Battle ahead for outsourcers

More than half of UK outsourcing deals went to Indian firms last year

Indian suppliers are expected to double their share of the UK IT outsourcing market in the next five years.

But with direct competition from established Western rivals, subcontinental firms may struggle to keep their cut-price image.

The latest estimates are that the top five Indian services companies ­ TCS, Infosys, Wipro, HCL and Satyam ­ will increase their UK market share from less than three per cent to more than seven per cent by 2011, says Pierre Audoin Consultants (PAC).

In doing so, they are jostling for a position alongside established global players, said PAC senior consultant Nick Mayes.

“They are now offering a lot more sophisticated services for European customers,” he said.

Growth is already swift: 57 per cent of UK outsourcing contracts went to Indian companies last year, 10 per cent more than in 2006, according to researcher EquaTerra.

Competition is hotting up worldwide. The top five European outsourcers ­ Atos Origin, BT, Capgemini, Siemens and T-Systems ­ saw their collective share of global contracts drop 17 per cent in 2007, as Indian counterparts’ shot up by 42 per cent.

But the strength of the rupee and higher labour costs could have a negative effect on Indian ambitions to be more than just low-cost providers, according to National Outsourcing Association director Mark Kobayashi-Hillary.

“A downturn in Western economies means offshoring will be about value again, rather than a more strategic partnership,” he said. “Much as these companies want to shed the budget tag, they are going to find it very difficult to do.”

The latest financial results suggest growth is already slowing. Wipro, for example, reported its slowest profit gain in three years. And TCS’s six per cent rise was the weakest in seven quarters.