IT slowdown in the United States will help Indian IT companies since outsourcing of services will increase with US companies wanting to save on costs during a recessionary phase and hence outsourcing work to low-cost countries.
"IT outsourcing, which saw a slowdown to 5 per cent in 2005 because of slowing numbers of large outsourcing deals, will revive a bit in 2006 to 7 per cent, as growing pressure on IT budgets will give another push to this area," indicates a Forrester report.
The report details that the spending on IT consulting and integration services will slow to 3 per cent in 2006 from 7 per cent in 2005 and then will shrink in 2007 as the economic slowdown causes CIOs to cut the most discretionary category of IT spending -- consultants.
"There are segments of the market that are still growing, even as the overall market slows down," qualifies Sudin Apte, country manager, Forrester, adding: "A mild slowdown would in fact boost the Indian outsourcing industry as during a slowdown, companies would look at cutting costs and outsourcing is one of the ways to cut costs. However, if there is a large slowdown then, projects would get cancelled and that would have ripple effects."
Atul Phull, India marketing, Kanbay, a group company of Capgemini, concurs: "A slowdown in the US economy would not affect the Indian outsourcing industry for two reasons. Firstly, outsourcing is undertaken on account of cost savings and a slowdown would put pressure on companies to adopt cost cutting initiatives.
"Secondly, the Indian outsourcing industry has over the years moved up the value chain and is doing work that is integral to the company's business or rather driving their business growth. During a slowdown the projects that do get cancelled are those that are on the periphery and the Indian outsourcing industry has over the years proved itself, invested in resources and skills and moved into the core business areas," he adds.
Ram Ramachandran, executive vice-president, Affinity Express, An Ayala Corp Group company, opines: "What drives US firms is their bottomline and they will only increase outsourcing and cut on peoples cost as employee cost accounts for 30-50 per cent of their operating costs. In the last couple of months, we have more US customer visiting us."
Sudip Nandy, chief strategy officer, Wipro Technologies, concurs: "I feel that there are two factors in case of a possible slowdown. Firstly, the impact (on Indian IT sector) will depend on the extent of the slowdown. Secondly, I feel that while in the short-term there will be an impact, in the medium and long-term, this will have a positive impact on the Indian IT companies, because the cost savings will go up and we will be able to gain market share by undertaking new projects."
Infosys CEO and MD Nandan M Nilekani too had said the company did not perceive any slowdown in the US economy and even if there was a slowdown, "it is advantageous to companies like us, since the global US companies will try to save cost by outsourcing".
