IT BPO to outlive US slowdown - CIOL News Reports

IT, BPO to outlive US slowdown

The industry aiming at realigning existing service areas and increasing focus on non-US geographies, according to a Global Services survey

Monday, May 12, 2008

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NEW DELHI/BANGALORE, INDIA: Much is being assumed on the possible effects of slowdown in the US economy on the IT and BPO industry. Joining the unperturbed bandwagon is the Global Services magazine, which says that the slowdown would at best have a moderate impact on the global IT services and BPO industry.

The finding is based on a survey of service providers and buyers of IT and BPO services conducted by the CyberMedia publication, which focuses on the outsourcing industry.

The slowdown would impact profitability and revenues in the short term. The industry is aiming at realigning existing service areas and increasing focus on non-US geographies.

Nearly 75 per cent feel that by doing this they could marginalize the net impact on revenue growth and profitability. Nearly half of the respondents, primarily representing BPO, infrastructure management and application maintenance areas, say the slowdown has not impacted the deals pipeline in the current quarter.

Many see a stronger deals pipeline and accelerated sign-ups. Those in new application development and offshore engagements reported delays, downsizing or renegotiation of contracts.

Nearly two-thirds of the buyers intend to go ahead with planned projects. Nearly 36 per cent do not see cut in IT spending across the board while 36.4 per cent admit prioritizing outsourcing in the short term.

Almost one-half see cuts in the contract IT staff, full-time internal hires and IT consulting in the short-term. One third say that strategic IT initiatives, systems integration, and managed services are likely to be allocated higher budgets.

Half of the CIOs feel that spending for application maintenance, infrastructure management and architecture-related projects would remain unaffected.

The BPO-related services are least likely to be affected by slowdown, says the survey.

"Most BPO assignments are long-term annuity contracts and thus shielded from the effects of economic cycles," says Ed Nair, editor, Global Services.

The study expects the pressure to manage exchange-rate related risks to continue while there is an opportunity to deepen existing engagements, flow of new deals might get sluggish in the current (AMJ '08) quarter.

Large vendors with multi-shore delivery capabilities like TCS, Wipro, Infosys, Satyam and HCL Technologies are better equipped to exploit new opportunities during slowdown whereas mid-sized firms are more likely to face the pressures of exchange rate risk, lower billing rates, domestic inflation and slower deal closures.

BPO firms like Genpact, WNS Global Services, EXL Services and Cambridge are among those more likely to offer better value to clients during this period.

The study says that the mergers and acquisitions will increase during 2008, especially in the area of infrastructure management.

The online study was conducted in the second week of April 2008.

Of the 129 outsourcing buyers polled, nearly three-fourths are from the USA. Of the 203 service providers who participated, nearly two-thirds belong to the US with remaining representing Europe, Latin America, India and China.

©CyberMedia News

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