Hard times hit Bangalore

perspective Inside the neo-modern building of a Bangalore outsourcing company, thousands of workers go through an unusual exercise each week.

As they arrive at work, they must pass a clipboard full of newspaper cuttings enumerating job losses at outsourcing and technology companies in the city. MphasiS axes 200 in Bangalore, says one. Sun Microsystems lays off 150, Sapient cuts 300 and so on.

The company's strategy is having a curious impact on employees. As measured by company executives who do not want the firm's identity to be disclosed, workers are performing better, making less demands of the company and appearing to value their jobs more highly than before the clipboard went up.

The chilling effect of the economic downturn is being felt all over Bangalore, India's outsourcing hub. Companies and workers are refashioning their strategy to face the reality of an intense downturn.

For the outsourcing industry's young workforce, long used to double-digit annual pay hikes and job hops at will, this reality is especially hard. After many years of industry growth on steroids, Infosys co-chairman Nandan Nilekani told me in a recent interview, many young workers had been lulled into a feeling that that was normalcy.

Workers are now recalibrating themselves to demonstrate higher productivity and greater loyalty to their employers. They are not taking their jobs for granted, nor are they assuming the subsidized lunches at the café or the free buses to work will last forever.

For others, the truth is taking time to sink in. At Nasscom 2009, the recent outsourcing industry annual conference in Mumbai, industry executives were bitterly complaining about the hard times.

The irony did not escape everyone. Upon his return from the conference, one industry leader told me that people at the conference who still had jobs were complaining--even as they ate the best cuisine from all over the world and drank good wine for free.

Many Indian outsourcers are remodeling their businesses to prepare for the full impact of the downturn. For a long time, these firms have remained India-centric in their operations.

This will have to change, according to Siddharth Pai, managing director and partner at the outsourcing advisory TPI India. Indian outsourcing companies will have to globalize by taking on delivery capability from different cities across the world, Pai told me.

The good news is that the current recession has made global acquisitions cheaper than ever before for the cash-rich among the outsourcing firms.

The recession is also forcing outsourcing companies to revamp their payment strategies.

Many top Indian outsourcing companies, including the Bangalore-based Infosys Technologies and Wipro, started off by executing work on hourly and day rates. Many have since moved up the value chain to project-oriented pay scales and annuity-based contracts.

Now they have been forced to take a percentage of the value of business delivered as their revenue.

The outsourcing contract between Nokia and New Delhi-based outsourcing company HCL Technologies is an example of a modern outsourcing deal.

Last month, HCL Technologies signed a five-year global helpdesk and desktop management outsourcing agreement with new customer Nokia, whose vendor was previously IBM.

HCL Technologies will charge Nokia on a 'per ticket per month' or 'per device managed per month' basis. The outsourcer will deliver multicountry and multilingual (13 languages) services through its global delivery centers in China, Finland, India, Poland and the United States.

Indian outsourcers have been growing at 30 percent rates for successive years. Many of their founders and employees have only experienced personal success. Now they are slowly discovering that the biggest fallacy of the global downturn is that outsourcing is recession-proof.

In Bangalore, this means 60 percent off signs at downtown stores are not enough to draw in the crowds that were the norm even a year ago. And there is no stampede for booking apartments even after the country's biggest developer dropped prices by a further 30 percent last week.

Saritha Rai is a business and technology writer based in Bangalore, India. This article was first published on ZDNet Asia's sister site, Silicon.com.