Bangalore: Global technology research and advisory firms such as Gartner Inc., Technology Partners International Inc. (TPI) and Everest Group say companies in the US will farm out more software contracts offshore in the year ahead to Indian vendors as pressure builds on them to cut costs, but local information technology, or IT, service firms continue to be cautious on their outlook as the US economy continues on a path of slow growth.
“We are optimistic that things are going to be okay for the Indian vendors, despite all the hype surrounding downturn in the US,” said Kurt Potter, Gartner’s research director, IT services and outsourcing, technology and service provider research.
Potter said the long-term IT deals being renewed by US companies are increasingly being outsourced to Indian providers as they increase capabilities in new areas such as infrastructure services.
North American service providers such as International Business Machines Corp., or IBM, and Electronic Data Systems Corp. will be more affected by a US downturn than Indian vendors, he added.
“If Indian players are able to sustain and grow at 35-40% for the next four-five years, there will be four-five Indian firms among the top 10 players globally,” Potter said.
Indian tech service firms such as Tata Consultancy Services Ltd and Infosys Technologies Ltd, which posted expected results in the December quarter, have been cautious on the outlook for business in the next fiscal year and have said they don’t see any signs yet of a slowdown in demand. Clarity on the clients’ technology budgets and the outlook for the year is expected to emerge in the coming weeks as more and more companies finalize them.
Cognizant Technology Solutions Corp., a Nasdaq-listed firm that carries bulk of its operations in India, expects its revenue to rise 38% in 2008 to $2.95 billion, or Rs11,830 crore, has provided an indicator for the Indian IT sector that things may not turn adverse as feared in some quarters.
Affected by a slowdown stemming from a crisis in the housing loan market, US companies especially in sectors such as retail and banking and financial services, that account for a little less than half the revenue of Indian tech services sector, are under pressure to keep their budgets tight. Indian service providers earn a little more than half of their revenues from the US, the world’s largest IT services market.
Advisory services firm TPI, which tracks outsourcing deals, said it expects the IT spends in the US to grow by 7% in 2008. “Generally, our deal pipeline is about $18 billion and we don’t see any changes in that,” said Dennis McGuire, chairman emeritus of TPI, which advises about a quarter of outsourcing deals, excluding government contracts. McGuire said large deals are emerging from Europe and the Asia-Pacific, which are opening up to outsourcing.
Banks such as Barclays Plc. are, in fact, increasingly offshoring their IT and back-office functions.
The British bank recently handed a $80 million deal to Indian back-office provider Firstsource Solutions Ltd to manage and operate its centre in Colarado, US, to provide customer care and collection services for its credit card customers.
Barclays has also expanded its relationship with vendors such as i-flex Solutions Ltd, said a person familiar with the development.
Peter Bendor Samuel, chief executive officer of advisory firm Everest Group, had said earlier in an interview that technology spending had already slowed in the September and December quarters of 2007 in anticipation of an economic recession.
Smaller players would lose out as clients prefer to work with bigger companies because of their ability to implement complex deals, he predicted.