Indias Information Technology Outsourcing Business Shrugging Off U.S. Slowdown

By Carleen Hawn

Sep. 26, 2008

So far, India’s outsourcers have suffered little from troubles in the U.S. While the mantra for most Indian outsourcers these days is “ascend the value chain,” it’s hard to move up if your best clients are headed in the opposite direction.

    Nevertheless, the impact of the U.S. slowdown on offshoring budgets is unclear. Financial firms, hammered by the subprime mess, make up the largest customer base for India’s outsourcers.

    A report from Wachovia Capital Markets said the collapse of investment bank Bear Stearns was followed by a “sharp, several-week pause in decision-making” on offshore projects.

    But the Wachovia report also said reined-in technology budgets might not prove to be a hammer blow to IT outsourcers.

    “The very slow recovery from the credit crisis, and potential for further losses among capital markets and banking firms, is likely to keep a damper on overall IT spending growth, offset in part by a continuing shift of work to lower-cost offshore locations.”

    Gartner’s Kurt Potter, however, said in the past that economic uncertainty caused a mild decline in outsourcing activity as companies focused on immediate cost-cutting initiatives. And he added that “the perception that outsourcing growth would increase more due to economic uncertainty, thereby being countercyclical, has not proven to be entirely true.”

    Still, he says, the troubles in the U.S. have so far failed to slow the amount of work being sent offshore. “At this time, we are not seeing an impact on outsourcing due to the economic uncertainty.”

    Any effect from the tremors on Wall Street will likely be brief. After the short dip in business after the collapse of Bear Stearns, Wachovia reported, “Channel checks suggest that the pace of business is improving … within the financial services vertical, the insurance sector is indicated to be seeing the most dramatic improvement.” Potter reckons the market for IT outsourcing will still grow by $77 billion over the next five years, putting it over the $400 billion mark.

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