The financial significance of Infosys bagging the back-office finance/accounting work of consumer electronics major Philips is hard to miss. The company, after all, would be committing just $28 million in investments for an assured business of $250 million in outsourced services spread over seven years. Given the present profit margins in BPO deals, especially those involving high-end jobs, the investment should be recovered in good time. And if the company can leverage th e business process knowledge embedded in the human and other assets acquired from Philips to generate additional business the investment becomes doubly attractive.

But the transaction is also a pointer to a new growth paradigm for the information technology industry now that it is increasingly encountering resistance overseas for taking jobs away to India. In the initial years the Indian IT industry could blossom in the United States on the back of the perception that it was only taking low-value jobs, such as the Y2K programming, that professionals in the West any way did not want. But as job losses continued beyond the year 2000 and increasingly involved higher value creating activities, outsourcing graduated to a topic of heated debate, including in the US presidential elections. The industry may have successfully weathered the initial onslaught. But, clearly, future growth requires a new strategic impulse.

The issue is no longer about politicians fanning xenophobic concerns among the gullible voting public. Western enterprises contemplating outsourcing deals now recognise that the controversy has all the ingredients of becoming a public relations disaster that could affect their core business. They are careful not to be seen as triggering job losses. For instance, when Ford Motors announced it was seeking bids for its Jaguar and Land Rover car plants, the company made it clear that the final choice of the investor would depend on the latter’s commitment to keeping the work force in tact. While there may be an element of making the right political noise in the Ford’s assertions, there is no denying that it is keen that prospective consumers for other cars in its portfolio should not see in its actions a company that is indifferent to the prospects of the local economy.

The message for the Indian IT industry and indeed the corporate sector as a whole is clear. They can no longer count on mere wage differential to win orders or acquire assets in the West. The business model would have to be a judicious blend of cost arbitrage and sensitivity to sustaining the local economy.

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Infosys gets $250-m Philips contract

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