(July 26, 2005 - www.globalsourcingnow.com) - The Indian IT services companies who have largely dominated the offshore services segment are facing intense competitions from MNC’s like IBM and Accenture who are increasingly looking at making the country a base for providing such services. Most Indian service providers are facing pressure on both the availability of skilled resources and on pricing.

Attrition rates have reached unprecedented levels among many Indian companies. While, 1,481 employees resigned from Infosys Technologies in the quarter ending June, TCS lost 1,223 employees over the same period. The problem is expected to get worse for Indian companies with MNCs getting aggressive with their offshoring plans. In June 2005, IBM opened its fifth global delivery centre in India while Accenture hired 1,600 employees in May 2005. Accenture’s Indian employee base now accounts for over 10 percent of its global workforce. According to Bill Green, CEO, Accenture, the company plans to add 30,000 to 50,000 people in India, China and Philippines over the next three years.

The high levels of attrition not only necessitates salary hikes and increases expenditure on recruitment and training, but can also disrupt business momentum and lead to lower margins in case of fixed-price projects. According to a study by NeoIT, the IT salaries in India experienced the most significant growth compared to all other offshore/nearshore destinations in 2004. The trend is expected to be repeated in 2005.

Although price realizations have increased marginally for most Indian companies, margins have been under pressure as companies have not been able to pass on cost increases. Also, the main MNC competition is coming from players based in the US, which is where Indian IT players still get a majority of their business. Earlier, many MNCs would not take undertake offshore centric work, which helped Indian players. But now, since they themselves have a considerable presence in the offshore segment, it is likely that work flow to Indian companies could slow down.

The aggressiveness shown by MNC’s is likely to cause a drop in earnings growth rate for Indian players. Even if demand is not affected, pressure on salary costs and realizations is expected to impact margins.

Reported by ZD Net India News