Chrysler bankruptcy may hit Indian IT cos

Chrysler, the bankrupt US automaker, plans to scale down its offshore outsourcing of information technology projects to vendors such as TCS in the near term, as America's third-largest automaker prepares to undergo a massive business transformation steered by the Obama administration and sell its assets to Italy's Fiat.

Chrysler, which outsourced software and back-office projects worth around $200-250 million to India-based service providers last year, also shifted some customer service projects from its Bangalore captive centre in India to Rochester Hills, Michigan, and Salt Lake City in the US a month ago.

'TCS' $120-million Chrysler contract is relatively small in the bigger scheme of things being worked out at the automaker. However, given the uncertainty around which product lines to continue with, some of the software application and maintenance contracts have become smaller,' said a US-based outsourcing consultant familiar with Chrysler's offshoring initiatives. He requested anonymity because he is not an authorised spokesperson of his firm.

While Chrysler officials did not get back on an e-mail query sent by ET last week, spokespersons at TCS declined to comment about any specific customer. Another outsourcing expert said on condition of anonymity that TCS could be deriving around $30-40 million from Chrysler annually. However, this could not be independently verified by ET.

Apart from TCS, Wipro and Satyam ' now owned by Tech Mahindra ' also count Chrysler among their customers, but ET could not ascertain the amount of work being done by these companies for the troubled automaker. Outsourcing vendors such as TCS and Wipro help automakers manage their supply chains and other business processes by maintaining the software systems and developing required applications. With Chrysler's manufacturing operations stalled for a few months, the maintenance projects may not be needed.

'Until the court approves the transaction transferring operations to the new company, Chrysler's manufacturing operations will be idled beginning Monday, May 4, to conserve resources while ensuring that the facilities are prepared to resume normal production schedules when the transaction is completed, which is anticipated within 30-60 days,' Chrysler chairman and chief executive Bob Nardelli said in his letter to suppliers last month. In a year when US automakers such as Chrysler and GM are looking to restructure their businesses, Indian outsourcing vendors such as TCS, Wipro and Satyam will have to cope with a lower demand for services and pressure on billing rates. American Senators, including Chuck Grassley, are also questioning offshoring by troubled US companies at a time when US job losses have hit an all-time high.

With a new Chrysler set to emerge in a few months, owned over 50% by the employees, there could be resistance against any offshoring of services. However, experts such as Rodney Nelsestuen, senior research director with US-headquartered TowerGroup, said any reduction in offshoring of services is unrealistic.

'While this specific contract for Tata seems inconsequential to either Tata or Chrysler, the longer term issue of reducing offshore services in the US does not seem plausible, given global interdependence and the fact that any go-forward strategy will somehow be connected to outsourcing if nothing more than looking through for the lowest cost suppliers,' he said in an interview with ET last week.

 

Source: Times Of India