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Economy Is Biggest Wild Card Outsourcers Face, Says Wipro Co-CEO
Posted by Marianne Kolbasuk McGee on Feb 3, 2009 03:12 PM
If the global economy doesn't improve over the next six months, there's likely to be more industry consolidation, not only involving IT services providers, but especially among big outsourcing clients, predicts Girish Paranjpe, joint CEO of Wipro Technologies.
Wipro -- which already has a few big recent acquisitions under its belt -- isn't eyeing any new deals of its own right now, says Paranjpe, and that includes purchasing scandal-ridden competitor Satyam. But "never say never" when it comes to the uncertainty of the economy and potential opportunities that could pop up in general, he says.
"If the economy doesn't pick up by end of summer, and lasts longer, there will be more shake-ups among clients," he says. So far, the biggest consolidation among clients has been in the U.S. financial services sector, but those have only had "a small impact" for India-based Wipro, Paranjpe said in an interview with InformationWeek.
Maybe it depends on what your definition of "small" is, of course. Last month, Wipro finalized its purchase from beleaguered Citigroup the bank's India-based IT services subsidiary, Citi Technology Services, for $127 million.
In the meantime, while Wipro is forging ahead with expansion globally, the economy seems to have slowed its U.S. plans a bit. A couple of years ago -- before the U.S. economy sank -- Wipro said it was looking to open a number of development centers in several U.S. cities. But aside from work that's done at various client sites in the United States, Wipro's sole U.S.-based "center of expertise" is in Atlanta. That doesn't mean Wipro is indefinitely holding off plans for additional centers. Other U.S. centers will still open "depending how it goes with Atlanta" he says.
Wipro clients tend to fall into two or three "buckets" these days when it comes to IT spending, he says. Those include clients rethinking their IT budgets, trying to spend as little as possible, and putting new projects on hold. Others are companies "entering the global sourcing" world late, he says.
Meanwhile, the talent shortage Indian outsourcing firms had been facing has "corrected itself," he says. Wipro is "building up consulting folks in various countries," wherever talent is available, including in North America and Western Europe, he says. "There's lots of talent available," he says.
As for margins, everyone is trying to squeeze out costs, improve efficiencies, he says. Wipro isn't going to lower its prices just because a client is demanding lower prices, he says. By the same token, Wipro hasn't passed its own cost increases on to customers, he says. However, when working with clients who say they've got cost pressures, "we can find ways of doing that," squeezing out costs if possible, he says. Still, "price doesn't solve problems," he says.
Finally, it's been about a month since Satyam's bombshell confession that the company's revenue and profits had been falsely bloated for years. As the shock fades, Satyam customers continue to weigh their options, but the hysteria has died down, says Paranjpe. Wipro hasn't actively wooed Satyam clients during the turmoil, although many client accounts that Satyam shares with Wipro due to the customers' own multisourcing strategies have expressed interest in making contingency plans that have work being moved to Wipro, he says.
"Generally speaking, we don't solicit [Satyam clients,] but we'd be happy to step in for business continuity," he says.
What impact is the economy having on your organization's outsourcing strategy? Anyone stepping up to help you navigate the rocky economy and juggle your IT budget?
Tell us what you think.
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