UK offshoring boosts Indian IT coffers

UK offshore outsourcing growth has boosted the financial health of India's top three technology companies, with the upwards trend predicted to continue.

Bangalore-based Wipro outperformed market expectations, with revenues for its offshore IT services division up 45 per cent to £157m compared to the first quarter last year and operating profits up by 89 per cent, putting operating margin at 27 per cent.

This followed number two player Infosys, which unveiled first quarter net profits of £45.6m, with earnings for the year predicted to grow by 34 per cent and headcount to increase by 10,000 in 2005. The Indian market leader TCS also announced last week its intention to float, with early valuations put at around £4.7bn.

Suresh Senapaty, CFO at Wipro, told silicon.com that the UK is largely responsible for the impressive European figures.

"The bulk of the growth in Europe is in the UK. We are in a strong position in the UK with clients like Transco. We also have R&D business coming from the UK," he said. "We are expecting significant offshoring revenue coming from Europe over the next few quarters."

While much of the consumer-led backlash to offshore outsourcing has to date focused on the US, the UK has recently started to see more protests against firms moving IT and call centre work to countries such as India. But Senapaty dismissed the assertion that any such backlash will have an effect on companies deciding to offshore.

"We haven't seen much of a problem as yet in terms of any backlash in the UK. Based on our discussions with customers, it isn't an issue," he said.

Despite the rapid growth of the Indian IT services companies, they still lag some way behind the tier one outsourcers. Senapaty said Wipro will continue to look at the possibility of acquisition as a means of gaining market share.

"We will concentrate on organic growth as well as acquisitions. In financial services we are more encouraged to look at acquisition but we will not compromise our organic growth," he said.

Meanwhile a separate study by non-profit New York organisation New Jobs for New York into offshore outsourcing claims that when the true costs of moving work overseas are taken into account, the work can actually be done as cheaply much closer to home.

The research by Howard Rubin, Professor Emeritus at City University of New York, involved the 100 largest New York-based firms. It found 80 per cent are engaged in IT offshoring and 36 per cent in BPO, with 90 per cent citing cost savings as the driver. But the research claimed that cost savings of 44 per cent quoted by the companies are closer to 20 per cent when transition, travel and communication costs are factored in.

This has led to Hillary Clinton, Democratic senator for New York, wading into the offshoring debate, publicly supporting the research by Rubin and claiming local workers can be just as competitive as offshore staff.