Now that Royal Bank of Scotland (RBS) has dropped its plans to spin off Williams & Glyn as a subsidiary, it has cancelled its $300 million USD contract with Indian outsourcing giant Infosys. The development plan was mired by technology hurdles for years, destroying RBS’ best-laid plans to revitalize the once-revered U.K. banking brand.
While this is yet another problem for the government-controlled Edinburgh bank facing nothing but trouble, it also is a big blow to Infosys. The company says that it will not lay off the 3,000 workers it had allocated for the RBS project. Instead, it plans to redeploy the employees, most of which are in India, into other jobs.
Additionally, it still maintains other business with RBS and will continue working on non-Williams & Glyn projects together. “RBS is a key relationship for Infosys,” said Infosys in a statement, “and the company looks forward to further strengthening its strategic partnership and working with them across other strategic and transformation programs.”
But even before losing $300 million USD in income, which was spread out over a five-year deal, the Bangalore-based BPO, IT, and consulting leader had already downgraded its earnings forecast for the year. The revision was not a devastating announcement. Rather than expecting growth between 11.5% to 13.5% in this fiscal year, according to a statement in July, Infosys is forecasting a 10.5% to 12.0% expansion.
That is no small haircut. Its stock took a huge hit in mid-July following the news and has only been falling further since the Williams & Glyn decision came down last week. The market feared Infosys would face collateral damage — and was proven correct.
On top of its individual problems, Infosys is also confronting the same industry-wide issues as other Indian outsourcers. The traditional big players are facing a more difficult operating environment in which more potential clients are forgoing partnerships with major data centers and instead using cloud services from the likes of Amazon Web Services and Microsoft Azure. The increasing role of automation and the need to invest in tech to stay ahead of local competitors will also continue presenting hurdles for the foreseeable future.
Essentially, the RBS news comes at a bad time in a worse-than-expected year that already featured too many headwinds. Over the longer term, however, there may less to worry about.
A Research and Markets report this spring forecast a 5.8% compound annual growth rate for the global IT outsourcing market over four years. News is even better in the banking world where Infosys just lost some business.
The global back office outsourcing market in the financial services sector is expected to grow 7.5% per year through 2020, according to a May study from Technavio. It says that some of this growth will come from the many firms now eyeing the Americas as a destination for the work that has traditionally gone to Asia.
“A rise in the number of outsourcing deals and the implementation of various acts, such as Dodd-Frank Act and HIPAA, have necessitated financial institutions to outsource their business processes,” says the Technavio report. “Continuous regulatory and economic volatility issues faced by financial organizations will bolster this market’s growth prospects in the Americas.”
With banks, insurers, and others in the financial industry having more options than ever — including rising players in the nearshore market far away from India — it won’t be easy to make up for the loss of a whale deal. But there remains plenty of growth ahead in the outsourcing market for firms like Infosys to pick up new business.