Gartner: India Could Benefit from US Slowdown
By CXOtoday Staff
Mumbai, Apr 30, 2008

The current slowdown in US economy will lead buyers of IT services to consider increasing the percentage of their labor in offshore, lower-cost locations, according to Gartner's latest report "Offshoring IT Services Can Cut Costs: Options for a Potential Economic Slowdown".

Gartner said India will remain the dominant location for IT offshore services for North American and European buyers as a result of its scale, quality of resources and strong presence of local and traditional service providers.

Organizations are concerned that the US economic slowdown could extend to other geographies and hence they re refocusing on IT cost reduction and taking steps to accelerate the use of offshore labor.

Buyers of IT services will shift their focus from cost containment goals to a greater focus on cost reduction and productivity increases in their sourcing decisions. This will lead to a steady increase in the adoption and expansion of offshore services primarily from India, but increasingly from other countries as well.

T. J. Singh, research director of Gartner said, "India will continue to be the most-sophisticated country option to source offshore IT services in the near term. Factors that will give India the edge over other offshore locations are scale and quality of labor.

North American and European buyers of IT services have been the force behind a growing offshore services market and India is central to almost any discussion of offshore services delivery for these buyers.

Gartner sees 2 possible scenarios to have an impact on offshore services adoption reporting the coming months: temporary economic downturn (best case scenario) or a more sustained recession (worst case scenario).

According to Allie Young, vice president and distinguished analyst of Gartner, in the best case scenario, buyers will aggressively seek cost-saving measures by accelerating offshore delivery. For buyers that haven't used offshore before, this will be a critical step to changing their paradigm for services sourcing towards a Global Delivery Model (GDM) approach in the future. Buyers will be more aggressive with External Service Providers (ESPs) to have greater clarity on costs, and they will seek immediate savings.

In the worst case scenario, if a more sustained economic slowdown leads to a prolonged recession in the US and possibly other global economies, Gartner expects a more aggressive movement to cut IT budgets.

Gartner expects that, while the recent appreciation of the Indian rupee and rising wage rates have made some of the long-held benefits of India's offshore services' cost competitiveness less predictable, the more sophisticated providers have made critical process investments thus minimizing the impact of wage increases alone in their final price of services to buyers.


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