Infosys does not meet expectations, leading retreats in India as an outsourcing destination
While India is arguably the top current external destination in the world, an appreciation of the rupee, rising labor costs and high levels of wear are a heavy burden on buyers of business services in India. The country is already lagging behind in terms of the call center outsourcing with the appearance of the Philippines at the forefront, and now with the launch of Infosys (NASDAQ: INFY) quarterly results has become more evident from these setbacks.
India's number two exporter and supplier of software services outsourcing, Infosys published on January 13 results for the third quarter of fiscal 2011. The company reported a 14.2% increase in net profit estimates that fell behind analysts, leading to a profit of Rs 17.8 million below the estimate of 18.2 billion in a Reuters poll (NYSE: TRI) in the survey. The company no however, still increased its sales growth in dollars forecast for fiscal 2011 year ending in March to 25.7% – 26.1% to 24% – 25% expected in October.
There were high hopes for the company, especially with the current upsurge seen in spending on outsourcing of technology in the past quarters. The major Indian outsourcing companies in the technology sector are expected to show strong growth with increased demand for its services, the companies gradual increase in hiring and wage increases to meet demand.
But as the results show Infosys, while forecasts are optimistic and the demand is not waning, at least in the short term, the appreciation of the rupee continues to pose a significant barrier between the subcontractors. Expectations for other peers outsourcers like Tata Consultancy Services and Wipro are likely to be affected as well. According to Infosys CFO, Vibin Balakrishnan, "The uncertainties related to the sustainability of global economic recovery could lead to greater currency volatility in the near future. "
It does not help matters that competition is increasing among other global outsourcing providers like Accenture (NYSE: ACN) and IBM (NYSE: IBM) as caused by increasing demand and steady economic recovery. With the currency gaining strength and increasing costs, the cost of outsourcing services is expected, also rise.
Amid concerns however, the tide seems to be changing for India on the European front. Although the UK has proved a difficult market to enter India, the local support in the form of the British Council and National Health Service of Great Britain Administration could help companies Indian outsourcing to get your foot in the door and attract more businesses in the UK, thus creating increased competition from other outsourcing companies in the region, such as Logica (LON: LOG), Atos Origin (EPA: ATO) and Capgemini.
But while the tide may be turning, did not help the company outsourcing india, HCL Technologies (NSE: HCLTECH) to win a contract for 600 million U.S. dollars five-year outsourcing European steelmaker ArcelorMittal (NYSE: MT) who chose the Virginia-based Computer Sciences Corporation (NYSE: CSC) at HCL Technologies on 13 January. HCL Technologies along with fellow Indian outsourcer Wipro (NYSE: WIT), as well as HP (NYSE: HPQ), IBM and Capgemini CSC were competitors in the bidding.
With earnings season just started the presentation reports, there may be hope yet in India and outsourcing companies to recover and exceed market expectations. With 2011 just beginning, and continues recovery economic prospects for India can still improve. We have to wait and see how other companies fare.
About the Author
Audrey B is a member of the content writing department of Infinit Outsourcing, one of the leading providers of outsourcing services. The company offers boutique call center outsourcing solutions that allow companies to gain a competitive advantage in their respective industries.
abas Business Software Success Story: Weinmann
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