RSSFeasting on the carcasses of off-shoring firms
In a downturn it's inevitable that those firms which are luckier or better prepared than their competitors will take advantage of their positioning to eat the lunch, or other savory delectables, of those less fortunate. India's various disadvantaged off-shore outsourcing firms may be on the menu after a particularly troubling 2008; Internet access problems, terrorist attacks, and the global economic crisis have all taken their toll, and the Financial Times is now reporting that India's Satyam Computer Services may be the first target for a deal in the wake of increasing financial difficulties.
Stability is the watchword of the CIO, and the possibility of ones outsourcing firm being taken over or otherwise disrupted is unsettling, to say the least. While it's most likely that any purchaser would seek to continue operations and profit from the acquisition's existing business, takeovers are bad for morale and often result in operational difficulties… not the sort of thing you want to inherit as a client.
Those CIOs who are able to control their panicky initial reactions to the deepening recession might exercise their initiative to move their outsourcing to more stable ground, or reduce their reliance on it considerably, but the generic cost-cutting or frozen deer-in-the-headlights responses we have seen so far in the enterprise doesn't argue for a more well-reasoned response to this new threat. I have high hopes that people will start to get realistic about their IT operations with the new year, however… next week we'll take a look at some steps to consider as it begins to dawn that this economic landscape isn't just a bad dream, but a fact of life for the foreseeable future.
This is a delusional and a self serving opinion targeting at readership among the so called victims of offshoring. Internet problems were due to a cable break in Egypt and there was no disruption of service. Financial problems with Satyam ??? That company has 1.5 billion dollars in cash (More than many of its customers which are US financial institutions ) and bombings in India did not even impact the Stock market in the same city the next day. There have been about 10 of them in last 2 years and most customers sympathize as they have been through 9/11. Acquisitions even if they happen are a norm e.g recent acquistion of EDS by HP and of BOBJ by SAP. If anything they need these companies more than ever now when they have less money to spend. The writer should clearly not write of the subject he is so ignorant about..
I would suggest it’s delusional to think that a company that has “many of its customers which are US financial institutions” (most of which are in dire straits themselves, as was no doubt your implication) is still in such a strong financial position, but if that’s your gripe, you’ll have to take it up with Financial Times, since I’m relying on their reporting in that matter.
Service problems related to the undersea cable cuts are a matter of record (I’m referring to those early last year, rather than the most recent), as are various expressions of concern from customers over the precarious position the recent Mumbai bombings have put the country in (or more accurately, revealed the country to be in) vis a vis Pakistan. Service disruptions related to the EDS acquisition are apocryphal and individual, but having experienced dealings with similar takeovers, I can tell you that you don’t merge management structures and go through big layoffs WITHOUT disruption to clients.
I frequently find that people leaving this sort of comment have more skin in the game than I do and that accusations of self-interest are projections rather than assessments. But you can read that as you will.
Fair observations if you wish to point out that those are some of the risks in doing business offshore and in takeover of companies.These have always been there and sometimes more relevant than normal. However “Carcasses of off-shoring firms” seems a stretch. All the issues mentioned here also apply to IBM which has 75000 staff in India and Oracle and MSFT and many other US firms which get a lot of their product development done in India. So if your concerns are about India as a location many more than just the offshoring firms will be impacted. Falling US demand,tighter US Immigration policy and Macro-economic trends resulting in a stronger rupee will anyday in my books rate higher in the list of top risks to the offshoring firms. Those are the issues your readers need to worry about. Not Internet cables and Bomb Blasts.
I think you have ultimately gotten my point then… many of those risks have always been there but are disregarded or overlooked until something unfortunate makes them obvious(as is true of most risks in business and in life).
While these things also affect foreign companies with branches in India, by definition they have less impact… Microsoft, Oracle, and IBM have all wisely hedged their bets by investing in off-shoring operations in a number of regions. Satyam, Tata, and the like are almost totally invested in operations in the sub-continent and will be impacted much worse by all the trends that both of us have mentioned.
I’m not discounting any of the factors you mention, either, incidentally (other than “falling US demand”… I’m talking to the demand side here right now, that’s up to them to decide), but I feel that those are factors which most CIOs were well aware of when they got into the game. The things that I have identified were, as you correctly note, always possibilities, but as you also note, probably weren’t obvious or didn’t seem relevant to many CIOs a year ago. It’s been a bad year for India no matter how you try to slice it, and it’s the things I discussed which have made it so, not the value of the rupee.
Ultimately, from the demand side, one of the benefits of off-shore outsourcing is the at least theoretical ability to shift the work. It’s silly to suggest that an article that implies exercising that option in the face of reality is somehow off-base. At any rate, I sense your arguments shifting, which is one of my least favorite on-line games to play. If you’d care to justify your original objections further, I’d be happy to discuss them; if you just happen to be someone personally invested in the industry and feeling defensive, I’m not as interested in that.
It is delusional to simply presume that offshoring companies are still “generic” “cost-cutting” shops. You think only a few companies in a few locations are going to get all sharp and work hard during times of recession?
Then you ain’t seen enough recession pal.
And yes, if you are slyly feeding all those “offshoring victims”, can you name the city with the world’s most offshored projects among all industries?
New York, New York
Writing lightly veiled anti-offshoring posts during downturns is worse than phishing all those looking for jobs.
Sad! And I subscribe to the Gosh-darned newsletter.
I’m sorry you mistook this as a generic anti-offshoring screed. If you don’t think that Indian off-shoring companies in particular are facing some serious trouble, though, you haven’t been keeping up with current events.
I suppose I get this sort of response from people because they have certain pre-conceived notions they feel defensive about in the first place. But I don’t have those pre-conceptions, and you should consider the intended audience of this blog and what their objectives are when you’re reading it. They ain’t victims, they’re decision makers who feed the industry based on their own interests. If you have some stake in India-based off-shoring concerns, then you should bag the victim-schtick yourself and consider what is motivating those customers.
I imagine tomorrow’s post will surprise you.