2009-04-22

IT outsourcing in 2009

2009 will be a slow year for IT outsourcing, and companies will have to be innovative if they want to maintain growth.

The overall outsourcing market globally is about $550 billion and India’s share of this is less than 10%. However, because of the slowdown, we do not expect 2009 to be a good year for IT outsourcing, and this has started to show.

At present, one of the major challenges faced by IT outsourcing business is the delayed decision-making across all industries due to the economic crisis. The tight capital market and credit squeeze is forcing companies to either cancel or delay their discretionary spending, leading to delays in IT outsourcing decisions. With the banking and financial sector (BFSI) taking a big hit, especially in North America, the Indian IT industry is facing the heat, as the BFSI segment is one of the largest revenue streams for IT service providers.

Effect of slowdown

The slowdown will lead to a longer decision cycle, and in this regard, the first and second quarters of 2009 will be tough for the IT outsourcing market. CIOs are under pressure to show business value proposition for their investments from IT. This has led to a major change in the way the industry traditionally looks at IT. From its traditional focus of reducing operational costs, companies are looking to IT to provide business value to support customer acquisition, increase the per-customer revenue and improve customer satisfaction.

What the future holds?

There will be an increase in high-end work focusing on innovation and R&D. Experts believe that technological power will shift from the West to the East as India and China emerge as big players in the global outsourcing market.

China will retain its top spot as the destination for manufacturing outsourcing. The IT industry will see roughly 10-15% of its jobs move overseas during the next 10 years, inviting more political debate. The concept of going overseas or offshoring is no longer relevant in the era of globalization. As companies expand globally, they will be forced to move their operations to locations that provide them competitive advantage.

One of the biggest areas that one is seeing growth is healthcare outsourcing.

According to Sundararajan, 2009 will not be good for outsourcing and he thinks that it will grow by 20%; in 2008 it has grown by 30%. IT outsourcing would be tough for the BFSI, retail and manufacturing sectors, but pharma and engineering would be less affected.

It remains to be seen how quickly the outsourcing market will recover. A lot depends on the speed with the US economy turns around.

Source:http://ditns.blogspot.com/2009/01/it-outsourcing-in-2009.html

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