This paper studies how businesses are affected in times of economic
recession. The paper discusses globalization and the way it brings
liberalization of economies and the interconnectivity of national
economies. The paper also explains how risks and effects can travel more
quickly during recession. It characterizes economic recession as a
decrease in the rhythm of economic growth in a country and gives
suggestions for combating the contraction of growth and decrease in
consumer spending. The global meltdown has engulfed complete world
economy with a Varying degree of recessional impact. Telecom companies,
driven by competition and by the growing crises, are constantly seeking
ways to improve their operations while reducing costs. In the past,
telecoms believed that anything that had to do with their network was a
part of their core business and had to be handled internally, but this
position has been increasingly challenged in the recent years. _This
paper emphasizes on the impact and opportunities in the Indian telecom
sector, which has so far remained untouched by the slump in the global
economy; but could, see the growth rates slowing down by the end of the
On the other hand, India's success in the IT industry is
mainly driven by three factors: human capital, a thriving industry, and
the creation and utilization of synergies between knowledge based
.sectors. Mixed results are expected to be seen in software and services
market. This paper examines an overview of analyst observations on
current recession trends in IT and Telecom sectors, predictions about
the future prospects and their recommendations to mitigate the impact.
Keywords: Recession, knowledge process outsourcing ,Legal Process
Outsourcing, IT, Telecom.
Recession is defined as "a slump in economy of a country for a
minimum of two quarters of a year" The U.S. based National Bureau
of Economic Research (NBER) defines a recession more broadly as "a
significant decline in economic activity spread across the economy,
lasting more than a few months, normally visible in real GDP growth,
real personal income, employment (non-farm payrolls), industrial
production, and wholesale-retail sales.". A sustained recession may
become a depression. Different economists and researchers predicted
different dates for start of the most unwanted economic slowdown, but
NBER declared year 2008 as the beginning of recession on account of
massive slump in US economy, loss of thousands of jobs, unexpected fall
in housing prices and a dramatic fall in American consumer spending.
About 1.2 million jobs were eliminated in the United States between
January and October of 2008. Since then--the industrialized world has
been undergoing a recession, a pronounced deceleration of economic
IMPACT ON US: THE WORST HIT
The US has been the most adversely affected victim of 2008
recession .The 2008 recession has not yet turned into a depression. But
the signs are looming large. Every business is slowing down. Expatriates
are leaving for native countries. In 2007, many businesses felt the heat
and closed shop. Even the strongest feel the cracks in the face of an
earthquake. The cracks are visible even during a brief recession. When
the markets are disrupted the effect shows. Unemployment is the greatest
dread of any man. America which has been home to many people is now
turning them out. Branches of American companies abroad are shutting
shop. When there are cuts in the weekly budgets, priorities changes,
when job seekers are dumped there is a big change in lifestyle. A broad
survey of Americans has provided striking measures of the
recession's effect on life at home and at work: People are now
stuck in traffic longer, less apt to move away and more inclined to put
off marriage and buying a house. The U.S. census data, revealed a dip in
the number of foreign-born last year, to fewer than 38 million after it
reached an all-time high in 2007. This was due to declines in
low-skilled workers from Mexico searching for jobs in Arizona, Florida
Demographers said the latest figures were significant in
highlighting how profoundly the recession affected Americans as it hit
home in 2008. Findings come from the annual American Community Survey, a
sweeping look at life built on information from 3 million households.
Preliminary data earlier this year found that many Americans were not
moving, staying put in big cities rather than migrating to the Sunbelt
because of frozen lines of credit. Mobility is at a 60-year low,
upending population trends ahead of the 2010 census that will be used to
apportion House seats.
"The recession has affected everybody in one way or another as
families use lots of different strategies to cope with a new economic
reality," said Mark Mather, associate Vice President of the
nonprofit Population Reference Bureau. "Job loss--or the potential
for job loss--also leads to feelings of economic insecurity and can
create social tension." "It's just the tip of the
iceberg," he said, noting that unemployment is still rising.
The percentage of people who drove alone to work dropped last year
to 75.5 percent, the lowest in a decade, as commuters grew weary of
paying close to $4 a gallon for gasoline and opted to carpool or take
public transportation. Nationwide more than 1 in 8 workers, or 17.5
million, were out the door by 6 a.m. Marital bliss also suffered. Nearly
1 in 3 Americans 15 and over, or 31.2 percent, reported they had never
been married, the highest level in a decade. The share had previously
hovered for years around 27 percent, before beginning to climb during
the housing downturn in 2006. The never-married included three-quarters
of men in their 20s and two-thirds of women in that age range.
