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 conducted by the CyberMedia publication for the outsourcing industry, Global Services in its forthcoming issue.
The online study aimed at analysing the impact of the economic slowdown in the US on the global outsourcing industry was conducted in the second week of April 2008. Of the 129 outsourcing buyers polled, nearly three-fourths were from the USA. Of the 203 service providers who participated in the study, nearly two-thirds belonged to the U.S. companies. The remaining respondents came from Europe, Latin America, India and China.
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 geographies.
Nearly 75 per cent of the service providers said that by adopting this approach, their companies could marginalize the net impact on revenue growth and profitability,
Nearly half of the service providers, primarily representing BPO, infrastructure management and application maintenance areas, 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", says Ed Nair, Editor, Global Services.
Impact on Buyers
Nearly two-thirds of the buyers of outsourcing said that their companies will go ahead with the planned projects. Responding to a question whether there were across-the-board cuts in IT spending, nearly 36 per cent responded in the negative with a 36.4% admitting that their companies may prioritize the outsourcing of IT projects in the short-term
Almost one-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.
At the same time, one third of the respondents said that strategic IT initiatives, systems integration, and managed services are likely to be allocated higher budgets.
Nearly half the Chief Information Officers said that for services like application maintenance, infrastructure management and architecture-related projects the spending would continue as planned.
The findings of the online survey were validated during in depth interviews with the CEOs of leading global service providers.
Arkadiy Dobkin, CEO, EPAM Systems, the Russian IT Services company with well entrenched delivery capabilities spread from Ukraine to Budapest, says, "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. But as a company, we managed to get to our Q1 expectations.
The 3,100-people strong Epam Systems, that has an exposure of about 45-50 per cent in the US market, is seeing encouraging growth opportunities in Europe; particularly the economies with heavy reliance on oil and gas.
The Mexico headquartered Softtek CEO for Nearshore Services, Beni Lopez, confirms that the decision cycles are getting extended. The company's well-diversified portfolio of the U.S., Latin America, China and Europe helped it to de-risk itself from the economic uncertainties in the US market.
BPO is hot
The BPO-related services are least likely to be affected by slowdown.
Within BPO, 47.2 per cent of the respondents said that spend on sectors like finance, procurement and customer care will go as per plan. In the claims, mortgage, travel related BPOs, 44.1 per cent 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," adds ED Nair,
Editor, Global Services.
Elaborating on the implications for IT Services and BPO companies, the study notes that it 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.
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