egidio Zarrella, global partner in-charge (IT Advisory), KPMG adding, “Satyam fiasco will affect the Indian companies but it wont dent the market.”

The worst-affected would be tier II and III BPOs that survive on US, UK banking and financial sectors, opined analysts. “They will have to bundle in more IT services too for probably the same price values,” Zarrella added.

“Locked-in contracts would be a passe with clients wanting clear exit strategy embedded in outsourcing contracts,” said Redshaw. KPMG speculated that India and China would probably attract the maximum outsourcing work, in the 2009-10. “Since the global economy will demand cheaper and resourceful outsourcing destinations.”