Sociologists say younger people are taking longer to reach economic
independence and consider marriage because they are struggling to find
work or focusing on an advanced education.
As USA is facing a visible recession in current times, it is
evident that economists are in overdrive to review the fiscal statistics
and give expert opinions. The stock markets have already created a panic
situation in the country. The biggest lenders are now facing a cash
crunch and for the first time they are also admitting it. Most of the
credit has gone into housing, car, security and insurance schemes.
Americans who have invested in such schemes have only their stocks to
offer as collaterals and now are facing the brunt with embarrassing
foreclosures. There has been no sustainable development in major sectors
like housing, medical and small scale businesses. The US economy had
reached its peak and is slowly going downhill. Jobs are being outsourced
to other countries while Americans are themselves jobless. As Asian
countries are getting more employment, even expatriates are returning
home. India and China are major outsourcing backyards for the US. Cheap
goods manufactured in China, Thailand and other poor countries have
hitherto relied on the dollar power for sustenance. As the value of the
dollar falls, the American dream is going bust for many. Whether it is
the shoe maker or the food chain or cola giants or even real estate
developers, the earning potential has been cut.
IMPACT OF RECESSION ON INDIAN ECONOMY
As the saying goes, "When US sneezes, the world catches
cold", the recession that originated in US, did not take much time
to engulf the whole world including India. The global economic recession
has taken its toll on the Indian economy that has led to multi-crore
loss in business and export orders, tens of thousands of job losses,
especially in key sectors like the IT, automobiles, industry and
export-oriented firms. It has also shaken up the investment regime,
which is being restructured, with the telecom sector likely to be
declared off-limits for foreign investors. Although the next two years
or more are expected to usher in a difficult phase for the national
economy, there are silver linings still amid the dark clouds looming on
the horizon. Restrictions on exports of food, textiles and construction
material to the Gulf have jacked up the prices there. Easing on export
curbs should be welcome news to some 30 million people in that region.
On the higher end, people are cutting back on contracts. They are
reducing the fees per manpower in their contracts." A survey of 125
companies by the commerce department in New Delhi has revealed that
Indian companies lost export orders worth Rs. 1, 792 crores during
August-October 2008 and were forced to lay off 65,000 workers. The
manufacturing sector, especially the auto industry, has also sustained a
severe hit. As a result, the global credit rating agency, Standard &
Poor's (S&P) has downgraded Tata Motors rating for the foreign
market. The company witnessed a 30 % drop in sales in India compared to
last year. The manufacturing sector has been calling for an action in
this regard to cushion the recessionary impact. In the meantime, it has
impacted the entire spectrum of the automobile industry. Dunlop India
Ltd, for instance, asked all 1,171 permanent employees at its Sahagunj
unit and 917 staffers at Ambattur (in West Bengal) "not to report
for work" for an indefinite period. What's strange about this
management move is that it is an 'informal directive' with
neither suspension of work (mandating a notice period) nor a lay-off
that obliges the management to pay the basic salary and a portion of the
dearness allowance. The Dunlop management, meanwhile, will pay each
employee a monthly allowance to support their families.
For NRIs, this is the prime time to invest in the real estate
market, which is bound to rally once it gets over the hump. On the
educational front, bank officials point out that there is no impact yet
on the grant of loans for higher education. Students of IIM, IIT,
medicine, engineering and other professional courses continue to receive
educational loans. Foreign students, too, will stay put, since security
measures are being beefed around hotels, prestigious institutes and
other places frequented by foreigners. Countries from Southeast Asia and
the West have also advised their nationals to consider deferring their
visit to India till the situation improves.
The tourism sector has also been a victim of recession. Hotels have
already reported 20-25% cancellation from international tourists who
were booked to visit over the next one year. Airlines, including low
cost carriers (LCCs), may lower their fares by 10-12% to extend the
benefit of lower fuel prices to the customers and rein in the sagging
demand. With hotel occupancy levels and room rates dipping by 20% and
50% respectively in just two weeks, the sector is planning for a
substantial cut in luxury tax slabs. According to market sources, guests
are paying 20-25% higher room rates because of this tax structure.
The reduced purchasing power of Indian consumers in the current
situation has revived up the competition among shopping malls. They now
have to step up their ad spend along with discounts to lure consumers
who have restricted their shopping list to essentials, such as food and
other consumables. After all, the purchasing power of 350 million
Indians cannot be glossed over.
