IT majors worried about cascading effect of Dubai crisis

MUMBAI/BANGALORE: As Dubai World, the emirate’s investment firm seeks more time to repay almost $60-billion debt, India’s top tech firms fear
that the once lucrative West Asia market for outsourcing can enter a prolonged recession and customers in other top export markets of the US and Europe may exercise more caution while making outsourcing decisions.

Tata Consultancy Services (TCS), Infosys Technologies, Wipro, HCL and Patni Computer Systems are among Indian tech firms serving telecom, banking and other customers in the West Asia region. Dubai, the biggest commercial hub in the region saw home prices plunge by nearly half from 2008 levels, reflecting the worst real estate slump during the global recession, according to Deutsche BankAG.

“Global confidence is coming back. We were hoping for more spends. But now the confidence of our customers is shaking. I expect they are going to be a bit more cautious about spends and will not open up so much. Budgets were getting firmed up in December—clients will now relook at the whole thing,” said a senior software executive with one of the firms that was looking at the West Asia and Africa as a growth markets. Publicly, though, few firms are willing to admit to these worries.

While Wipro counts Qatar Petroleum and Road and Transport Authority of Dubai among its top customers, TCS serves Saudi Telecom. Domestic rivals Mahindra Satyam also counts Dubai Municipality and National Bank of Dubai among its key customers in the region.
Wipro’s Anand Sankaran said the crisis was not entirely unanticipated as reports of people in Dubai abandoning their cars in airports because of the economic slowdown have been around for 9-12 months. “To mitigate this risk, we started looking outside Dubai,” he said. Wipro’s IT business in the West Asia is around $80 million and its Dubai business is 15-20% of it.

Apart from exposure to Dubai, the impact on companies could be lower IT spends from West Asia, which was perceived to be a growth market. Tech Mahindra had announced several wins from the West Asia and multinationals like CapGemini had appointed a partner-level executive to open up the market, as opposed to handling it from its UK office earlier.
But possibly more worrying are Dubai’s linkages to the financial world. “Dubai has a lot of financial connections and there could be a
ripple value on the dollar. Any imbalances in the economy could have potential impact on the stability of the dollar and IT spending as well. Further, it is a negative sentiment for the financial sector,” said Ganesh Natarajan, former Nasscom chairman and CEO Zensar Technologies.

“West Asia accounts for mere 1-1.5% of exposure for Indian IT. So the revenue risk is only to that extent. However, the indirect impact could be more severe. Because European and US banks have direct exposure to West Asia, increasing default risk will turn this industry to be conservative in allocating capital and in their spendings, including IT spending,” said Alok Shende, principal analyst, Ascentius Consulting.

“US banks had recently started coming out to of their hibernation, and since US and European banking industry have a significant pie of Indian outsourcing industry, the risk aversion could slowdown the pace of outsourcing,” Mr Shende added. Mastek CMD Sudhakar Ram, however, said the impact was only a second or third order impact, it would not be very major. “As it is, companies were spending only on keeping the lights on. So they cannot cut back on that,” he said. But if indeed customers continue to spend only on keeping the lights on (or in other words, only absolutely necessary spends), then the much-awaited recovery that IT firms were anticipating may be delayed yet some more.

‘Virtual bench’ turns into real seats at mid-size IT cos

Adith Charlie

Mumbai, Nov. 11 The concept of a ‘virtual bench’ for non-billable employees may soon be a thing of the past at mid-size Indian IT companies, thanks to the gradual improvement in demand for software solutions.

While Hexaware Technologies has brought back all the virtual benchers on to the regular rolls, Mastek expects to achieve the same by March 2010.

It may be recalled that both Mastek and Hexaware had come up with this out-of-the-box solution to reduce overall employee costs and remain profitable in a tough economic environment.

Mastek had announced in February that it had put about 10 per cent (or 425) of its total employee base on a ‘virtual bench’ for up to 12 months with reduced pay. Alternatively, the benched employees — a mix of trainees and junior employees — were given the option to quit with a severance package.

By the end of September quarter, the company had some 200 employees on the virtual bench, as the remaining were either re-instated or had quit the company.

As things stand, by March 2010 the company expects to call back the ‘benchers’ onto the billable pool, according to Mr Sudhakar Ram, Chairman and Managing Director of Mastek.

“We are seeing an expansion in our order book in the current quarter which should translate into revenue growth for the next quarter,” he told Business Line.

Starting this March, Hexaware had inducted around 220 staffers in the virtual bench who had to take a 50-per-cent-cut in basic pay.

However, things started changing for the Mumbai-based company during the three months ended September 2009 riding on the revival in IT spend across the globe. The company won deals worth $80 million in the previous quarter. Of these, three deals were worth more than $15 million each.

“In the wake of the changing demand scenario, the concept of virtual bench no longer exists at Hexaware. Not only that, we have restarted hiring,” Mr P. R. Chandrasekhar, Vice-Chairman and CEO of Hexaware, said.

In the quarter gone by, Hexaware took on board around 116 employees. “In the current quarter we plan to hire at least as much as we did in the previous quarter,” he said. However, both Hexaware and Mastek agree that attrition did play a role in bringing down the count on the virtual bench.

However, there does not seem to be much luck in store – at least for the time being – for the 5,000 employees covered under the virtual pool programme at Mahindra Satyam.

“As things progress, the situation with regards to employees on the virtual bench will gradually improve. We will reinstate these employees on a case-by-case basis,” a senior company official said.

Recently, Mahindra Satyam offered its virtual benchers the option to continue on the company’s rolls albeit without any pay, for another three months starting December 18.