Software cos boost hiring, see profits surge as outsourcing grows

Software cos boost hiring, see profits surge as outsourcing grows
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First Published: Thu, Apr 26 2007. 12 02 PM IST
Updated: Thu, Apr 26 2007. 12 02 PM IST
Rajesh Mahapatra, AP
New Delhi: 100,000. That is the number of new jobs that India’s top five software companies plan to add this fiscal year, riding a boom in outsourcing that has fattened profits. This number is over and above the 76,500 new employees who joined these companies last year.
The figures underscore how rapidly US and other Western companies are shifting work to low-cost India, where outsourcing is no longer limited to call centres or back office work such as billing and salary records.
Companies like Tata Consultancy Services Ltd and Infosys Technologies Ltd now have thousands of engineers developing software to improve corporate productivity and manage information technology infrastructure.
Despite concerns of rising salaries, possible slowdown in US economy and the rupee’s strength against the dollar would hurt business, the latest earnings figures — released over the past two weeks — show that profits are surging.
Net profit for the top five outsourcing companies — Tata Consultancy, Infosys, Wipro Ltd, Satyam Computer Services Ltd. and HCL Technologies Ltd, ranked in that order — grew to a collective US$3 billion (Rs122,239 crore) for the fiscal year through March, up 47%.
Sales, meanwhile, jumped 41 to a combined US$13.6 billion. Top four software companies won 713 new clients last year. “We are seeing robust growth,” Infosys Chief Executive Nandan Nilekani told reporters when his company reported a 70% year-on-year surge in profits during the January-March quarter.
Nilekani’s confidence appears rooted in the strong economic rationale of the outsourcing business: Western companies will keep shifting jobs overseas so long as they can get the same work done for less money elsewhere.
Indian companies have set up centres in other low-cost countries like Vietnam and Romania so to stay competitive despite rising salaries at home. As a result, they are hiring more people in these countries.
Nearly 10% of Tata Consultancy’s employees are foreign nationals and for Infosys, the number is close to 3%. Outsourcing portfolio has also expanded over the years to include high-value services, enabling Indian companies to charge higher fees and partially offset impact of a weaker dollar and increased wage costs.
TCS posted sales of more than $250 mn last year managing IT infrastructure of its client companies, said Ashwin Mehta, analyst at Mumbai-based brokerage Ambit Capital. HCL Technologies said its focus on remote infrastructure management services — which includes a gamut of services, from help in installing new software to monitoring network security, helped win large multiyear deals last year.
To keep the momentum going, Indian software companies are also looking to win more customers outside the U S, traditionally the largest client country and have acquired businesses in Europe to increase visibility. Diversifying also helps hedge against a possible slowdown.
Besides Indian companies, IBM Corp., Accenture and EDS Corp. are expanding their off-shore centres in India, hiring tens of thousands of new employees.
The boom in outsourcing underlines the increasing globalization of labor, which has helped corporate profits — in both rich and poor countries — rise faster than labour costs, said D. Subbarao, a member of the India’s prime minister’s advisory council.
According to a recent International Monetary Fund report, the share of labour in total economic output of rich countries fell over the past two decades because of technological progress and outsourcing, with Europe accounting for the biggest drop of about 10 percentage points. But pay in emerging countries such as China and India has seen robust growth.
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First Published: Thu, Apr 26 2007. 12 02 PM IST
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