Together with the package of incentives offered by the government
to kick-start the economy, good management practices and self-imposed
check on profiteering, the retail sector can hold its own. However, for
the time being, the growth of this sector will be stunted as overseas
investors will be on guard for two reasons. Firstly the financial
meltdown has burnt a hole in millions of Indian pockets. Secondly with
their shopping budget on a tight leash, one should not expect overseas
malls to make forays into the Indian market anytime soon. The situation
on the ground has since changed in the aftermath of economic recession
and the current security threat.
Measures Taken by the Government
The Indian government has already unveiled a Rs.300, 000 crore
package to pump prime the economy with specific measures for various
sectors. This amount is to be spent on revitalizing stake holders such
as exporters, housing, infrastructure and textiles. A four-percent cut
in Value Added Tax has also been announced to help the corporate sector
in general. This apart, additional allocation has been made towards
various incentives for exporters, guarantee of export credit, full
refund of service tax to foreign agents and refund of service tax under
the duty drawback scheme. Relief for exporters includes a 2% interest
subvention up to March 2009 for pre- and post-shipment export credit for
all exports. Additionally, a Rs.350-crore booster for schemes like
Market Development Assistance (MDA) and Market Assessing Scheme has been
granted to help exporters develop new markets. This will be applicable
to all exporters. As a result of these measures, the Center's
direct tax collection in November was Rs. 10,347 crore against Rs.
16,189 crore in the same month last year, a fall of 36 %.
Other measures in the offing include easy access to the credit
market for exporters, textile manufacturers and farmers collectively to
the tune of Rs.9, 000 crore. Of the total outlay, a Rs.4, 000 crore line
of credit will be extended to the National Housing Bank (NHB) and a
similar allocation for the Exim Bank. The remainder of the rescue
package will be utilized for the relief of farmers and infrastructural
projects. But challenges still remain. One of these is the massive scale
of corruption that has diverted crores of tax payer's money into
the pockets of corrupt politicians and officials. This has strained the
economy, tarnished India's image abroad, and sapped the
investor's confidence. Another problem is the sluggish bureaucracy
that taxes an investor's patience to the hilt. There is no active
single window clearance mechanism in place where business decisions
could be expedited. Therefore many potential investors have been moving
away to greener pastures in the country or outside. Bangalore, which
once served as a magnet for investors due to its operational efficiency,
among other factors, has nose-dived on several counts, including poor
infrastructure, traffic bottlenecks, culture of corruption and casteism.
It is losing out to Andhra Pradesh and Tamil Nadu as the country's
Adversity for One, Opportunity for other
The challenges to overcome recession represent one side of the
coin, there are opportunities galore on the other. The stimulus package
that the Centre is offering to the state governments offers an exciting
opportunity to the private sector to resume exports to the Gulf States
as Indian exporters are being offered credit facilities. For exporters
from Hyderabad, now is the time to strike a deal in view of the
incentives being offered? In this context, it is worthwhile considering
the Saudi market which, unlike a major segment of the international
market, still remains vibrant as it gears up for the expansion mode.
Right now, the growth areas are real estate, renewable sources of
energy, especially solar, and seasonal market like pilgrimage, when
nearly 2.5 million pilgrims become consumers of electronic, household
and food items that are available at cheap prices. The immense market
potential of the Haj season should not be underestimated, since the
impact of recession will be felt at least over the next two years or
more. The export-oriented facility is coming up in a SEZ-designated area
and will enjoy fiscal benefits. Around 10 acres of land will be utilized
initially with the remaining area allocated for future expansion. This
is an exciting time of challenges and opportunities. Only those with a
strong will, sound technological base and innovative solutions can ride
out the crisis.
Managing Survival during Recesssion
As an individual how will recession affect you and how will you
survive it. There will be a global impact on the recession in US and
survival will be challenge. These are the brief points you should be
thinking about and making sustainable decisions.
1. Are you an employee in a big or large company that has decided
to lay off staff?
2. Are you running a small business? Scared you may have to wind up
after all these years of sweat and toil?
3. If you are an independent professional back up the resources
keeping in mind the family you have to support. Sounds bad, but can you
look for a job in the Middle East, India or New Zealand. That's
where most professionals are making good money. Your consultancy may not
be required for quite sometime and even if it is, the fees will be a
4. Evaluate your current position in the industry. This will give
you an idea if you want to shut shop, go aggressive or stay calm. This
is the time to pay off all the debts. You don't want creditors
sealing your property or hard earned valuables.
