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IT services top spending priority for CIOs

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CIOL Bureau
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MUMBAI, INDIA: The Barclays CIO survey April 2012 is highly encouraging and promising for Indian IT services sector.

As per the survey, IT services remains the top spending priority for CIOs, with 18 per cent respondents choosing Indian vendors as the best for new contracts. There's a continuation trend on outsourcing, with a shift to low-cost locations for IT works, and CIOs are persisting with strategic investments in IT, the survey revealed.

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According to analysts Bhuvnesh Singh and Vaibhav Dhasmana at Barclays Capital - India, the percentage of CIOs preferring Indian vendors for new contracts increased to 18 per cent against 14 per cent in the previous survey.

Respondents to the April 2012 survey are building on a 1.5 per cent growth in overall IT spending, very similar to the August 2011 survey trends, according to the report. Around 100 CIOs based in the US participated in this survey.

“We believe that the cost-cutting nature of the services projects will continue to drive the strength in the sector amidst tough macro conditions. Responses indicate that overall IT budgets have shown little change over the past three months, with 86 per cent falling in the flat to +/-5 per cent deviation range,” analysts stated.

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“The survey also indicates that vendor consolidation is being given lesser importance, compared to seven months ago. However, in contrast to recent commentary from Indian vendors, reducing the size and scope of existing contracts is a lesser priority, too. This could lead to stabilization in business visibility and outlook in the coming quarters,” analysts observed.

With the continuation of outsourcing and strategic IT investment trend, the survey revealed that IT work is shifting to lower-cost locations to take advantage of cost arbitrage and pricing as it is a key parameter in vendor selection.

“We believe that continuation of strategic investments (ERP and Analytics) having higher billing rates implies that on a company wide portfolio basis, pricing should remain resilient,” analysts stated.

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On the global business outlook for the IT sector, the survey observed that the US has seen an improvement while Europe remained an overhang.

The US will be a driver of positive growth in FY2012-13, with 60 per cent respondents expecting year -on year growth (57 percent in last survey), with Europe likely to remain an overhang (43 per cent expecting growth against 49 per cent in last survey).

However, Europe remains an under-penetrated market for Indian vendors and the pricing benefit that they provide versus European IT companies should drive long-term growth, as evident from recent deal wins for top four Indian vendors, the survey concluded.