U.S. to spend more on IT off-shoring in 2004

Monday, 17 November 2003, 08:00 Hrs
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BANGALORE: There is good news for the booming Indian IT industry with cautious IT spending by U.S. firms leading to more outsourcing to India in 2004.

The U.S. is the main export market for the Indian software services sector, constituting 60-65 percent of its total exports. So, global IT majors like TCS, Infosys, Wipro, Satyam and others in the SME (small and medium enterprise) sector would benefit from this ensuing move in terms of investments, jobs and alliances.

A survey of 850 firms in North America with billion-dollar-plus revenues by Forrester Research Inc. has revealed that the overall IT spending would decline to 1.7 percent from 1.9 percent during this calendar year.

"The outlook on IT spending in the U.S. is not so rosy during 2004. It's going to be more cautious than this year. The issue with chiefs is not what amount needs to be spent but how to ensure steady revenue growth, good cash flows and more return on investment," said Forrester Chairman George F. Colony here Friday.

"As a result, 65 percent of U.S. firms that are off-shoring and outsourcing their IT requirements from India will be doing more next year," he said.

He was speaking at the client meet of the international IT research firm in association with Nasscom (National Association of Software and Service Companies).

Colony, however, did not qualify his statement on IT spending or the quantum of off- shoring/outsourcing in revenue or dollar terms.

In a presentation on The Challenge for Indian IT Vendors, Colony said IT spending would be more in verticals such as retail, insurance, financial services, healthcare and utilities.

"Due to continuing recession and lower consumer spending, verticals like consumer services, business services, manufacturing (finished goods) and primary products will see a sharp fall in IT spending, whereas technology and telecom and distribution sectors will have either flat or marginal growth," Colony stated.

The survey indicated that IT spending by the retail sector would go up to 4.4 percent during 2004 from 3.2 percent in 2003.

Steep decline in IT budgets is feared in manufacturing -- to 0.8 percent in 2004 from a high of 7.4 percent in 2003.

The growth in the technology and telecom sector would be flat at 2.7 percent and in distribution services at 2.7 percent.

"In terms of technology and services, spending on infrastructure will continue to be a hotspot along with application development. The industry will be spending 12 percent of their IT budgets on these two sectors.

"Consequently, use of outsourcing services will lead to 5 percent increase but only 3 percent in PC software," Colony asserted.

He added that with 9/11 continuing to haunt the U.S., investments in IT security application and disaster recovery management would continue to increase, leading to more off-shoring of projects related to these key areas.

The survey has also pointed to an increasing use of Linux and other open standard platforms to develop business critical applications and software products, posing a threat to the proprietary products of Microsoft.

"More off-shoring and outsourcing by the U.S. firms will lead to a flurry of partnerships and strategic alliances with Indian IT vendors, especially for XML and Web services," Colony said.

"Disruptive technologies will drive the Indian IT business in the next five years as even global firms using IBM mainframe will have to migrate sooner to server and storage farms using network equipment," he added.

Source: IANS
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