5. Be proactive and get a plan to stay afloat. How have you managed
all these years? You have to really think hard to get out of the credit
6. Are you involved at the stock exchange? You probably need really
good shock absorbers. You will have to reshuffle your portfolio and get
some liquid cash stashed for the future.
The following sections of this paper will briefly discuss the
sectors that have barely managed to keep their feet fixed on the ground
in the tough times of recession.
The Fittest Survivors of 2008 Recession
As every business sector is affected by present global crises and
everybody is talking of slow down in business, still in India there are
few sectors which will grow in this adverse situation.
FMCG: No one can survive without basic food material like milk,
vegetables and drinking water. Food processing companies will not be
affected much and rather will earn profits by increasing the prices.
These are the basic needs which we as a common man can not produce by
our self. According to ministry of food processing Industry (MFPI), the
food processing industry in India was enjoying growth even when the
world was facing economic recession. According to the minister, the
industry is presently growing at 14 per cent against six to seven per
cent growth in 2003-04. The Indian food market is estimated at a
turnover of over US$ 182 billion and accounts for about two third of the
total Indian retail market. Further, the retail food sector in India is
likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by
Railway: As the aviation sector has been affected badly and
resulted in sharp rise in the air ticket rates, the frequent travelers
will prefer railways to cut the cost of traveling resulting in increased
traffic in railways and long queues at railway booking counters. The
freight traffic of Indian railways has continued to grow in the last few
months, albeit at slow pace, indicating only marginal impact of the
global recession on Indian economy. The railways registered 13.87 per
cent growth in revenue to Rs. 57,863.90 crore in the first nine months
ended December 31, 2008. While total earnings from freight increased by
14.53 per cent at Rs 39,085.22 crore during the period, passenger
revenue earnings were UP by 11.81 per cent at Rs 16,242.44 crore. The
railways have enhanced the freight revenue by increasing its axle
loading, improving customer services and adopting an innovative pricing
PSU Banks: As seen in the private sector much of the job cuts are
due to global slowdown, it's the public sector undertaking (PSU)
banks which gained much confidence due to job safety and security. More
and more people are likely to turn towards government institutions,
particularly banks in the quest for safety and security. A report
"Opportunities in Indian Banking Sector", by market research
company, RNCOS, forecasts that the Indian banking sector will grow at a
healthy compound annual growth rate (CAGR) of around 23.3 per cent till
Education: As education is considered as the basic necessity and in
India it is seen as a long term investment by parents; with respect to
the demand, there is a huge supply gap. The craze to study in foreign
university among the Indian youth is still alive which will prompt
foreign educational institutes to target India provided vast young
population is willing to join. We will see more and more foreign
educational institutions coming up in India in recent coming years. Huge
government as well as private investment is likely to grow into the
Indian educational system. D.E Shaw, a US$ 36 billion, global private
equity firm is planning to invest around US$ 200 million in the Indian
Health care: India in case of health care facilities still lacks
the adequate supply. In health care sector there is huge gap between
demand and supply at all the levels of society. Still there are so many
urban areas where you could hardly find any multi-specialty hospital.
And in case of metros the market sentiments itself created a need of
psychological consultation. Healthcare, which is a US$ 35 billion
industry in India, is expected to reach over US$ 75 billion by 2012 and
US$ 150 billion by 2017. The healthcare industry is interestingly poised
as it strives to emerge as a global hub due to the distinct advantages
it enjoys in clinical excellence and low costs.
Luxury products: The high and affluent class of society will not be
much affected by the global crises even if their worth is reduced
significantly. They will not change their lifestyle and will not stop
spending on luxurious goods. So luxurious product market will not be
affected and in fact to maintain the lifestyle those affluent will spend
more for it. Luxury car makers are pouring in to woo the nouveau riche
(Audi, BMW are the most recent entrants).
M&A & Marketing Consultants: As in the current business
slow down survival will be the main focus, the marketing and management
consultants will be called for to reduce the cost and to show the ways
to survive and stay in market. Others may join hands to fight with this
situation together will call for the Marketing & M&A
consultants. In a booming market there are growth strategies and M&A
opportunities to advise on. When businesses are cutting back,
consultancies will be right there to help clients decide where to wield
the axe. According to Ministry of Commerce and Industry's
estimation, the current size of consulting industry in India is about Rs
10000 crores including exports and is expected to grow further at a CAGR
of approximately 25 per cent in next few years.
