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The IT outsourcing sector in India, an industry that has grown to immense strength over the last decade and become a major contributor to the country's export revenue, is presently looking rather cautiously into the future.

Several factors make it difficult to predict how the industry will develop in the current fiscal year: the Eurozone crisis and subsequently weaker orders from Europe, the recently announced US House Bill 3596 entitled Call Centre and Consumers Protection Bill, which would encourage insourcing by US firms and penalise those dealing with business process outsourcing (BPO) firms abroad, and the strong competition in BPO emerging from the Philippines and other countries.

Industry representatives have mixed views. Some remain optimistic and say the situation is not as bad as it was during the global financial meltdown in 2008.

"We are cautious about the outlook for the ensuing fiscal [year 2012-13] due to concerns over the Europe crisis," the president of the Indian National Association of Software and Services Companies (Nasscom), Som Mittal, told Indian news agency IANS earlier this month. However, so far he expects software exports to be in line with the projected 15 to 17 per cent growth, from generating about $70 billion (about Dh257 billion) in 2011-12 as against $59 billion in 2010-11.

One contributor to this growth is also the depreciating rupee, but this will only be a short-term effect, according to Mittal, because despite the weaker currency improving operating margins and profitability of software export firms, they will have to anticipate losses in hedging at a higher rate.

As opposed to Mittal, Sudin Apte, CEO of advisory firm Offshore Insights and an expert on the Indian IT sector, said in a recent survey published in December that 40 per cent of global IT firms will keep their 2012 IT budgets flat. He believes India's export of IT services will record single-digit growth in 2012-13.

The US protection bill will be a major issue for India's IT industry in the long term. Tabled in December, it seeks to rein in IT outsourcing by US companies by making them ineligible for US federal grants for the next five years. It also aims to put stringent mandates on the operations of voice-based outsourcing services or call centres. The bill will also penalise US call centres with a fine of $10,000 per day for failing to report relocation to an offshore location to the US Department of Labour. The bill will have to pass US Congress before being enacted, but is expected to do so prior to US elections in November this year.

India has raised objections against the bill, calling it a protectionist measure. "It is indeed disappointing to see the US adopting protectionist measures like these that restrict free trade and establish discriminatory trade practices. US lawmakers seem to have developed the practice of unfairly taxing companies working overseas, to pay for domestic issues," Nasscom said in a December statement.

Last year, the BPO export segment in India grew 14 per cent to $14.1 billion. Of this, the voice-based services, the target of the US bill, contributed around $6 to $7 billion, according to Nasscom figures.

Another issue for the Indian IT industry is the competition in the outsourcing sector coming from the Philippines. The East Asian nation has already stepped out of India's shadow to become a competitive BPO destination and latest developments have added higher value services to this, such as web and software development, legal services, medical transcription, animation, and others, known as Knowledge Process Outsourcing.

While the Philippines still has a long way to go before it reaches India's IT outsourcing revenue of the projected $70 billion in 2011-12, it is expected that they will catch up quickly. The current $9 billion in IT outsourcing revenue in the Philippines is expected to rise to $25 billion by 2016, and the sector will employ 1.3 million people, according to predictions by the Business Processing Association of the Philippines.

In terms of job creation in the IT outsourcing business, the Philippines has already taken over the lead in the global ranking of business support services, published by IBM in its annual 2011 Global Location Trends report.

"This is the first time that India is not in the leading position for these activities. The Philippines offers a similarly attractive business environment for international business support functions as India, but has not had the same labour cost increases as have occurred in various Indian hotspots in recent years," the report says.

"Foreign companies that are now outsourcing programming and business processes to the Philippines estimate 30 to 40 per cent business cost savings, 15 to 30 per cent call centre services and application systems and 35 to 50 per cent software development," says Dennis Lucerio, CEO of BPO specialist OutsourceIT2Philippines, in an interview with GN Focus.

To cap it all, India's IT companies are starting to outsource their own businesses to the Philippines. Tata Consultancy Services (TCS) lately has opened a BPO centre in Manila, which will mainly be used for non-voice BPO services, a TCS spokeswoman said.

Other IT majors running BPO centres out of Manila and Cebu in the Philippines are Wipro and Infosys BPO, a branch of Indian IT empire Infosys Technologies.

To cope with market changes, leading Indian IT companies are now venturing into completely new sectors, with which they weren't associated before.

For example, Infosys has plans to climb up the IT value chain and wants to establish itself in a global consulting business by offering complete one-stop-shop business-enabling services for companies wanting to enter new markets. Wipro is about to position itself as a research and development partner for companies and a co-innovator for new business models. And TCS is building upon intelligence and performance management and new IT processes such as mobile cloud computing. As such, the Indian IT majors could become competitors to global IT consultancy enterprises like Accenture or Cap Gemini and probably won't need to bother any more about an anti-call centre outsourcing bill tabled by US Republican politicians.