Recently, I decided to take a look at the impact of recession on offshore outsourcing: that the \n\nplayers will face pricing pressures, reduced profitability and less growth \n\ncompared to the golden times, and that there will be an imperative to deliver \n\ntangible business value to customers. I looked for \n\nevidence in the quarterly results of outsourcers and, despite the absence of \n\nthe predicted boom, I found that they had held on pretty well. And I \n\ndecided to reexamine the results after another quarter passed.First up, the global outsourcers. In its latest quarter, Accenture's \n\noutsourcing revenues were up 7 percent year on year and its outsourcing \n\nmargins increased due to more work shifting offshore. Management said that \n\nthey have not witnessed any change in cancellations or deferrals, and now see \n\nthe period of indecision starting to break loose. They also see an increased \n\ndemand for BPO and application outsourcing services. The growth rate, it \n\nshould be noted, is half of the previous quarter. IBM's strategic outsourcing \n\nbusiness saw a 3 percent decline in revenues but an improvement in margins. \n\nOn a like-to-like basis HP's services revenues declined 15 percent, but like \n\nIBM, it did see an increase in margins. HP saw a significant decline in its \n\napplication services business as discretionary project work fell away. CSC \n\nalso saw its outsourcing revenues decline by 13 percent, attributed to client \n\ndelays and pull back of discretionary projects. Outsourcing bookings during \n\nthe quarter were also down 50 percent, but like the others, it did improve \n\nits profitability.Overall, since last quarter, the exuberance about revenue growth has \n\nbecome quite muted now. On the positive side, companies are improving \n\nprofitability and streamlining their operations, including increased reliance \n\non offshoring.In the European outsourcers category, Capgemini saw its quarterly organic \n\noutsourcing revenues increase by 3 percent year on year (overall growth was 1 \n\npercent), but its outsourcing bookings declined by 37 percent. During the \n\nlast quarter it increased its offshore headcount by over 1,200 (compared to \n\nan increase of 50 for onshore). Profits improved marginally but the company \n\nsaid that it can't see business with any real confidence beyond June, guiding \n\ntowards a modest first half 2009 revenue and a margin decline. Logica's Q4 \n\nrevenues went down 11 percent, and its operating profit for the full year \n\ndeclined 22 percent. It has been making aggressive strides into offshoring \n\nand boosted nearshore and offshore headcount to 5,000 (2009 target is 8,000), adding 900 \n\nemployees in six months at its new India center. Logica sees good demand with \n\nmore, larger outsourcing opportunities in the pipeline, but has forecast \n\nflat first-half sales. Atos Origin's Q4 revenues declined 9 percent, and it \n\nexpects a slight decrease ("roughly minus 2 percent or something like that") \n\nin 2009 revenue. It also plans to increase offshore headcount by 1,000, \n\nwhile reducing onshore headcount.Muted growth, operational streamlining and increased offshoring are the \n\ncommon themes. Next let's move on to the Indian Offshorers.We'll begin with the Tier 1 players. TCS' quarterly revenues remained flat \n\nyear on year, in sharp contrast to the 25 percent growth last quarter and its \n\nstatement that it does not expect revenue to be impacted by the turmoil. Net \n\nprofit declined 18 percent. It is witnessing pricing pressure on new \n\ncontracts, but on a positive note, net employee addition was more than \n\n8,500\u2014its highest in the past few quarters.Infosys' quarterly revenues grew by 8 percent compared to 19 percent the \n\nprevious quarter, and it added about 2,800 employees. Management stated that \n\nthe velocity of business has come down, decision-making is slow, budgets are \n\nnot finalized and scrutiny is higher.Wipro reported a 12 percent annual increase in IT service revenues and its \n\nmargins diminished. It also reduced its IT services headcount by more than \n\n1,000 employees.HCL technologies saw an 11 percent revenue growth, boosted by \n\nacquisitions. Net income was down 9 percent and total employee count was \n\nalmost flat. HCL stated that "the pricing environment is quite bad and \n\ncustomers are saying that we should contribute and help in reducing their \n\nspend on IT".The best performer was Cognizant which reported a 25 percent increase in \n\nrevenue and a 34 percent increase in profits. It even saw a 19 percent \n\nincrease in its financial services segment, and added 2,200 employees during \n\nthe quarter. On the flip side though, the company's outlook for 2009 is a 10 \n\npercent revenue growth and broadly flat margins.It is a significant shift from the position last quarter. Tier 1 players \n\nhave seen their growth rates tumble (Cognizant is an exception here) and \n\nvisibility become poorer. Operationally though, they are adjusting well and \n\nfocusing on working with customers to address their challenges. Currency \n\nfluctuations remain a cause of concern for them, and 'constant currency \n\nbasis' is the new buzzword.Moving on to the Indian Tier 2 players. Growth rates for the leaders last quarter \n\nhas come down from 30 percent plus to 20 percent for Mindtree and 17 percent \n\nfor TechMahindra. Mindtree suffered significantly on the profitability front \n\nwith a 88 percent decline in profit after tax. Talking about variability in \n\nperformance, Polaris saw 32 percent revenue growth while Patni saw a 1 \n\npercent revenue growth, and a 45 percent decline in profitability.Finally, the Indian Tier 3 players. Hexaware saw flat reported revenues \n\nbut a significant improvement in operational efficiency and resulting \n\nprofitability. It continued on its headcount reduction spree with 300 \n\nreductions last quarter, taking the tally to about 1,000 reductions over two \n\nquarters. Sonata, whose revenues rose by 25 percent and who did not foresee \n\nany adverse impact, saw its growth come down to 7 percent, even though \n\nprofitability increased 27 percent.So high variability in Tier 2 and 3 segments but they are now feeling the \n\nfull impact and their irrational exuberance is fading away. Realistic growth \n\nrates, pricing pressures, currency effects, project cancellations\/deferrals \n\nand longer sales cycles are being evidenced among the players.How does all the evidence compare with my original assertion five months \n\nago? Well the evidence broadly supports the assertions\u2014players are \n\nwitnessing pricing pressures, reduced profitability, (much) less growth \n\ncompared to golden times and an imperative to deliver tangible business value \n\nto customers. However, I do recognize now that there are exceptions and in some cases, \n\nthe ability to withstand the macro environment and make corrective \n\nadjustments has been, frankly speaking, quite impressive. Special mention \n\nmust be made of the increased use of offshoring by global and European \n\noutsourcers, and the emphasis on productivity and delivering value by select \n\nIndian players. We will see an increased use of offshoring, no doubt, but in a rational, \n\nrather than blind, way. It's fair to say that the recession is wiping away \n\nthe inefficiencies of the system. Those who recognize and adapt will be the \n\nreal winners.Arpit Kaushik runs the London-based outsourcing service design firm, \n\nCrystals, that helps forward-looking companies to realise the promised \n\nbenefits of outsourcing.