Media and Entertainment: In current bad times, where people are
losing jobs and getting enough time to watch TV, they will seek
entertainment at home and hence advertising revenues will increase for
the commercial channels. Also businesses like production of religious
texts and religious materials, religious channels will do well. The TRP
of religious channels will increase as compared to the other
entertaining / commercial channels. According to a report published by
the Federation of Indian Chambers of Commerce and Industry (FICCI), the
Indian M&E industry is expected to grow at a compound annual growth
rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According
to PWC report, the television industry was worth US$ 5.48 billion in
2007, recording a growth of 18 per cent over 2006. It is further likely
to grow by 22 per cent over the next five years and be worth US$ 12.34
billion by 2012.
TELECOMMUNICATION SECTOR: RECESSIONAL IMPACT AND OPPORTUNITIES
Telecommunication Sector in India has proved to be the fittest
survivor in this nerve breaking period of recession. People will not
stop communicating with each other due to global crises; rather it has
been seen that it will increase much particularly with mobile
communication. With cheap cell phones available in Indian market and
cheaper call rates, the sector has become the necessity and primary need
of everyday life. Telecom sector, according to industry estimates, year
2008 started with a subscriber base of 228 million and will likely to
end with a subscriber base of 332 million--a full century. The telecom
industry expects to add at least another 90 million subscribers in 2009
despite of recession. The Indian telecom industry is one of the fastest
growing in the world and India is projected to become the second largest
telecom market globally by 2010. However, unlike other countries, where
the telecom industry has reached its peak, the Indian telecom sector is
in the growth phase. It moved from quantitative growth to growth of
quality of service. A lot of things still need to be done to steady the
sector's growth. Altogether, around 30 recommendations were made to
the government to boost this industry. Over the past three years,
tariffs rates for mobile voice, SMS, roaming and fixed lines have come
down drastically. As on December 2008, outgoing call rates from GSM
mobile was at Rs 0.78 compared to Rs 1.77 in March 2006. For CDMA,
outgoing call rates stood at Rs 0.61 as on December 2008 compared to Rs
1.09 in March 2006. Similarly, call rates for STD from fixed services
also came down to Rs 0.60 from Rs 2.40 in 2006. Local SMS rates have
also been lowered from 0.50 paisa to 0.25 paisa. Today India is among
the competitive markets in terms of low tariff rates.
It should be kept in mind that the Indian telecom sector, which has
so far remained untouched by the slump in the global economy, could see
the growth rates slowing down by the end of the year. The reasons for
the same can be attributed to households postponing their spending; the
growth rate of mobile handsets could fall by as much as 50 per cent and
also see a decline in new subscriber additions compared with 10 million
new subscribers a month at present. In the current economic environment,
many corporate are re-negotiating the rates they pay to telecom
operators. Though subscriber numbers are still growing at well over 10
million a month, revenues are not rising commensurately. Also, it will
be a challenging market for mid- to high-end handset makers this year.
In high-end phones, sales will be defined more by need rather than
desire of the user. While most operators claim that the telecom growth
story is intact for another 3-4 years, they privately admit that the
liquidity crunch may have an impact in 2010. "Most of the growth in
mobile usage is coming from non-urban areas driven by a large population
of employed youngsters. However, if the liquidity crunch continues then
these youngsters may not find employment easily, which in turn will
impact their expenditure on communications services," says a
Mumbai-based multinational GSM operator.
However, at the same time some of the players completely rule out
any impact on telecom. "Look at it from the customers'
perspective--slowdown or not, they need a communication device under all
circumstances; to share their thoughts, worries, good news or even for a
general discussion. So, the demand for telecom services remains strong,
and that is evident in the strong growth that the sector continues to
enjoy. In fact, telecom usage in innovative ways is actually increasing
through the long-drawn recession, as it becomes a cost-effective
alternative to business expenses such as travel and lodging, etc. Market
watchers point out that the onus will be on the new government to launch
next generation reforms in the telecom sector to sustain the growth
story. The impact of the current global economic recession would be
comparatively lesser on Indian telecom sector due to its inherent
strength and faster anticipated growth. Indian telecom sector has a
unique distinction of being the fastest growing telecom sector in the
world with addition of over eight million subscribers per month and the
second largest wireless network in the world after China with over 315
Precautionary Strategy for Survival
The telecommunications sector will likely be hit by the recession
in two main ways. First, due to the lack of credit in the global
economy, investments will fall in the beginning of 2009. Investments
related to costly projects such as acquisitions, will feel this drop
intensely. Second, consumption will fall as people move away from wants
and focus on their needs. This will reduce the uptake of innovative
services. Though the industry is not losing sleep yet, the authorities
are undertaking cost-cutting measures such as infrastructure sharing and
internal restructuring. "Reflecting its proactive approach,
Ericsson has had a cost reduction programme in place since 2008 which
well exceeded set targets. The present economic condition is helping
them drive better focus across various teams and functions internally.
