Tech spending logs slowest growth in ’07

Tech spending logs slowest growth in ’07
Comment E-mail Print Share
First Published: Fri, Jan 25 2008. 01 14 AM IST

Updated: Fri, Jan 25 2008. 01 14 AM IST
At a time that Indian tech and back-office services vendors maintain that they don’t see any signs of slowdown in demand for their offerings, a survey by a leading outsourcing advisory firm has come out with findings that indicate that buyers of such outsourced services have begun tightening their spending.
But the early trend, even if it accelerates, may not affect Indian software and business process outsourcing services firms, industry insiders and analysts said.
The total value of software outsourcing contracts in 2007 grew the slowest in five years with the December quarter recording the lowest number of such deals in the last nine quarters, according to Technology Partners International, Inc. or TPI, a Houston, Texas firm that tracks tech outsourcing deals.
Last year, around 487 contracts were signed worth more than $80 billion or Rs3.16 trillion, which was $8 billion less than the five-year average for deals signed. The December quarter saw around 108 contracts compared with 132 in the three months ended September, and 121 and 126 in the two preceding quarters.
Customers from banking, financial services, telecommunications and manufacturing continued to be the big ones engaged in outsourcing work, said TPI. The firm tracks just deals of value exceeding $25 million each, but is considered by the industry as an accurate snapshot of the outsourcing trend.
Analysts have voiced fears that tech and business process outsourcing work will decrease as growth in the US economy, the world’s largest, slows. Research firm International Data Corp. predicts that in 2008, the growth in worldwide spending on information technology will decline to between 5.5% and 6% from last year’s 6.9% expansion.
Although customers such as ABN Amro NV and Citibank NA chose to farm out contracts to multiple tech service firms, rather than a single vendor, the average contract value increased 8% in 2007 to $166 million over the $152 million in 2006. The average duration of contracts remained flat at around five-and-a-half years, said TPI.
A TPI executive said it is too early to conclude from the firm’s latest survey findings, released on Wednesday, whether Indian service providers are seeing a slump in contracts. “In fact, Indian tech firms are increasing their market share globally in areas which are their traditional strengths like application development, because of the large deals (more than $100 million) they are signing. They are not as much impacted on (revenues),” said Siddharth Pai, a Bangalore-based partner and managing director of TPI Advisory Services India Pvt. Ltd.
The small share of Indian tech services vendors in the global information technology spending presents them with an opportunity to grow faster than their global peers as US and European businesses increasingly farm out work to firms in this country. Research firm Gartner Inc. in September said the share of the top six Indian tech firms in the $672 billion information technology services in 2006 was just 1.9%. India’s largest software services firm by revenues Tata Consultancy Services Ltd or TCS had a 0.6% share and closest rival Infosys Technologies Ltd, a 0.4% share.
Indian companies also claim that while they may be winning fewer contracts, they are doing more business.
“Most Indian IT companies are new to large global deals but at HCL, we have seen a larger number of plus $100 million deals last year,” said Vineet Nayar, president and chief executive officer of HCL Technologies Ltd, India’s fifth-ranked tech vendor.
Wipro Ltd’s chief financial officer Suresh Senapaty saw a strong future in 2008 for his firm even as it has chosen not to pursue as many smaller $5 million to $10 million contracts as in the past. “Earlier, the way we (Indian tech firms) did business did not qualify us to do large deals. But last year has seen a significant change as we (Indian tech firms) offer a larger range of services, become more competent to deal with complex projects and improve our global delivery model,” he said in a phone interview.
Wipro reported 30 new customers in the December quarter, including its first $100 million contract, compared with the more than 48 new clients it averaged in each of the previous nine quarters. For TCS, the comparable numbers were 54 and 63.
In the December quarter, TPI’s data showed, outsourcing contracts from Asia were worth $12.8 billion in 2007, up nearly 30% from the previous year; Indian companies almost doubled their outsourced tech spending to $4.9 billion.
Comment E-mail Print Share
First Published: Fri, Jan 25 2008. 01 14 AM IST