The Hindu Business Line : `Penetration of offshore outsourcing improving'

Indicating a moderate expansion of IT spending outlook for 2007, a Citigroup survey of CIOs has revealed that penetration of offshore outsourcing appears to be improving.

However, offshore outsourcing remains under-penetrated, Citigroup said based on its quarterly CIO macro trends survey.

Citigroup polled some 200 CIOs of Fortune 1000 and Global 1000 corporations split evenly between the US and Europe, of which nearly 50 per cent of participant companies had revenues of over $5 billion.

"About 36 per cent of our participants indicated that many of their company's IT services activities or business processes are currently performed in lower-cost offshore locations, up from 18 per cent last year," the survey said.

The under-utilisation of offshore outsourcing by the US and the European firms should continue to drive demand and benefit offshore vendors.

"We believe that the Indian firms continue to maintain an advantage over larger US IT firms that are currently ramping up their capabilities offshore and expect the Indian firms to maintain this advantage for the duration of the current IT investment cycle."

It added: "CIOs appear to be bullish on the economy and IT spending for 2007. However, the underlying numbers indicate low single-digit IT budget growth."

While IT budgets may grow in the US in 2007, it may roughly stay flat in Europe, the survey said.

"CIOs indicated slightly less favourable pricing for IT services, consistent with our view that prices are likely to rise in low single digits this year. The hardware categories demonstrated significantly less pricing power, while software seemed to fall in between."

CIOs said that IT security and server consolidation as the most important areas of spending over the coming year, while transition to Windows Vista and the broadbased HR outsourcing spending seem the most likely to be at risk, the survey said.

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