US economy slowdown would have a moderate impact on the global IT services and BPO industry

IANS | 12 May, 2008
Despite fears, the slowdown in the US economy would at best have a moderate impact on the global IT services and BPO industry, according to a global survey of service providers and buyers of IT and BPO services.

The study also found that service providers plan to focus on non-US markets and that the new hot areas are systems integration, infrastructure management and BPO.

Large vendors with multi-shore delivery capabilities like TCS, Wipro, Infosys, Satyam and HCL Technologies will be better equipped to exploit new opportunities in the slowdown period, according to the study published in the forthcoming issue of Global Services magazine from the CyberMedia group.

The study polled 129 outsourcing buyers, of which nearly three-fourths were from the US, and over 200 service providers, two-thirds of which belonged to US companies.

According to the service providers, the economic slowdown in the US would impact profitability and revenues in the short term. As a response, the industry is gearing up with a two-pronged approach of re-aligning existing service areas and increasing focus on non-US markets.

Nearly 75 percent of the service providers said that by adopting this approach, their companies could marginalise the net impact on revenue growth and profitability,

Nearly half of the service providers, primarily representing BPO, infrastructure management and application maintenance, indicated that the slowdown has not impacted the deals pipeline in the current quarter. On the contrary, many of these companies are seeing a stronger deals pipeline and accelerated sign-ups.

However, companies representing the new application development and offshore engagements reported delays, downsizing or renegotiation of contracts.

"The study also included in-depth interviews with analysts from Gartner, TPI, Compass Consulting and The Hackett Group," said Ed Nair, editor, Global Services, in a press release.

Nearly two-thirds of the outsourcing buyers said that their companies will go ahead with the planned projects.

Over a third of the buyers denied there were across-the-board cuts in IT spending, while an equal number admitted that their companies may prioritise the outsourcing of IT projects in the short term.

Almost half of the respondents identified cuts in the contract IT staff, full-time internal hires and IT consulting as the likely areas to get impacted the most in the short-term.

One third of the respondents said that strategic IT initiatives, systems integration, and managed services are likely to be allocated higher budgets.

Arkadiy Dobkin, chief of EPAM Systems, the Russian IT services company with well entrenched delivery capabilities spread from Ukraine to Budapest, said: "We saw a slight slowdown in the first quarter, but we are not sure whether it's the effect of the first quarter or the recession."

EPAM employs over 3,000 people and has an exposure of about 45 to 50 percent in the US market. It sees encouraging growth opportunities in Europe, particularly the economies with heavy reliance on oil and gas.

The BPO-related services are least likely to be affected by the slowdown. Almost half of the respondents said that within BPO, spending on sectors like finance, procurement and customer care will go as per plan. In the claims, mortgage and travel related BPOs, 44 percent of the respondents felt that their clients would continue their BPO projects.

"BPO vendors handle business-critical processes needed to keep the business running. Most BPO assignments are long-term annuity contracts and thus shielded from the effects of economic cycles," said Nair.

Midsize IT services companies are more likely to face the combined pressure of exchange rate risk, lower billing rates, domestic inflation and slower deal closures, the report said.

BPO companies like Genpact, WNS Global Services, EXL Services and Cambridge are among the companies that are more likely to offer better value to clients during this period, the study found.

Based in Gurgaon, CyberMedia brings out 15 publications, including Dataquest, PCQuest and Voice&Data.