I read today that Tata Consulting Services (TCS) bought Citigroup’s offshore business processing unit for $505M. TCS also negotiated a deal whereby Citigroup and its affiliates will use TCS for their business process outsourcing needs. Smart move on the part of TCS?

Similar to TCS, Indian companies like Infosys, HCL, Satyam, and Wipro are sitting on piles of cash which I’m sure they’ll also be putting to good use by acquiring companies that aren’t quite able to remain viable. (But I wonder how spending $505M in such an economic downturn situation makes sense for any company, no matter how cash rich they are. I mean haven’t we heard the saying “saving for a rainy day”?)

The flip side of the acquisitions story is that there is a visible downturn in the outsourcing industry due to the economic crisis in the US and across the world. 
 
While talking to friends in India, I know that they are holding on tight to their jobs, when as recently as six months ago, they were all talking about jumping ship to get more money and bigger titles. 

As a business owner, I am however not seeing any drastic or even small reductions in resource rates in India. So although the outsourcing industry in India has slowed down due to spending cuts in the US, resource rates don’t seem to be falling.

Why is that I wonder! I mean, isn’t it a simple supply and demand equation? Since demand is falling, and supply is high, shouldn’t the rates fall?
 
Because only if rates fall will the outsourcing industry once again see a boom. That’s cause US companies will go offshore and outsource work if lower cost labor can result in tangible operational savings.

(Yeah, yeah, I’ve heard the arguments about “cost” not being the only driver for going offshore. I for one remain unconvinced that a company would go offshore and pay $50 per hour for a resource when they can get a resource for $50 per hour locally.)