Indian Outsourcing vendors both large and medium vendors are bracing themselves for the new normal which is the volatile macroeconomic environment and slowing down of the IT spending by companies.
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Global IT Outsourcing Spending 2002-2015, Forecast - Stable growth in near future; Are Indian Outsourcing Vendors prepared?
1. Analysis & Outlook
Global IT Outsourcing Spending 2002-2015, Forecast - Stable growth in near future; Are
Indian Outsourcing Vendors prepared?
Source: Gartner Inc. 2010-2012 – Press releases. 2013-2015 Forecast: IT Services, 2008-2015, 2Q11 Update. June 16, 2011
Worldwide spending for IT outsourcing (ITO) services is on pace to reach $251.7 billion in
2012, a 2.1 percent increase from 2011 spending of $246.6 billion, according to the latest
outlook by Gartner, Inc. European Sovereign Debt crisis and economic volatility in the United
States are the major reasons why the YoY growth fell to 2% form 8% in 2011. Businesses in
Europe and United States are slashing their IT spends and budgets in the past year and most of
the Indian Outsourcing vendors hinted that clients spending and budgets will either remain flat or
will be cut down in 2013. NASSCOM too lowered its growth forecast for 2012-13 for IT-BPO
exports to 11-14 percent from previous fiscal’s target of 16-18 per cent growth. While the global
macroeconomic scenario remains uncertain in the coming years, the industry will continue to
exhibit resilience and adaptability in continually reinventing itself to retain its appeal to clients,
NASSCOM said. Indian Outsourcing vendors achieve 90% of revenues from North America and
Europe and these dependencies has been a worry for Indian vendors and are looking to focus on
other geographic locations for future revenues particularly domestic revenues in India.
In North America, Gartner expects that buyers will seek to transition more IT work to annuity-
managed service relationships for cost take-out and IT costs. This will keep ITO growing
through 2016. Enterprises' reluctance to hire or make large capital purchases, as well as their
pursuit of asset-light IT strategies, continues to push clients toward consuming externally
provided services.North America is the largest contributor of revenues to the Indian outsourcing
vendors.
A challenging economic scenario that worsened in late 2011 continues to affect the government
policies and end-user sentiment in many key European countries, resulting in a forecast for
Western Europe ITO growth decline of 1.9 percent in U.S. dollars during 2012. Reinvigorated
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com/
2. Analysis & Outlook
economic pressure is delaying the willingness of many commercial organizations to focus on
enhancing competitiveness rather than cost reduction. In addition, the European public sector
will continue to see a cautious budget environment throughout 2012. This will force many
central and local government entities to concentrate on outsourcing initiatives aimed at reducing
IT cost through IT efficiencies and rationalization, according to Gartner. Europe is the second
big contributor of revenues to Indian Outsourcing vendors.
Spending on ITO in the Asia/Pacific region will grow 1 percent in U.S. dollars in 2012 and
exceed 2.5 percent growth in 2013. With the exception of Japan, Australia, New Zealand, and to
a lesser degree, Singapore and Hong Kong, the countries in Asia/Pacific are quite new in terms
of outsourcing usage, understanding and sophistication. The growth is being driven by the large
inflow of capital into Asia over the past three to five years, leading to the need among global and
regional businesses to scale up their operations, according to Gartner. Asia pacific revenues are
slowly increasing for the Indian vendors and all the vendors are targeting domestic deals for
rising revenues within India.Indian service providers will look at establishing centers in China
and other APAC regions to reduce the dependency on the America region.
Indian Outsourcing vendors both large and medium vendors are bracing themselves for the new
normal which is the volatile macroeconomic environment and slowing down of the IT spending
by companies. Even clients are looking beyond mere cost cutting and they want vendors to play
an active role and share responsibility for improving the business outcomes and do work which
affects the profitability of the company. Indian outsourcing vendors are betting on four
―powerful‖ technologies—cloud, analytics, big data and mobility—and are believing that these
technologies are transforming the industry and providing the vendors an opportunity to increase
the nonlinear revenues, which revenues not related to increase in headcounts and also increase
margins.There have been significant investments made on the development of products and
services that help the clients to deal with technologies like social media, cloud, analytics and
mobility (SCAM) to optimize and ensure efficiency in business environment. Acquisitions are
another way in which the Indian outsourcing vendors are looking up to acquire skills and domain
expertise in the above mentioned four technologies and there has been significant number of
them in the last couple of years.
Discussion Points:
1. Will betting on Social media, Analytics, Big data, mobility and Cloud Computing help
Indian Outsourcing vendors to overcome the slowdown and increase revenues?
2. Indian Outsourcing vendors are banking on acquisitions for building the capabilities in
the above mentioned four technologies. Will this inorganic growth strategy work?
3. How to overcome the talent and skill shortages in the above mentioned technologies and
how to build required talent at fast pace?
Rajesh Prabhakar Analyst Bio @ http://analysiscasestudy.blogspot.com/