The Hindu Business Line : Tech spend to depend on pace of recovery

Bangalore, Nov. 10 US companies are now seen better placed to chart their outsourcing strategy with the completion of the Presidential polls, but technology spending in calendar 2009 could be staggered and determined by the pace of economic recovery.

In the run-up to the polls, customers had held back their decisions on technology spending because of the anti-outsourcing backlash witnessed in the earlier elections. The delay had created uncertainty for the Indian software exporters, who earn over half of their revenues from the US, the largest IT services market. This uncertainty had further aggravated with the economic meltdown in the US that has now spread to Europe too.

“Companies had put their decisions on the backburner because of the political uncertainty,” said Mr Chandramouli, Engagement Manager at Zinnov Management Consulting Ltd, a Bangalore-based firm that advises clients on outsourcing strategy. “With the stability on the political front, customers would look forward to overcoming their internal business uncertainties by improving efficiency and optimising costs with the help of technology,” he added.

Positive sentiment

The new government and the mega packages to put back the economy on recovery track has created a positive sentiment that is expected to prompt companies to go ahead with their technology spending plans.

“There will be some opening in customer spending early next year, which will be in bits and pieces and staggered throughout the year linked to the economic recovery,” said Mr S. Sabyasachi, research director at neoIT, an offshore advisory firm.

Quoting a recent client poll by neoIT, Mr Sabyasachi said technology spending till the first half of 2009 is expected to remain the same as that of last year or increase marginally.

Considering the current market conditions, the IT vendors do not foresee a surge in new projects in the current quarter. “We expect that 2009 client budgets will take longer to finalise this year when compared to prior years. As a consequence, projects which normally might get started in Q4 in expectation of a Q1 budget approval are unlikely to kick off during Q4,” said Mr Francisco D’Souza, CEO of Cognizant Technology Solutions in a post-earnings conference call.

Research firm Gartner has projected that IT spending would increase by 2.3 per cent in 2009, down from its earlier estimates of 5.8 per cent.

“Economic turmoil is the key reason for delay in decision making. Though there were concerns before the polls, because of Obama’s stance on outsourcing, the rhetoric will not have any impact on businesses,” said Mr Vinu Kartha, Principal at Tholons Inc. “Post-elections, they would offshore as soon as the economy bounces back,” he added.