VZCZCXRO3086
RR RUEHBI RUEHCI RUEHCN RUEHGH
DE RUEHGH #0572/01 3580636
ZNR UUUUU ZZH
R 230636Z DEC 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7467
INFO RUEHBJ/AMEMBASSY BEIJING 2389
RUEHHK/AMCONSUL HONG KONG 1806
RUEHSH/AMCONSUL SHENYANG 1629
RUEHCN/AMCONSUL CHENGDU 1637
RUEHGZ/AMCONSUL GUANGZHOU 0096
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RUEHNE/AMEMBASSY NEW DELHI 0038
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RUEHUL/AMEMBASSY SEOUL 0309
RUEHBI/AMCONSUL MUMBAI 0011
RUEHCG/AMCONSUL CHENNAI 0015
RUEHCI/AMCONSUL KOLKATA 0011
RUCPDOC/USDOC WASHINGTON DC
RUEHIL/AMEMBASSY ISLAMABAD 0027
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8081

UNCLAS SECTION 01 OF 03 SHANGHAI 000572 
 
SENSITIVE 
SIPDIS 
 
STATE PASS EAP/CM 
STATE PASS USTR FOR STRATFORD/WINTER/WINELAND/KATZ 
DOC FOR ITA - DAS KASOFF, MELCHER, OCEA-SZYMANSKI 
TREASURY FOR OASIA/INA CUSHMAN, WINSHIP 
NSC FOR LOI, SHRIER 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN EINV ELAB PGOV CH IN
SUBJECT: LEADING INDIAN IT COMPANIES IN SHANGHAI IMPACTED BY GLOBAL 
ECONOMIC SLOWDOWN 
 
REF: 07 SHANGHAI 785 
 
¶1. (SBU) Summary: Major Indian IT outsourcing firms in Shanghai 
said their China businesses have been hit hard by the global 
economic downturn, as multinational and domestic clients cancel 
or defer projects.  The boom of recent years has come to a 
screeching halt, with revenue growth falling short of 
expectations, especially in the second half of 2008.  The firms 
have "no idea" what is in store for 2009.  Although a couple of 
interlocutors see a silver lining - declining attrition rates 
and a potential pool of new clients forced to outsource in the 
downturn - they are clearly disappointed by this year's results 
and are taking a "wait and see" approach, much like their 
clients, with no plans to expand operations in China in the near 
future.  End summary. 
 
¶2.  (U) In November and December 2008, Econoff spoke with top 
Shanghai-based managers of three Indian IT firms about the 
impact of the global economic downturn on their China 
businesses.  All three firms - Wipro, Satyam, and Tata 
Consultancy Services (TCS) - provide business process 
outsourcing (BPO) and IT services to multinational and Chinese 
firms operating in China.  This was a follow-up to discussions 
in December 2007 to assess how the downturn has altered plans 
and outlook from last year.  (See reftel). 
 
Sharp Slowdown in 2H 2008 
----------------------------------------- 
¶3.  (SBU) The managers of all three firms said growth has been 
slower than expected this year, particularly in the second half 
of 2008.  They attributed the slowdown to the global economic 
downturn, which has impacted both their multinational and 
Chinese domestic clients.  Kevin Ho, General Manager of Wipro, 
observed his clients have become "clearly more cost conscious" 
in recent months, and his firm has had to adjust to this 
increasingly "cost-sensitive environment."  One of the ways his 
company adjusted was by opening a new office this year in 
Chengdu (the capital of Sichuan Province in Western China) 
which, according to Ho, enjoys lower labor costs, a decent pool 
of skilled labor, and good infrastructure.  Wipro's Shanghai 
office, its China headquarters, will remain an important sales 
and marketing center, but many of its IT services will shift to 
Chengdu, Ho said. 
 
¶4.  (SBU) Raghvendra Tripathi, China Head of Satyam, said his 
firm experienced 60 percent growth from 2006 to 2007 but that 
year-on-year (YOY) growth in 2008 will only be 20 percent.  He 
said Q1 2008 revenues were up YOY but that growth stalled in the 
second and third quarters, calling the economic downturn 
"obvious" and noting that business "clearly started going down" 
after the collapse of Lehman Brothers in September.  He observed 
that multinationals and Chinese clients all began cutting costs 
and canceling or deferring projects in the second half of 2008 
in an attempt to conserve cash.  According to Tripathi, SME 
clients are especially struggling as "banks have money but are 
not lending to smaller companies."  Tripathi also mentioned that 
Satyam's Hong Kong operations have been hit particularly hard, 
as most of their clients are financial firms. 
 