Conscious decisions are being taken to curb costs by increasing the use
of Web effectively--through webinars and Web conferences, thus
seamlessly connecting across geographies and different time zones.
Optimization of organizational resources and processes as well as
promoting business innovation will be key success factors in this
environment.. "This means being able to design lower cost and
disruptive business models as an effective way to attract consumers.
Disruptive business models here refer to combining existing technologies
with new business models to create low-cost products and services (i.e.
the combination of mobile content with forms of marketing and
advertising)." This will require partnering with players of
different expertise. This type of collaboration can reduce costs,
advance the quality of service, and offer more attractive packages to
the customer. Encouragingly for the industry, many national governments
and super-national organizations have come to view the
telecommunications sector as a critical means to overcome the crisis.
As far as employment is concerned during recession, while others
worry about the looming recession and job losses, the country's
telecom companies beg to differ. The sector will need up to 1, 50,000
additional hands in 2009. While new players are launching operations,
existing ones are beginning to scale up. Now that the government has
issued 120 new licenses, telecom industry officials fear a talent crunch
that could push salaries in core operations by up to 30 per cent in the
next few quarters. "Conservative estimates put the demand from new
players at one lakh people in the first phase. Most of the new players
would be looking for experienced hands, so getting people in such large
numbers will be a great challenge. Currently, the sector directly
employs about 1, 50,000 people, while providing jobs to another 1.5
million with retail outlets, prepaid card sellers and tower
constructors. And now with most telecom players expanding in the rural
markets, the demand for manpower is expected to go up further. "The
new players will have to attract talent by offering 15-20 per cent
higher salaries. Some of the new players--such as Unitech, Swan, Loop
Telecom and Shyam Telelink--have started hiring, and analysts feel this
could drive poaching at top and middle management levels. "Finding
and retaining talent is a challenge today. Although we have an
experienced workforce, at times they are short in supply. The problem
for the new players would be to get people in the core telecom space,
which is primarily concerned with the technology of providing telecom
services. While talent in sales and marketing can be found in abundance,
sourcing professionals for setting up the infrastructure and networks
would be difficult.
On a concluding note, it is viable to acknowledge that telecom is
one sector that has so far bucked the trend in India while other
industries face slowdown issues. Not only this, companies within the
sector have been able to grow strongly over the past few months, at
least when it comes to ramping up their subscriber bases. The month of
March 2009, for instance, saw the sector add record 15.6 m subscribers,
the highest in any month in the sector's history so far.
While reduction in tariffs and cost of handsets has supplemented
the growth of the Indian mobile telecommunication sector, growth in the
recent past has been largely driven by mobile service providers'
aggressive entry into the large and relatively untapped rural markets.
In these markets for instance, carrying Rs 2,000 mobile phone can be
something of a status symbol. This is clearly indicative of the
much-larger drama unfolding in the Indian telecom market, once
considered a backwater and now the fastest growing in the world. While
the country still has a long way to go in establishing a nationwide
network of landline telecom networks, let alone high-speed broadband
service, this sector has already overtaken China in terms of
mobile-phone subscription growth and US in terms of wireless base. The
robust growth in the Chinese mobile phone industry in the past was due
to an expanding rural market and the increasing number of people who
have more than one mobile phone. These will be the very factors that
will aid a superior growth of the Indian telecom market in the future.
IT SECTOR: RECESSIONAL IMPACT AND OPPORTUNITIES
Over the past few years, the Information Technology sector in India
has displayed tremendous growth and is expected to outshine other
countries in terms of software services and solutions. According to news
published recently the Indian IT sector will grow 30 to 40 per cent next
year. And on the other side to survive in current slowdown, industries
have to decrease the cost and for that they will resort to customized IT
solutions which will further boost up the software solution demand.
