International Business Machines Corp. announced on Wednesday that its 2008 profit would beat earlier expectations, and Infosys Technologies Ltd issued on Tuesday a better-than-anticipated outlook in terms of revenues and profit for 2008-09. On Thursday, the world’s best-known outsourcing research firm explained why these numbers have exceeded expectations.
Both results belied concerns that had been expressed by experts and analysts over the IT industry this year in the wake of a recession in the US, the world’s largest market for IT products and services.
Technology Partners International Inc., or TPI, a Houston, Texas-based firm that tracks outsourcing deals, said that in the first three months of 2008, companies such as ABN Amro NV and Citibank NA broadened the scope of their outsourcing relationships, asking IT firms to handle processes that had until then been managed internally.
“New-scope contract awards are off to a strong start in 2008... The past six months have witnessed the greatest amount of most new scope added ever in any six-month interval,” said TPI.
“If the US recession continues, which looks like it will, the expectations for Indian tech firms is that a lot more additional work will be coming their way in the medium to long term which is the next two-three quarters because of the additional labour arbitrage opportunity,” added Siddharth Pai, the Bangalore-based partner and managing director of TPI Advisory Services India Pvt. Ltd.
Infosys Technologies’ managers said pretty much the same thing when they announced a growth of up to 21% in revenues and 18% in net profit for 2008-09.
One analyst added that new-scope contracts would mean clients would outsource some part of their internal processes for the first time. “For the Indian tech firms, this means that the scope of the work they do for their global clients will expand...,” said Pankaj Kapoor, assistant director and senior analyst at brokerage ABN AMRO Asia Equities (I) Ltd.
Vineet Nayar, CEO of Noida-based HCL Technologies Ltd, said the firm had witnessed unexpected growth in business from the US over the past two quarters. “Because of the recession in the US, customers want to outsource and we find ourselves in a sweet spot...,” he said.
According to TPI, the three months ended March saw 122 outsourcing contracts, each worth at least $25 million (Rs100 crore), being signed. The cumulative value of these contracts was $21 billion. Of this, “new scope” contracts accounted for $19.6 billion.