Business Process Outsourcing (BPO)
hitting a speed bump in Asia as a result of Financial Crisis

The global financial crisis is not only causing large numbers of American financial professionals to lose their jobs, it is also having affects in Asia. 

The banking, financial services and insurance sector account for more than 40 percent of India's international back office operations.  In the Philippines, the figure is smaller - about 3 percent - but still significant.  Further the effects aren't only in the back office support area.  India's IT sector is headed for "flat to negative growth" and according to a recent report in the Asia Sentinel, experts predict that it could also lead to job josses in India of 50,000 jobs or more in the near future.  The report cites further Indian recruitment agencies that say that one in eight people employed in India's banking. financial services and IT sector may face job loss as the crisis progresses.  The India IT industry employs about 350,000 in the finance and insurance sector alone with the top six players accounting for almost 75 percent of the total jobs.  Many of these companies already have told their employment consultants to stop job hires, so the slowdown is already underway.

The Philippines is the world's second-biggest offshoring center after India and now employs 340,000 workers in an industry whose annual revenues now exceed US $5 billion in 2007, up from US $1.5 billion just 3 years before.  The business process outsourcing (bpo) sector is one of the bright spots in the Philippine economy and the Business Processing Association of the Philippines had hoped to raise the Philippine share of the BPO market by 2010.  That figure is probably no longer realistic and a downturn in this sector will be another blow for the Philippine economy.

Thailand and Vietnam have also received some negative effects on IT hiring as a result of the financial crisis but it is in India that the results are being most strongly felt.   The United Stated and Britain account for more than 85 percent of India's software and outsourcing business, with the bulk of the revenue coming from the U.S.  Big companies in this sector are TCS, Infosys, Wipro, Satyam, Cognizant, Satyam, Patni, HCL and Mind Tree.  The top four IT exporters - TCS, Infosys, Wipro and Satyam have all imposed hiring freezes on hiring experienced professionals and deferred joining dates on newcomers.  TCS, India's largest exporter of financial services which earns nearly 45 percent of its revenue from financial services solutions has been particularly hard hit and is consequentially most active in decreasing hiring.  TCS, in a bombshell, recently announced that it would be imposing an unprecedented 1.5 percent employee salary cut in the upcoming January-March quarter which has further spread the message that it is no longer business as usual.

TCS has cut new hiring from 35,000 to 30,000.  Infosys has followed suit and announced reduced hiring from 35,000 last year to 25,000 this year.  All companies are looking at decreases and the mood in the industry currently favors slower expansion and out right cuts in certain sectors.   This more restrictive hiring environment is spiraling out from the BPO industry with cuts likely at Hewlett-Packard facilities in India as a result of the Hewlett Packard EDS integration.  A recent study by CLSA in 45 colleges found that the class of 2009 has received nearly 17.5 percent fewer job offers compared to the previous year's figures.    

One positive effect of this chill is that attrition rates at many companies are decreasing.  Indian IT companies had experienced tremendous problems in the most recent period in securing qualified staff and in keeping them from jumping to competitors.  According to the Associated Chambers of Commerce and Industry of India (Assocham) overall salary payouts of top IT firms slowed to a 25 percent rate in 2007 and are expected to slow much further in 2008.  This slowdown in attrition is welcome in Human Resources (HR) shops throughout the industry.  According to Wipro, their attrition rates have dropped nearly 5 percent this year.

This breathing period and increase in stability is welcome although according to most observers, India's IT sector still has much room to grow and is expected to increase at what for other countries would seem laudatory levels in 2008-2010.  

About the Author:

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.


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