India is fast becoming a hot destination for outsourced e-publishing
work. As per confederation of Indian industry (CII) report, the industry
is growing at an annual rate of 35 per cent and India's outsourcing
opportunities in the value-added and core services such as copy editing,
project management, indexing, media services and content development
will help make the publishing BPO industry worth US$1.46 billion by
However, the tremors of 2008 Recession are evident in IT sector
also. Before the economic crisis erupted, there were more than 1500
software firms in the country, while the employee base of the sector had
grown to 553,000 (from 415,000 in FY 06). More than 1300 IT companies
were operating in Bangalore alone. In February this year, Tata
Consultancy Services (TCS) had asked about 500 employees to leave due to
non-performance. Patni Computer Systems (PCS) has already laid off
around 400 employees, or nearly 3% of its 14,800 workforce, on the same
ground, while IBM Corp. followed suit in the case of 700 fresher.
Besides this, the $11 billion BPO sector--which gets most of its
business from the United States--will bear the brunt. The industry has
projected job cuts on a massive scale. The job cuts follow a decline in
growth. IT major Infosys predicts a drop of 15 per cent in growth from
30 per cent last year. On one hand, where the US accounts for the
largest share--at over 50 percent--of the Indian software and
outsourcing market due to which the impact of recession on US has
automatically been inflicted on Indian IT sector. "This sector has
been adversely affected by the global crisis"--a fact acknowledged
by Bangalore-based Infosys Technologies Co-Chairman, Nandan M. Nilekani.
However, he believes that even though the tech sector would see the
impact of the economic slowdown in terms of growth rate, the IT industry
will continue to grow and recruit manpower.
The Business Process Outsourcing firms believe they will be less
impacted by the global crisis than their IT counterparts, since they are
involved in facilitating day-to-day operations. Currently, processing
services account for 60% of the industry, while the rest comes from core
services (business analysis, financial planning etc). Last year the
ratio was 70:30 and it's likely to be in the 50:50 ranges next
year. Also, the share of voice-based services has fallen from 95% two
years ago to 80% now and is expected to slide further. India will not be
much affected, since it accounts for only 5% of the global voice market.
The major impact of recession or economic slowdown is with the small
exporters and importers in the country as most of them are facing the
problem of heavy duties. "The US slowdown will immensely hit the
mid-sized IT companies and also the big players to some extent. The
techno-savvy group will benefit as the IT hardware industry has decided
to pass on the 4% across-the-board excise duty cut to consumers which
will help bring down the prices of IT products like TFT monitors,
printers and projectors as well as computers and notebooks. With this,
desktops and notebooks will attract 8% excise duty, while all other
hardware equipment would attract 10%.
The economic slowdown will mostly affect medium-sized IT-ITES
companies. Indian IT-ITES companies have also undertaken labor-cost
rationalization by getting rid of poor-performing workforces and
tightening recruitment policies. Companies have also reduced the average
age of their workforce in order to reduce cost and improve overall
profitability. Companies may not be adding the kind of people that they
were last year, but they are definitely getting better yield from
existing employees. In addition, the slowdown has accelerated the desire
of India-born professionals based in the US to return to their home
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 US are prompting these workers to
look for opportunities in India. As a result, India's talent pool
is getting richer and it could be only a matter of time before the
Indian IT-ITES industry overcomes the problems posed by a US slowdown.
In context of the IT industry, Nasscom had initially projected a 21-24
per cent growth rate for the current financial year, but the software
association revised it downward in the wake of the global financial
meltdown. According to a Nasscom spokesman, "IT industry has
demonstrated time and again that it is resilient enough to deal with
Survival During Recession: Tips and Tricks
In order to withstand the effects of recession and to meet the
opportunities for the future, the Indian IT industry must move up the
value chain, get into production, increase efforts in the field of
hardware and strengthen its advantage in embedded software. We also need
to diversify our overseas markets and, for this, we need to train IT
professionals who can converse in different languages. As far as IT
Enabled Services sector is concerned, in order to survive during
recession, the sector should review its priority and focus on product
innovation (as opposed to merely providing services). If this is done,
India can emerge as a major player in the IT products category as well.
As a result of putting all their eggs in one basket, developers,
consultants, trainers, team leaders have all become victims of the
recession facing the IT/ITES sector. A fresh entrant--the blogger--is in
for trouble as well. With corporate budgets getting trimmed,
professional bloggers may be the next to come under the hatchet. Even
during a recession, companies can not only survive, but thrive. To do
this, the IT function must stick close to the business, be involved in
the broader strategy and plans, and measurably demonstrate the success
of IT investments in terms and language that the wider organization
understands and appreciates. Even before doing this, the IT function has
to control its budgets and resources, and recognize that where expertise
is available from 3rd parties, it should be exploited as part of
mutually beneficial partnerships. This should not only ensure that costs
are manageable, but that suitable returns in terms of overall business
performance and individual employee productivity are realized.
