Contracts survey says US recession good for Indian IT
posted in Outsourcing News and Top Outsourcing deals |Source: sify.com
For all those despairing over the prospects for the Indian information technology (IT) industry here is some good news: the bad news in the US is good news for IT outsourcing, particularly for Indian companies.
Technology Partners International, Inc (TPI), the world’s largest outsourcing advisory firm has confirmed there are good times ahead for Indian IT vendors despite softening of IT spending in the US and the Americas in general.
Based on an analysis of the first quarter 2008, (calendar), and the previous six months, TPI which tracks commercial contracts valued over $25 million, said “Tougher economic climate brings opportunity for the outsourcing industry to have a defining year”.
More than ever, companies are looking to their outsourcing service providers to deliver variability in costs and lower overall expense.
In addition, just as we saw in the 2001 recession, there is an expectation that the back-end return to growth will be made possible by the outsourcing industry.
This is borne by the volume of contracts during the first quarter which had a tremendous YOY increase of 20% in annualised contract value (ACV), while it was also within the range of other recent quarters in terms of number of contracts awarded and total contract value (TCV), the advisory said in a statement.
JP Morgan analysts Manoj Singla, Bhavin Shah, Mythili Balakrishnan and Nishit Jasani, reviewing the findings, said the trends clearly indicate increasing importance of offshore players with a global footprint in IT services.
While the near-term demand environment might be softer as indicated in the recent results of Indian IT companies, the offshoring trend appears intact and Indian vendors look set to continue to gain greater market share, they said in a note to clients on Thursday.
The first quarter saw 122 contracts awarded with a TCV of $21 billion and a ACV of $4 billion. The quarter ranks as the second-best first quarter ever in terms of ACV pointing towards the underlying muscle in the global outsourcing marketplace, TPI said in the statement.
What is significant is that while the US and the Americas are showing while Europe, Middle East and Africa (EMEA), regions are signing more contracts of increasing average values, the US and the Americas are demonstrating structural changes in some of the vital measures of outsourcing strategies.
The average TCV of contracts awarded in the Americas has dropped 50% from about $206 million in 2003 to a little more than $100 million in 2008. The average duration of contracts in the first quarter 2008 fell below five years for the first time ever, it pointed.
This strong tendency for smaller and shorter duration contracts is good news for Indian vendors, particularly the biggies among them, who have global operations and have already reoriented themselves for this sort of market.
At the same time it is also good news for Indian vendors like Satyam and others who have started derisking from the US markets and increasing focusing on markets like Europe, Africa and Middle East which accounted for 65% of the global TCV and ACV. The percentage increase of course is also an indication of the softness in the US markets.
