Outsourcing with Indian IT labour Threatened by Wage Inflation

(Written by Alexander Crawford, list compiled by Eben Esterhuizen, CFA)

For the past decade, India has had a booming IT industry that has offered the world low-cost technical labour. But after several years of wage inflation (i.e. consistent increases in salary), the industry is finding the need to adapt – some say mergers and acquisitions will be the solution.

According to a report from Fortune, the industry took off in India after Y2K. Companies in hysterics discovered that Indian IT offered low-cost labour to check miles and miles of codes that might contain the poisonous glitch. Indian companies Infosys (INFY), Wipro (WIT), and cognisant (CTSH) were on the receiving end of a very good decade to follow.

But today, India’s wage inflation (the highest in Asia) is threatening the industry’s low-cost appeal. Other countries like the Philippines and those in Latin America are using their low wages to offer low costs, adding further pressure.

The industry hopes to shift from services to products for these reasons, as a way to continue growing without hiring more employees. According to Fortune, there are only two options for products: build them or buy them.

Among the three Indian IT companies mentioned before, Infosys, Wipro, and cognisant, they have amassed $8.6 billion from the last decade of success. This big chunk of change certainly leaves mergers and acquisitions on the table, but no major moves have been made yet.

Do you think the Indian IT industry will adapt and continue to grow? Here we list Indian IT companies traded on US exchanges:

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1. Infosys Technologies Limited (INFY): Market cap at $29.57 B. The company provides business consulting, technology, engineering and outsourcing services, with primary geographic markets of North America, Europe, and the Asia-Pacific region

2. Patni Computer Systems Limited (PTI): Market cap at $792.85 M. The company provides information technology services and services to customers through industry-focused practices, including insurance, manufacturing retail and distribution, financial services and communications, media and utilities, and through technology-focused practices

3. Rediff.com India Ltd. (REDF): Market cap at $204.32 M. The company provides online consumer offerings in India and to the global Indian community, with communication services, such as e-mail and instant messaging, news and information channels, community features, including a video sharing platform, search engines, and mobile and online marketplace services

4. Wipro Ltd. (WIT): Market cap at $23.63 B. The company provides a range of information technology (IT) services, software solutions, IT consulting, business process outsourcing (BPO) services, and research and development services in the areas of hardware and software design to companies worldwide

5. cognisant Technology Solutions Corp. (CTSH): Market cap at $19.75 B. The company provides custom Information Technology (IT) consulting and technology services, as well as outsourcing services in North America, Europe, and Asia.

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

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