by Jere­my Nahn
New York Times

BANGALORE, India — After years of being blamed for job loss­es in Amer­i­ca and else­where, India’s high-tech com­pa­nies and out­sourc­ing firms are going through a down­turn of their own. The glob­al slow­down is forc­ing them to reduce hir­ing, freeze salaries, post­pone new invest­ments and lay off thou­sands of soft­ware pro­gram­mers and call cen­ter oper­a­tors.

While some indus­try insid­ers insist the glob­al cri­sis will actu­al­ly ben­e­fit com­pa­nies here, as West­ern busi­ness­es seek to cut costs by mov­ing jobs over­seas, right now the sec­tor is sud­den­ly gripped by an unfa­mil­iar sense of uncer­tain­ty.

“It’s cer­tain­ly not irra­tional exu­ber­ance,” said Nan­dan Nilekani, co-chair­man of Infos­ys, one of India’s best-known tech­nol­o­gy out­sourc­ing firms. “There is a lot of intro­spec­tion about what does this mean and when does it end.”

The down­turn is expos­ing a deep­er con­cern: India has become the world’s front office, han­dling cus­tomer ser­vice calls, and its back office, help­ing to process pay­ments and run account­ing and oth­er com­put­er sys­tems. But it has not yet become the head office — mak­ing major new prod­ucts, pio­neer­ing mar­ket­ing tech­niques or help­ing to shape cor­po­rate strat­e­gy.

Rather than drown­ing Amer­i­can tech­nol­o­gy firms or work forces with a vast sup­ply of cheap engi­neer­ing tal­ent, as some had feared, India — and Ban­ga­lore, its Sil­i­con Val­ley — have con­tin­ued to large­ly serve as the infor­ma­tion economy’s ver­sion of man­u­al labor.

“His­tor­i­cal­ly, when it comes to inno­va­tion, Indi­an com­pa­nies are rel­a­tive­ly weak com­pared to the I.B.M.’s and Accen­tures of the world,” said Partha Iyen­gar, the head of research in India for the Gart­ner Group, which ana­lyzes trends in the tech sec­tor. “It has been their chron­ic Achilles’ heel.”

Last week’s coor­di­nat­ed ter­ror­ist attacks killed near­ly 200 peo­ple and tem­porar­i­ly brought Mum­bai, India’s com­mer­cial cap­i­tal, to a halt. But long before that shock, the coun­try had been suf­fer­ing the effects of the glob­al slump, los­ing cap­i­tal as West­ern investors fled to the secu­ri­ty of Amer­i­can Trea­suries, under­min­ing Indi­an banks and com­pa­ny bal­ance sheets.

Infos­ys recent­ly scaled back its pro­jec­tions for the year, telling investors that it now expects rev­enue to expand 13 to 15 per­cent, instead of the 19 to 21 per­cent it had fore­cast and far below the 30 per­cent annu­al expan­sion the com­pa­ny had been used to.

Like many of India’s out­sourc­ing com­pa­nies, Infos­ys is heav­i­ly depen­dent on the finan­cial sec­tor, deriv­ing a third of its rev­enue from banks like Cit­i­group and Bank of Amer­i­ca and oth­er finan­cial clients. Its fate is also close­ly tied to the Amer­i­can econ­o­my: two-thirds of its busi­ness comes from the Unit­ed States. Nei­ther fac­tor bodes well for the company’s prospects.

Tech­nol­o­gy Part­ners Inter­na­tion­al, a con­sult­ing firm that pub­lish­es an index of glob­al out­sourc­ing deals, says its index is at a 10-year low. “Peo­ple think that out­sourc­ing is a reces­sion-proof indus­try. It is not,” said Sid­dharth Pai, a part­ner at the firm.

That real­iza­tion has changed the boom­town atmos­phere of this city. Young work­ers still flock to a rooftop ter­race on Res­i­den­cy Road every Wednes­day night to grind to house and hip-hop music. But late­ly, the crowds at NYKS, an upscale night­club, are a lit­tle thin­ner. They drink a lit­tle bit less. They talk a lit­tle less loud­ly. “Now they are think­ing twice before spend­ing mon­ey,” said Supreeth Chan­drasekhar, a 25-year-old disc jock­ey at NYKS.

Mr. Chan­drasekhar also said that he used to per­form at cor­po­rate events but that this busi­ness had large­ly dis­ap­peared.

In a coun­try where most mar­riages are arranged by par­ents, the down­turn has even tak­en a toll on the mat­ri­mo­ni­al prospects of those in tech­nol­o­gy out­sourc­ing. “Because there is no job guar­an­tees for I.T. peo­ple, for the last six months brides’ fam­i­lies have not been accept­ing grooms from this back­ground,” said Jagadeesh Anga­di, a match­mak­er in Ban­ga­lore.

The Indi­an Nation­al Asso­ci­a­tion of Soft­ware and Ser­vice Com­pa­nies esti­mates that the country’s tech­nol­o­gy sec­tor will cre­ate 50,000 few­er jobs in 2008 than last year, although it pre­dicts the sec­tor will still have added 200,000 work­ers by year’s end. India’s tech­nol­o­gy out­sourc­ing com­pa­nies have laid off about 10,000 employ­ees since Sep­tem­ber, accord­ing to the Union for Infor­ma­tion Tech­nol­o­gy Enabled Ser­vices, a labor group that rep­re­sents tech­nol­o­gy work­ers.