¶5.  (SBU) Anantha Murthy, General Manager of Tata Consultancy 
Services (TCS), said his company's revenue in China had grown 
100 percent annually the past few years.  However, he expects 
growth to be 40 percent in 2008, saying it is "still okay, but 
much less than expected."  (Note: Murthy told Econoff in 
December 2007 that he expected 100 percent revenue growth in 
¶2008.  See reftel.  End note.)  Like Tripathi, Murthy said 
several big projects were deferred or canceled in the latter 
part of this year, many by U.S. firms which constitute 60 
percent of his clients.  The loss of some financial clients, 
like Lehman, also hurt TCS's bottom line, said Murthy. 
 
SHANGHAI 00000572  002 OF 003 
 
 
 
"No Idea" What 2009 Will Bring 
------------------------------------------ 
¶6.  (SBU) Tripathi and Murthy said they have "no idea" what is 
in store for 2009, as most of their clients are in a 
"wait-and-see mode."  Only Ho of Wipro ventured to forecast 30 
percent YOY revenue growth in 2009, though he admitted this is 
far from certain.  None of the interlocutors expressed any plans 
to expand their China operations.  They do not plan to open new 
offices in the foreseeable future, and the hiring of new 
employees has slowed, they said.  In conversations with Econoff 
in late 2007, Tripathi had said Satyam planned to have 2000 
employees by 2010, up from 700 in 2007 (Ref).  Satyam currently 
has 900 employees in China, and Tripathi projects that only 
100-200 more positions will be added to their new Nanjing 
office, which was originally scheduled to open in early 2008 
but, for various "technical" reasons, did not open until late 
¶2008.  He does not know if there will be any further hiring 
after that.  Murthy of TCS also said his company's original plan 
(as of late 2007) was to have 1700 employees throughout China by 
2008 and 3500 by 2009.  However, the economic downturn has 
derailed these plans: TCS now has 1300 employees and expects to 
grow to 2500 by the end of next year, well short of original 
plans. 
 
Not All Gloom and Doom 
---------------------------------- 
¶7.  (SBU) The interlocutors offered varying assessments of their 
future business in China.  Tripathi of Satyam was the most 
pessimistic, saying he has a "cautious" outlook on China.  He 
sees greater opportunity for growth in the Middle East and other 
relatively untapped regions.  Ho of Wipro, on the other hand, is 
more bullish on the China market.  Aside from his optimistic 
forecast for growth next year, he thinks China offers the most 
long-term growth potential of any developing region, as long as 
companies can take advantage of lower costs in the inner 
provinces without sacrificing quality of service.  He also sees 
a silver lining in the economic downturn.  He thinks the market 
slowdown has created a fear of unemployment, even among skilled 
workers in Shanghai, leading to a decline in the rate of 
attrition.  "More people are staying in their jobs and are not 
moving around as much as before," he said.  (Note: In 
discussions in late 2007, one of the chief complaints from 
Indian IT firms was the high rate of attrition among skilled 
workers, especially in Shanghai, who were in high demand and 
could easily bounce from company to company in search of higher 
pay.  See reftel.  End note). 
 
¶8.  (SBU) Murthy of TCS said the economic downturn, though 
painful in the short-run, is also an opportunity to lure new 
clients who are looking to cut costs through outsourcing.  He 
said TCS is specifically targeting Japanese firms which, in the 
past, were reluctant to outsource services but are now faced 
with cost-cutting demands.  According to Murthy, TCS set up an 
office with 500 employees in Tianjin this year, mainly to 
service Japanese firms operating in China.  Murthy is optimistic 
that TCS's strong brand name and reputation will allow it to 
retain major clients and win new clients even in the current 
downturn. 
 
Comment 
------------ 
¶9.  (SBU) The negative sentiment among our interlocutors is 
similar to what we have heard from other contacts in the IT 
services and manufacturing sectors about the impact of the 
global economic downturn.  Although Ho and Murthy tried to put a 
positive spin on the current situation, all the interlocutors 
were clearly disappointed by their companies' performance in 
China in 2008.  With no end in sight to the current economic 
 
SHANGHAI 00000572  003 OF 003 
 
 
downturn, these companies are struggling to formulate 
projections for the years ahead.  Like their clients, they are 
adopting a "wait-and-see" approach until the dust settles. 
CAMP