It is not just physical products. It will impact India’s US$ 180bn outsourceing industry. Are clients happy? No they are not …!
India Coronavirus Shutdown Hits Outsourcing Groups
According the Financial Times, companies are racing to maintain services for global clients Companies are forced to upgrade networks so staff can work from home.
The nationwide shutdown in India has left some of the world’s biggest outsourcing companies racing to maintain services for global clients. India’s IT companies provide back office operations for many of the world’s largest corporations, from banks to manufacturers and pharmaceuticals.
The spread of Covid-19 in India prompted Prime Minister Narendra Modi to announce last week that the country would enter a 21-day shutdown with a strict curfew and only essential services running. A number of the country’s more than 900 confirmed cases were among employees at outsourcing firms in cities like Bangalore or Pune. As a result, IT companies have had to swiftly shift desktops into employees’ homes and upgrade networks so they can continue working remotely. They have also had to lobby for exemptions so they can continue sending some workers to offices to perform critical functions, such as maintaining clients’ cyber security systems.
Ramping Up: Tata Consultancy Services, which has $20bn in annual revenues, said that about 85 per cent of its 400,000 employees in India and elsewhere in the world were now working from home, up from 40 per cent a week earlier. Infosys said that 70 per cent of its 200,000-strong workforce was working from home around the world. “This is the crown jewel of the Indian economy,” said R Chandrasekhar, former president of industry association Nasscom and a former government IT official. While there has been smaller scale disruption before, “this is a completely different ball game and companies are now trying to adapt”.
Collectively, the industry employs about 4m and earns revenues of $180bn a year.
The shutdown in India and other outsourcing hotspots such as the Philippines has been a challenge for companies in Europe and North America that depend on these businesses to manage internal systems or run call centres.
Some western companies have indicated they intend to reduce their dependence on outsourcing: Virgin Media announced last week that it would hire 500 call centre staff in the UK. Pankaj Kapoor, an analyst at JM Financial in Mumbai, said most IT companies were managing despite the difficulty. “Has it increased the risk? Definitely. Are clients happy? Definitely not. But I guess these are the times where the choice was to suspend the work, or get it done with this risk.”
TCS said it had put networks in place for its employees to be able to work securely from home, and had required them to sign non-disclosure agreements for an additional layer of protection. “Organisations have trusted TCS to manage their technology and continue to place their confidence in us to help them tide over this situation,” the company said. Infosys said it was taking steps including facilitating high-speed broadband at its employees’ homes if necessary. “We are also significantly and rapidly amplifying our technology landscape to support robust and secure remote collaboration at scale,” it said. But Nasscom, the industry group, suggested the ability to adapt may have its limits. In a recent letter, it advised members to explore the applicability of force majeure clauses in client contracts. “I am confident we can rebuild the industry to its past glory and more, once the crisis is behind us,” wrote current president Debjani Ghosh.
Source: Financial Times
India’s lockdown to prevent the spread of the coronavirus puts machinery, pharmaceuticals and textile supply chains at risk, according to analysts.
The 21-day lockdown, announced by prime minister Narendra Modi, is “likely to have a severe impact on manufacturing including downstream supply chains”, said S&P Global. Analysts said there are “already signs of disruptions to the logistics industry” with Indian ports declaring force majeure and cutting activities.
According to data firm Panjiva, the largest Indian export lines in 2018 were energy, in particular refined fuels, worth $44.8bn (14.1% of total exports). Those shipments “will likely already be in decline … as a result of the collapse in the oil price”, S&P said.
The next largest exports were precious metals (12.4%), manufactured goods apparel and textiles (6.6%), machinery (6.4%) and vehicles (5.7%). In terms of US imports, the most exposed industry is vehicle chassis, where 72.3% of imports came from India in 2019, data showed. Among consumer goods, India represented 32.1% of US imports of carpets and 16% of textiles.
The largest import to the US by value is pharmaceuticals. India represents 9.4% of total US pharma imports but supplies are concentrated in generic pharmaceuticals.
“Data shows pharmaceutical imports to the US already dropped by 14.2% year over year in the first two weeks of March after falling 8.2% in the first two months of the year,” S&P added. “Shipments from India were substituted for those from Europe and China, with shipments from India having increased by 10.2% in the first two weeks of March and by 11.0% in the first two months of the year. Losing imports from India could therefore exacerbate the existing supply chain downturn.”