Hit by crisis, IT cos see ray of hope in offshoring

Written by Rupsa Ray | Mumbai | Updated: Dec 16 2008, 04:39am hrs
As the economic crunch compels companies in the US and Europe to cut on their IT budgeting, it is also expected that some of its impact will be mitigated by additional offshoring that is likely to happen.

According to industry experts, among the total IT budgeting done by the companies, if 20% was spent for offshoring last year, this year it might go up to 40%. Some companies like Zensar Technologies and HTMT Global Solutions Ltd are already observing an increase in interest in their clients to step up offshoring.

Four of Zensars clients from the US and UK are in talks with them to offshore more work. We are already in talks with four of our clients who are interested in offshoring more work to us. These clients are from sectors such as insurance, manufacturing and utility, commented a company official from Zensar Technologies. Moreover, two of our clients did more offshore work with us in November, as compared to the amount of offshore work they did in June-July. However, this is not yet the general trend among the clients. But a number of them are looking at such an opportunity to cut cost, he added.

Offshoring is expected to increase as compared to other years. Of their total IT budget, 40% could be invested in offshoring by the companies. However, it willl have a small impact and would not compensate the impact that reduction in IT budgeting by the international companies will have on the Indian IT companies, commented an industry expert.

As the global turmoil stretches on to the next year, it is likely that American companies plan to continue to implement their current strategies for sourcing some functions offshore despite the current worldwide economic slump. The financial downturn may even accelerate such plans, says a PricewaterhouseCoopers (PWC) and Duke ORN (Offshoring Research Network) survey.

The survey also states that while cutting labour costs is the most significant factor driving offshoring decisions since the worldwide financial crisis gained momentum this quarter, increased urgency to improve efficiencies is also another reason.

As cost-saving and cost management becoming more and more important, HTMT Global is seeing some its top clients showing interest in increasing offshoring. These clients are mainly from the insurance and financial services sector.

At least three of our top clients from the US are in talks with us to offshore more work. And by first quarter of next month these will materialise, commented a top company official from HTMT Global.

Amidst the current situation, we are expecting the quantum of offshoring to increase, and hence it is expected that more clients will follow the same path. However, it is too early to estimate by what amount the offshore work will increase, he added. On similar trends, Quatrro BPO is also seeing clients from sectors which are hit by the economic turmoil to offshore more work to the company as a cost cutting measure.

Some of our clients from the affected sectors are definitely looking at offshoring more work. But it is not happening across sectors. Others are offshoring regular amount of work, commented Raman Roy, chairman & MD, Quatrro BPO.