BASF and co eye India to cut costs, cope with slump

October 21, 2009 6:55 am

The world’s biggest chemical company, BASF; Euroclear, Europe’s largest settlement firm, and Anheuser-Busch InBev, the world’s biggest brewer, are among companies looking at outsourcing from India for the first time as they seek to cut their operational costs and cope more effectively with drop in demand for their products and services. The economic crisis is fuelling demand for offshore outsourcing from first-time customers. Experts tracking the sector say new customers in Europe and Asia are considering outsourcing decisions worth up to $1 billion.
In a year, when large traditional outsourcing customers such as Citibank and GE are shelving new technology investments, new outsourcers from Europe and Asia provide a sliver lining for India’s $40-billion software export industry. Germany-based BASF, which makes chemicals for paper and cosmetics, reported its first quarterly loss of $400 million in seven years in February this year, and said it will shut plants and eliminate around 1,500 jobs to counter the slump. The company’s IT Services is evaluating suppliers for offshoring of IT functions.
“Changes in the IT market, sinking prices and difficult economic conditions mean special challenges for BASF IT Services in upcoming years,” said a company statement. The company added that the total intended reduction in headcount will be 14 per cent throughout Europe by 2012, approximately 300 staff members. Reducing operational costs by up to 30-40 per cent continues to be the primary driver for offshore outsourcing for these companies. “We are beginning to relocate individual services which can in the meantime be provided by worldwide competitors at the same quality levels, but at significantly lower costs,” said Ralf Sonnberger, MD, BASF IT Services.
Increased presence of Indian tech firms such as TCS, Infosys and Wipro is helping these customers evaluate new contracts more aggressively. As global providers are investing heavily in India, there is a general consensus that global delivery will become a standard model.