Does US Economy affects Indian Corporates?
The US slowdown will impact the smaller IT-ITES firms more than the other corporates. The midsize IT-ITES will get affect more because of the US economy slowdown. The rupee has been strengthening against the dollar says how the Indian markets got affected because of the US economy now. When the BSE sensex got dipped nearly 13 percent , during January this year, the Indian stock markets, got crashed off.
The US slowdown is due to the structural readjustments within the country, whereas its impact is on global economic, scenario is caused by the changing fundamentals in the currency, energy and the financial markets. The US recession is likely to have a dual impact on the outsourcing industry. During those times, the small BPO firms, which are having a margin below 7-8 percent will feel difficult to survive.
And, the most important thing, the companies, which are not performed well, may lose out. The main reason behind that, the American telecom company today has 18 vendors, out of which 12 are in India, it may want to reduce that number to 14 or 16. So, the less efficient will be dissolve first. The IT companies is keen to defend its position than the BPO’s
During the US full-blown recession, the onsite business people will see a decline in the sales and profit. At the same time, it can increase the offshore work. Recessions at this juncture may not last for more than two or three years. Smart companies will continue to make investments. , so that they can be ahead in the competition. But these companies, will cut down the costs of their company’s expenses.
In the long term, low-cost offshoring trend will increase. But in the short term between 12 and 18 months, there will be a demand contraction due to management changes and paralysis in decision-making in the US corporate sector.
Because of the impact, Indian companies over the last 12 months, have started focusing in the non-US markets, as Europe. And Indian IT-ITES companies have also undertaken labor cost rationalization by getting rid of non-performing workforce and by tightening recruitment policies. Companies have also been reduced the average age of workforce in order to reduce cost and improve over-all profitability.
But, actually the slowdown has given a boom to the Indian markets, in another way. The slowdown has accelerated the the desire of the Indian-born professionals, return to the Indian soil. While such IT professionals previously returned in hopes of being part of the Indian growth story, today the sub-prime crisis, slowing economy and fear of layoffs in the United States are prompting these workers to look for opportunities in India.
The good result is that, India’s talent power has become richer and its few more days , Indian IT-ITES industry will overcome the US slowdown.