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The Slumdog Effect and India's IT Services Industry

The Slumdog Effect and India's IT Services Industry

Since Slumdog Millionaire took home eight Oscars earlier this year--inspiring increased interest in many things Indian--2009 has been dubbed by some as "the year of India." But, in terms of IT services, it probably won't be the year of India Inc.

Now that the Academy Awards have been handed out and Slumdog Millionaire has walked away with eight Oscars, 2009 has been dubbed by some as "the year of India." But how does that height of popularity translate outside of Hollywood? Will it trickle down to IT outsourcing services?

The Mumbai-set movie is now credited with everything from increased donations to India-related charities to a surge in downloads of Indian music. But in the business realm-particularly the IT services industry-India is not exactly having a banner year with the unexpected unraveling of Satyam, the aftermath of last year's terrorist attacks, and increased competition from other emerging economies. And the surprising success of the underdog film will not necessarily translate into good news for or good will towards the subcontinent's IT industry.

"2008 was a year of irrevocable perception change for India's reputation as a peaceful business destination," says Scott Wilson, co-founder of outsourcing research firm The Brown-Wilson Group.

Just one quarter into the new year, 2009 looks to be an even more difficult year for India's outsourcing giants. The country's IT service providers are reducing headcount, freezing salaries, and struggling to win new business, says Mark Kobayashi-Hillary, a London-based outsourcing analyst and author of the book Who Moved My Job? Satyam Computer Services is on the selling block after its chairman admitted to cooking the books, with customers including Nissan, Pfizer, and SanDisk reportedly seeking to exit their contracts with the Hyderabad-based company.

"The Satyam scandal has caused many outside India to worry whether it was really just a one-off event or a systemic failure," says Kobayashi-Hillary. One troubled provider has caused all smart outsourcing customers to take a second look at their offshore portfolios. "Satyam is making companies look at their vendor management strategy," says Ben Trowbridge, CEO of Alsbridge. "Simply spreading the work out over four vendors in India doesn't solve the problem." Some customers may decide to insource work once send abroad if the risks prove too great, says Trowbridge.

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