The slowdown in the U.S. economy would at best have a moderate impact on the global IT services and BPO industry, according to a global survey of service providers and buyers of IT and BPO services conducted by the CyberMedia publication for the outsourcing industry, Global Services in its forthcoming issue. 

The online study aimed at analyzing the impact of the economic slowdown in the U.S. on the global outsourcing industry was conducted in the second week of April 2008. Of the 129 outsourcing buyers polled, nearly three-fourths were from the USA. Of the 203 service providers who participated in the study, nearly two-thirds belonged to the U.S. companies. The remaining respondents came from Europe, Latin America, India and China. 

Impact on service providers 
According to the service providers, the economic slowdown in the U.S. would impact profitability and revenues in the short term. As a response, the industry is gearing up with a two-pronged approach of re-aligning existing service areas and increasing focus on non-US geographies. 

Nearly 75% of the service providers said that by adopting this approach, their companies could marginalize the net impact on revenue growth and profitability, 

Flow of new deals
Nearly half of the service providers, primarily representing BPO, infrastructure management and application maintenance areas, indicated that the slowdown has not impacted the deals pipeline in the current quarter. On the contrary, many of these companies are seeing a stronger deals pipeline and accelerated sign-ups. 

However, companies representing the new application development and offshore engagements reported delays, downsizing or renegotiation of contracts.

"The study also included in-depth interviews with analysts from Gartner, TPI, Compass Consulting, and The Hackett Group", says Ed Nair, Editor, Global Services. 

Impact on Buyers 
Nearly two-thirds of the buyers of outsourcing said that their companies will go ahead with the planned projects. Responding to a question whether there were across-the-board cuts in IT spending, nearly 36% responded in the negative with a 36.4% admitting that their companies may prioritize the outsourcing of IT projects in the short term 

Almost one-half of the respondents identified cuts in the Contract IT staff, full-time internal hires and IT consulting as the likely areas to get impacted the most in the short-term.

At the same time, one third of the respondents said that strategic IT initiatives, systems integration, and managed services are likely to be allocated higher budgets.

Nearly half the CIOs said that for services like application maintenance, infrastructure management and architecture-related projects the spending would continue as planned.

The findings of the online survey were validated during in depth interviews with the CEOs of leading global service providers. A few comments:

Arkadiy Dobkin, CEO, EPAM Systems, the Russian IT Services company with well entrenched delivery capabilities spread from Ukraine to Budapest, says, "We saw a slight slowdown in the first quarter, but we are not sure whether it's the effect of the first quarter or the recession. But as a company, we managed to get to our Q1 expectations. 

The 3100-people strong Epam Systems, that has an exposure of about 45 to 50% in the US market, is seeing encouraging growth opportunities in Europe; particularly the economies with heavy reliance on oil and gas. 

The Mexico headquartered Softtek CEO for Nearshore Services, Beni Lopez, confirms that the decision cycles are getting extended. The company's well-diversified portfolio of the U.S., Latin America, China and Europe helped it to de-risk itself from the economic uncertainties in the US market. 

Doug Mow, Senior Vice President, Exigen Services, USA admits that they have yet to see any material effect. If the slowdown deepens, we foresee margin pressure as a result of reduction in billing rates. On the positive side, Mow says, the customers are reacting much more quickly. 

George Svoboda, Senior, Vice President, Alliance Business Development, Sitel, with over 69,000 employees spread across 155 centers says, "Our pipeline remains very strong; we probably had one of the strongest quarters. The economy is forcing companies to look strongly at outsourcing to reduce costs and free up capital." 

BPO is hot 
The BPO-related services are least likely to be affected by slowdown. Within BPO, 47.2% of the respondents said that spend on sectors like finance, procurement and customer care will go as per plan. In the claims, mortgage, travel related BPOs, 44.1% of the respondents felt that their clients would continue their BPO projects. 

"BPO vendors handle business-critical processes needed to keep the business running. Most BPO assignments are long-term annuity contracts and thus shielded from the effects of economic cycles," adds Ed Nair, Editor, Global Services.

Elaborating on the implications for IT Services and BPO companies, the study notes that it expects the pressure to manage exchange-rate related risks to continue. While there is an opportunity to deepen existing engagements, flow of new deals might get sluggish in the current (AMJ '08) quarter. 

Large vendors with multi-shore delivery capabilities like TCS, Wipro, Infosys, Satyam and HCL Technologies will be better equipped to exploit new opportunities in the slowdown period. Mid size IT services companies are more likely to face the combined pressure of exchange rate risk, lower billing rates, domestic inflation and slower deal closures. 

BPO companies like Genpact, WNS Global Services, EXL Services and Cambridge are amon the Companies that are more likely to offer better value to clients during this period, the Global Services study noted.

The study points out that the Mergers & Acquisitions activity will increase during 2008, especially in the area of infrastructure management. Companies like HCL Technologies with strong capability in the infrastructure management area will experience even stronger traction. 

The interviews corroborate the results of the survey and gives additional segment-specific insights on the impact of the economic slowdown in the US. 

About Global Services
Global Services, a media platform by CyberMedia, facilitates the global service delivery for customers and service providers of IT and business-process outsourcing services, and provides cost-effective marketing solutions to the service providers in this industry. A multi-shore team spanning the U.S.A. and India drives the Global Services brand. The Global Services brand is an integrated media platform that includes the website globalservicesmedia.com and global seminars. 

About CyberMedia
CyberMedia, now in its 25th year, is South Asia's first and largest specialty media house, with fifteen publications (including Dataquest, DQ Channels and DQ Week, PCQuest, Voice&Data, Global Services and DARE) in the infotech, telecom, consumer electronics, biotech and entrepreneurship areas, and is a media value chain including Internet (www.ciol.com), events and television. The group's media services include market research (IDC India), job board (CyberMedia Tech job portal), content management, multimedia, and media education. 
CyberMedia also publishes BioSpectrum Asia from Singapore and Global Services from the U.S.A., the first Indian magazine titles to be published from outside the country for a global audience. 


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