2010 to be Marked by M&A in Outsourcing

India is expected to grow at 7.5 percent this year, up from 6 percent in 2008 — a rate that is the envy of most of the world.  To buoy its economic prospects, the Indian Government has raised more than $100 billion over the last four quarters to finance a stimulus package, pushing the country’s debt to 50 percent of the total GDP.  One place that’s feeling the optimism is India’s IT industry.  As 2010 gets underway, recruiting will reach a peak with spikes in salary hitting pre-recession levels, according to advisory firm Gartner’s India regional VP, Partha Iyengar.

In terms of outsourcing, this year is likely to be characterized by an inflow of low-end projects off-shored to Indian vendors to achieve cost savings.  Speaking in an interview with Financial Express, Iyengar said that 2010 will also reveal consolidation in the software sector along with spiked IT spending by Indian firms.

Off-shoring is likely to witness what Iyengar calls a “back to the future syndrome”.  The next year will see industry growth pushed forward by cost savings, which is how the outsourcing sector initially began.  Most outsourcing projects are expected to be related to maintenance support and application development.

For global firms, outsourcing often provides 80 percent of a company’s cost savings.  Consequently, more low-end work will come in to India.  More complex projects are likely to follow in 2011.

Additionally, 2010 is likely to be marked by mergers and acquisitions.  Giants in the Indian outsourcing business like Infosys, TCS, and Wipro will make more acquisitions in Europe in order to acquire onsite capacity.  They will also expand to near-shore destinations to tap markets in Latin America, Eastern Europe and elsewhere.  Meanwhile, global firms, particularly Tier II firms that have not developed off-shore capacities, will make acquisitions in India and other top outsourcing countries.

Jacob Cherian is the India correspondent for AlterNow.  His work is featured on SourcingLine, a leading source of data and news about offshoring.