Outsourcing from India will continue

Bangalore, the capital of Indian outsourcing, is perhaps the closest India comes to Wall Street. In some offices, you can get a US dial tone. Clocks tell you what time it is in New York. Cappuccinos as well as Subway sandwiches and Carolina Herrera “212” perfume are easy to come by.
Now that proximity, which has fueled years of growth and transformed the city into one of India’s most cosmopolitan, has put Bangalore on edge.
The main market is still the United States. If companies are not doing good there then job prospects are low comments a software engineer at Oracle, which has an office here.
Bangalore is full of young migrants who snapped up tech jobs that paid more than their parents could dream of and who unlike their parents made unabashed use of their credit cards. But now, as India’s biggest shopping season, Diwali, kicks off, many say that until they have a better sense of how far and how deep the current crisis will cut, they’ll stick to window shopping.
One software engineer tells he is at the shopping mall just for the ambiance ignoring Forum, foreswearing the iPods, Lee jeans, Reebok shoes and Arrow shirts on offer.
Since it opened four years ago, Forum has seen annual sales growth average 25 percent a year, according to the mall’s marketing manager. This year, they expect sales growth at the mall’s 72 shops to slow to 17 to 18 percent. Rents, which quadrupled during that time, have stabilized.
Fifty percent of their customers are from the IT crowd, but these days, everybody is taking it a little cool. So the mall can’t afford to raise prices.
The mall was packed, but few people had shopping bags in their hands. Consumers have also been singed by stock market losses.

The effect is not only just Wall Street it is the Bombay Stock Exchange as well which has lost about half its value this year. Several people have off buying a new car.
Dubbed the Silicon Valley of India, Bangalore and its environs account for a third of India’s software services exports.
The roots of the region’s tech boom can be traced back to India’s first primes minister, Jawaharlal Nehru, who decided to make it the hub of the newly independent nation’s defense industry, building research centers and engineering schools, according to N.R. Narayana Murti, one of Infosys’ founder and now chairman of its board.
Nehru wanted to locate defense electronics and research away from the borders with China and Pakistan, in a place at least half an hour away from the oceans.
Infosys, which set up shop in Bangalore in 1982, and Wipro were among the first private sector arrivals, attracted by the good weather, strong education, and availability of property. After economic reforms in the early 1990s opened the sector to foreign firms, companies like Microsoft Corp. and IBM Corp. piled in too.
The last five years, household incomes in Bangalore have grown at over 10 percent a year, according to the National Council of Applied Economic Research.

India’s IT firms derive 40 percent of their global revenues from financial services clients, with 61 percent of total sales from the U.S. and 30 percent from Europe. Some of India’s IT majors have already revised their sales growth forecasts for the year downwards by 5 to 6 percentage points.

However, Infosys, like other IT firms, is betting that short-term pain will give way to long term gains, as U.S. companies are forced to make deeper cost cuts and, potentially, outsource more work to India. Torrid growth may slow in the short-term, but the dream will not subdue.

The bursting of the dot-com bubble in 2001 resulted in a slew of layoffs. India’s IT industry itself, quickly bounced back, as budget constraints encouraged U.S. firms to outsource more work.

Outside the cool air conditioning and twinkling displays of the Forum sits a youngster aged about 29, who has been selling wash rags for 10 rupees (US$0.20) a piece at traffic lights for 12 years.

He says he’s profited from Bangalore’s boom, paying for his sister’s dowry and a small house for his parents. But this year he has fallen on family trouble, and got robbed by some men he had hired to sell rags for him.

Doctors were trying to shift to software companies because doctors weren’t paid as much. Salaries got bigger. People used to be happy with 5,000 rupees (US$102) a month. Now people are getting salaries of one or two lakh (US$2,046 to US$4,092) a month. That money boosted the price of real estate, and fueled a rash of mall-building.

Layoffs at Bangalore’s tech giants would enable to hire expertise at a cheaper cost by mid sized firms. Lows at Wall street can bring in more business due to more out sourcing from US and even Western Europe.