MNCs eat into 25 per cent offshore work

For, a recent survey report of global investment bank Morgan Stanley has pointed out that though the Fortune 1000 companies are willing to send work offshore, they are not willing to increase prices for the projects that they would be offshoring to Indian vendors. Rather, it is expected that the prices may even go down.

‘‘We think the deceleration in growth is to be expected, given the larger base of these companies now and the extremely high growth rates witnessed in the past 12 months,’’ Morgan Stanley said in its report which was released on Thursday.

The investment bank had conducted the survey among the chief information officers (CIOs) of Fortune 1000 companies from May 9 to 20 and had received responses from 225 IT executives.

In fact, the investment bank said 24 per cent of the CIOs using offshore services plan to reduce their spending compared with 4 per cent in September 2004.

‘‘The long-term growth of industry is in danger, it is a macro danger that has to be tackled,’’ Partha Iyengar, VP of global consultancy firm Gartner, told The Indian Express.

Interestingly, the CIOs polled by Morgan Stanley are willing to send higher-end work offshore. And that is precisely where the Indian companies’ problems lie. ‘‘The high-end, complex capabilities are being offshored, but increasing number of companies are opting for captive units (the parent companies’ subsidiaries in India),’’ said Iyengar.

About 25 per cent of CIOs who use offshore services, now use multinationals versus 12 per cent in September and 25 per cent use captive units versus 10 per cent in September. The reason: Vendors (read Indian IT companies) are not ready for these high-end work. ‘‘For that to happen, the hiring pattern has to change. And not many companies are changing the hiring pattern. The vendors are good enough for now, but when it comes to scaling it up (the value of work), they are not up to it,’’ he added.

Even Morgan Stanley is surprised that the CIOs have started taking a long-term view and are looking at cutting offshore spending. ‘‘The high proportion of CIOs planning to cut back on offshore spending is surprising, given the strong datapoints so far in terms of client wins and hiring,’’ it noted in its report.