Silver Lining Amidst Dark Clouds
The current slowdown in the United States which has caused a Global
recession phenomena lately has prompted the other countries to relook
their policies and their customer base. The so-called off-shoring
companies in India, which just had either American customers or which
just do plain BPO services are the ones bearing the brunt. There have
been loads of cost-cutting initiatives in all the companies, with some
even performing the brutal act of laying people off.
KPO or Knowledge Process Outsourcing has been a new buzz-word
now-a-days, with plain old "Call Center" giving Way to some of
the important processes being outsourced. The work outsourced is not as
simple as just replacing the B with a "K", Knowledge process
can be defined as high added value processes chain where the achievement
of objectives is highly dependent on the skills, domain knowledge and
experience of the people carrying out the activity. The future of KPO
has a high potential as it is diversified across various sectors like
Legal Processes, Intellectual Property and Patent related services,
Engineering Services, Web Development application, CAD/CAM Applications,
Business Research and Analytics, Legal Research, Clinical Research,
Publishing, Market Research (Market research KPO) etc. The current
global recession will usher these more important and also more
specialized activities to be outsourced as the organizations in the
developed countries try to cut their costs further.
LPO--The current Outsourcing Boom??? Though initially treated with
mistrust, the Law Firms in United States have finally started delegating
the drafting and the other paper work to their subsidiaries in India.
The Wall-Street crisis brought a wind-fall in this nascent industry
because the crisis that impacted the fortunes of Indian IT firms has the
country's LPOs minting bundles of cash with huge amount of
litigation work coming their way from the US. With a lot of paperwork
needed for filing bankruptcies, lawsuits, mergers and acquisitions that
the global recession is bringing forth, the Indian LPOs are getting more
and more involved into the so-called critical tasks of the companies.
Also, with the E-discovery law in place, (this law is related to
storage, usage and analysis of electronic data for the litigation work)
the American Law firms are flocking to India because of the huge cost
differential in lawyer fees. Of course, the law firms are still debating
as to how much of the work/data can be effectively outsourced to India,
especially considering that the information of the clients or the case
may be confidential, but some of the simpler tasks like drafting and
document reviews are being sent to India in a larger amount. A few of
the law firms also commented that ever since the fall of Lehmann
Brothers, their work has almost doubled and there has been a lot of
hiring in different cities as the bubble burst is still happening and
hence the demand is on the high.
Mass Layoffs--A Blessing in Disguise???
For years, we Indians have been hard-wired to live a methodical
life of studying and finding a well paying job in a reputed MNC and
settle down in life. The mass layoffs that follow this recession will
shake the whole system up and we will have to wake up from this
"dream-world". Considering that a huge mass of good educated
people, i.e. Engineers, Managers, Doctors etc. suddenly become
unemployed, people will start to look at the other opportunities that
would have been overlooked. New innovations may occur which will change
the way we perceive the world and probably, some Indians will spawn
yet-another MNC, an Indian MNC. These issues may also make people more
interested in teaching, which for now is considered a "dull"
occupation and hence the next generation of students will be guided
better. A bunch of people may even enter into Politics and we may see a
lot of changes in various other segments and scenarios. The dark side is
the crime rates will also go on a high and how we cope with the question
of how to feed the hungry people is going to be tough to answer.
Conclusively it can be said that the recession has impacted almost
everyone in our surrounding community, whether they were impacted
directly or indirectly. It has impacted local small businesses, large
industries and companies, as well as individuals and families. All
people in the economy are impacted by a recession. However, from the
current information, it looks as if the economy is on the rise and will
soon be back to normal. Recession is a serious issue, but hopefully our
current let down in economy has been a learning experience and next time
we will be better prepared and can prevent an equal disaster. It was
concluded that even the tech sector would see the impact of the economic
slowdown in terms of growth rate; the IT industry will continue to grow
and recruit manpower. The Impact of the current global economic
recession would be comparatively less on Indian telecom sector due to
the inherent strength and faster anticipated growth in this sector.
US recession 'would hit global IT spend' By IDG staff I
Published: 13:07 GMT, 11 February 08. 5 Ways I Plan To Survive The
Recession By Ron The Wisdom Journal.
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SHIVANI SHARMA, Lecturer, Jaipuria Institute of Management Studies,
Sector 14C, Vasundhara, Ghaziabad, E-mail:
ANJANA SHARMA, Lecturer, HLM Institute, Meerut Road, Ghaziabad,