Nearshore Americas

Vemuri at Infosys Sees U.S. Clients Spending Big Bucks in ’11

SOURCE: WallStreetJournal

BANGALORE — Infosys Technologies Ltd.’s head of U.S. operations said he expects the company’s clients in its biggest market to be more open to spending on long-term outsourcing contracts in 2011 than in the previous couple of years, unless there is a Lehman-like situation.

The crumbling of Lehman Brothers Holdings Inc. in 2008 and the economic slowdown that followed had led to a steep decline in orders for Indian outsourcing services providers–which get the largest share of their revenue from the U.S.–as clients cut back or slowed spending on non-essential and long-term projects.

Infosys and other outsourcing companies are recovering from the effects of the economic crisis as clients started giving long-term contracts again, though the risk of a double-dip recession coupled with high unemployment and deflation in the U.S. are major concerns for them.

“Unless there’s a cataclysmic situation…from an economic perspective or one of our clients going the Lehman way, I don’t think we’ll have a repeat of that situation” when orders had dried up, Ashok Vemuri, senior vice president and member of executive council at Infosys, told Dow Jones Newswires in a recent interview.

The company gets about 66% of its revenue from the U.S. and counts Goldman Sachs and Bank of America among its top clients. On Friday it posted a more than 13% rise in its second-quarter net profit and raised its forecast for the current fiscal year, helped by improving demand for outsourcing services.

Mr. Vemuri said he is worried about the macroeconomic environment in the U.S., but is optimistic that the company’s customers will release their technology budgets for 2011 on time and will be “more open with the budget flows.”

He declined to comment on the likely size of technology budgets for 2011, expected to be finalized by the end of this year.

Last week, a report by Forrester Research said it expects technology spending in the U.S. to grow 7.4% in 2011, compared with 8.1% this year, mainly due to the slow pace of recovery in the economy.

The ailing health of the economy and the high rate of unemployment has led the U.S. administration to up the ante against outsourcing, including a hike in visa fees and with one state even banning shipping of jobs outside the country.

But, clients are unperturbed by the “protectionist noises” before the November elections in the U.S., Mr. Vemuri said.

In August, the U.S. passed a legislation, which almost doubled the cost of skilled worker visas for Indian companies.

Infosys on average sends about 4,000-5,000 employees to the U.S. for business purpose a year and had said it will take a 30-40 basis point hit on the operating margin from the next fiscal year starting April due to the fee hike. The company had also said it plans to pass on the cost to clients “at some point.”

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“If it (cost) becomes something that is unsustainable to us, then we’ll probably speak to the clients,” Mr. Vemuri said. However, “we’ve not had any conversations with clients. We have not felt the need to have any conversations.”

The company is looking to hire 100-150 more highly skilled experienced employees in the U.S. by the end of March 2011, over the current program to recruit 1,000 local people, Mr. Vemuri said.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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