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What will the financial services crisis mean for the IT offshore outsourcing movement?

Earlier this week, a rather interesting news item crossed my desk: Seems India-based IT services giant Tata Consultancy Services (TCS) will buy the business process outsourcing arm of Citigroup for $505 million. The transaction is supposed to close in the fourth quarter. Just curious, does anyone find that number sort of modest? I’m betting it would have been valued a lot higher just 18 months ago.

As part of the deal, Citi has also signed a 9.5-year contract with TCS valued at $2.5 billion to extend the existing relationship that the two companies have for application development, infrastructure support, help desk and process outsourcing services.

Now, clearly, anything that a financial services company can do right now to shed any non-strategic assets is a no-brainer. But I got to wondering what the stock market meltdown of the past two weeks is doing for any VAR focused on the sector (that’s the bad part of having close vertical industry ties, I suppose). On the one hand, consolidation means integration of all sorts of systems, but I wonder which of these companies can stomach that kind of cost right now. This clearly accelerates the need for IT solution providers to hunker down into the business impact of whatever it is that they’re processing. Don’t even think of advising with tacit ROI numbers.

But even more, this announcement got me to wondering about the whole IT offshore outsourcing debate. Remember the fierce arguments about whether or not offshoring was in our national interests? Certainly, the cost-savings arguments were compelling and you couldn’t fault enterprise for looking to cut their costs. The e-mails I used to get about this issue were pretty intense, though, especially if I wrote anything positive.

Well, imagine the exposure that those firms have now in the current crisis. Sure, the loss of this business, at least as it relates to the financial services sector, had to hurt a few years back for the U.S.-based IT services shops that used to focus here more exclusive. But the comeuppance has arrived, in spades. Aren’t you glad you moved on?

Heather Clancy is a business journalist and industry observer with more than 19 years of experience in high-tech. She currently is vice president of strategic communications with SWOT Management Group, where she advises companies on their channel communications and messaging strategies. She can be reached at hclancy@swotmg.com.

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