Among the major play­ers that have announced cut­backs in hir­ing is Satyam Com­put­er Ser­vices, which slashed its recruit­ment plans to few­er than 10,000 from 15,000. Infos­ys, by con­trast, has almost $2 bil­lion in cash on its bal­ance sheet, a sig­nif­i­cant amount that can help it weath­er the down­turn. It said it intend­ed to fol­low through on plans to hire 25,000 work­ers this year.

“We made offers to peo­ple, and we need to stand by them,” Mr. Nilekani of Infos­ys said.

But some com­pa­nies that have hired recruits are post­pon­ing their start dates. The defer­rals allow com­pa­nies, which once hired in antic­i­pa­tion of future busi­ness, to bet­ter man­age over­head by adding staff only when they have con­firmed projects.

A few so-called cap­tive out­sourc­ing oper­a­tions — those that serve only their par­ent com­pa­ny in Europe or the Unit­ed States — have also cut back. Amer­i­can Express laid off some 200 of its 6,000 work­ers in India, and Gold­man Sachs announced last month that it would dis­miss about 10 per­cent of its Indi­an work force.

Still, for the moment, the indus­try has escaped large-scale job loss­es. Indi­an labor laws make it dif­fi­cult for com­pa­nies to drop work­ers, and mass fir­ings can draw a polit­i­cal out­cry. But out­sourc­ing com­pa­nies have begun prun­ing work­ers, cit­ing poor job per­for­mance, a way to qui­et­ly reduce labor costs with­out attract­ing much pub­lic scruti­ny.

The large out­sourc­ing com­pa­ny Wipro dis­missed 2.5 per­cent of its work force in the sec­ond quar­ter. Out­sourc­ing com­pa­nies are also shelv­ing expan­sion plans. Wipro, for instance, announced it was post­pon­ing the open­ing of a major new soft­ware devel­op­ment cen­ter in Atlanta.

But India’s busi­ness lead­ers see oppor­tu­ni­ty in the down­turn. “Once things set­tle down, peo­ple will start look­ing at their busi­ness oper­a­tions and how to make them more effi­cient, and that is where we play,” Mr. Nilekani said.

Even con­sol­i­da­tion on Wall Street, which may elim­i­nate some Indi­an com­pa­nies’ clients, could help Indi­an work­ers, out­sourc­ing exec­u­tives say. Merg­ers require tech­ni­cal skills to inte­grate dis­parate sys­tems, and there is a poten­tial for prof­itable out­sourc­ing work in areas like reg­u­la­to­ry com­pli­ance. Banks are like­ly to be under stricter gov­ern­ment scruti­ny giv­en the sense that lax over­sight con­tributed to the finan­cial cri­sis.

Raman Roy, chair­man of Qua­tr­ro BPO Solu­tions, an out­sourc­ing firm based in New Del­hi, says he has 300 employ­ees review­ing legal doc­u­ments as part of bank merg­ers. Copal Part­ners, a com­pa­ny that uses employ­ees in India to help invest­ment banks do the sort of deal-based research nor­mal­ly per­formed by the bank’s junior ana­lysts, has con­tin­ued to expand even dur­ing the down­turn.

Crit­ics say that will not change the local industry’s basic dis­ad­van­tage: a cre­ativ­i­ty gap with West­ern com­peti­tors. Indi­an tech­nol­o­gy com­pa­nies are too focused on increas­ing the effi­cien­cy of their sys­tems, not improv­ing their clients’ own indus­try-spe­cif­ic process­es, accord­ing to Navi Rad­jou, an ana­lyst with For­rester Research. “They are hav­ing trou­ble tai­lor­ing a tech­ni­cal appli­ca­tion to a par­tic­u­lar busi­ness need,” he said.

But India’s biggest tech out­sourc­ing com­pa­nies want to do as much as their Euro­pean and Amer­i­can rivals, includ­ing expand­ing in Europe and the Unit­ed States. And the dow
nturn may allow them to acquire tal­ent — and even whole busi­ness­es — on the cheap.

The changes may come too late for work­ers like Vikram Hath­war.

In July, Mr. Hath­war, a 22-year-old engi­neer, grad­u­at­ed from a tech­ni­cal col­lege with a job offer from a soft­ware devel­op­er. But instead of start­ing his job — pay­ing near­ly $6,000 a year, a good start­ing salary in this coun­try — Mr. Hath­war has been wait­ing for a let­ter from the com­pa­ny telling him when to report for work.

“I called them and they said they would be call­ing two or three months lat­er, but still they have not informed me any­thing about when I should start,” Mr. Hath­war said.

In the mean­time, he has begun look­ing for a tem­po­rary job. But he said most tech busi­ness­es are no longer hir­ing recent grad­u­ates. The few that are have begun ask­ing appli­cants to intern for sev­er­al months with­out pay and with no guar­an­tee of a per­ma­nent posi­tion. “The reces­sion has made for all these pres­sures on us,” Mr. Hath­war said. “It is very con­fus­ing to know what to do.”

This arti­cle has been revised to reflect the fol­low­ing cor­rec­tion:

Cor­rec­tion: Decem­ber 5, 2008
An arti­cle on Thurs­day about the effect of a glob­al slow­down on out­sourc­ing com­pa­nies in India mis­stat­ed the buy­er of the British con­sult­ing firm Axon Con­sult­ing. Axon was pur­chased by the Indi­an tech­nol­o­gy out­sourc­ing firm HCL Tech­nolo­gies, not its rival Infos­ys.