IT vendors in India expect offshoring work to increase

The IT budgets for 2012 may remain flat or even decline marginally, but the silver lining for the Indian IT services players is an increasing component of offshoring in the overall budget.

The quantum of work offshored is more important for the offshore-centric IT services players in India, as it determines the amount of IT outsourcing works that will come to their kitty. According to industry insiders and analysts, the offshoring component in the IT budget of their global clients has been steadily increasing for the last five years.

"Clients are yet to finalise their budgets, but the early indications are that these could be flat or even slightly down," says V Balakrishnan, CFO and board member of Infosys, India's second largest IT services firm. "For us, though, more than the budget, the offshoring component of the budget is important. Our long-term relationship with most of the clients led us to know how much they are going to spend and how much of that will have offshore component."

Global clients take the help of IT services vendors -- either local ones or the offshore centric service providers, for their technology implementation works. Besides, they also do a certain part of their IT/BPO works though their own captive centres which are located in that geography where they belong to or even offshore locations.

Going by various estimates, the IT budgets of the global corporations in 2012 are expected to be flat or even marginally down. Most of the Indian IT services firms, including Infosys, Wipro and TCS, have hinted during their quarterly earnings calls that the IT budget for 2012 may not see much growth.

This is considering the negative sentiment among their clients. In its outlook for the global IT spending announced last month, Gartner has lowered its annual global IT spending projection in 2012 to $3.8 trillion -- an increase of 3.7 per cent over the previous year, from its earlier 4.6 per cent growth projection.

"The offshore component in the IT budget has been increasing for the last five years," notes analyst Partha Iyengar, who is regional research director at research firm Gartner.

"Despite that, the offshore IT services today gets about 16-17 per cent of the total IT services market. So there is a tremendous amount of headroom for growth still, and you are going to see an acceleration of that given the continued global economic weakness."

The increase or fall in IT budget, however, does not affect the Indian IT and BPO services providers much as the offshoring components generally increase in periods of uncertainty. This is because it forces the clients to send more works to offshore to reduce costs and optimise their efficiency.

With India enjoying close to 60 per cent share in global IT and business process outsourcing industry, this is expected to benefit the offshore-centric Indian IT services providers.

"When you have an uncertain and volatile world, the number one goal that every company has is to convert the fixed costs into variable," says N V Tyagarajan, President and CEO of Genpact, India's largest BPO services provider.

"Almost every company is seeing an increase dependency by the clients on them to work as an outsourcing partner, and this would certainly grow in such uncertain environment."