Debt crisis forces European firms to trim IT spends

Adith Charlie Mumbai | Updated on March 12, 2018

European corporations are all set to reduce spending on information technology owing to the ongoing sovereign debt crisis in the region, a move that could have a negative impact on home-bred software services firms.

For 2012, several corporations in Europe are planning to trim their IT budgets by between 5 and 10 per cent, Mr Sudin Apte, Chief Executive Officer of advisory firm Offshore Insights, said, citing the results of an yet to be published study of 100 companies in Europe.

“One in five client companies (that were surveyed) across sectors have told us that they are stalling some of the IT projects…all kinds of software projects are under the scanner. The bottom-line is that companies have less money to spend,” Mr Apte told Business Line. On its part, Nasscom has said that none of its member-companies have reported any cancellation of deals that have been awarded already. However, Nasscom Vice-President, Mr Ameet Nivsarkar, said that the industry body is ‘watching the situation closely'.

It may be recalled that Infosys Technologies was the first bellwether IT company to publicly warn its investors of a dip in demand due to project delays in a deteriorating macro-economic environment.

Tenure and pricing

In many cases, offshoring deals that are up for renewal are now being treated differently especially when it comes to the tenure and pricing. “There are instances where five-year deals are renewed for only 1-2 years as clients are uncertain and do not have enough visibility into the future…in some cases, deal renewals are happening for the full tenure but clients are asking for a reduction in pricing,” Mr Alok Shende, Principal Analyst of Ascentius Consulting, said.

Mr Ganesh Natarajan, Global CEO of Zensar Technologies, is of the view that the Eurozone crisis has not impacted IT spending in the UK, Germany and the Netherlands — countries where the RPG group company has clients.

However, he too agrees that ‘heavy duty and massive discretionary projects' may be held back as clients assess the situation and prepare the roadmap to wade through the period of economic uncertainty in the continent.

Mr Hanuman Tripathi, Group Managing Director of midsize software products company Infrasoft Technologies, said: “There is no doubt that budgets allocated for research and development, new products and entry in new markets will be frozen. However, IT spends on maintenance and support will continue unhindered for the next 2-3 quarters.”

A decreasing IT budget could, however, spell opportunity for Indian IT companies especially when it comes to companies where the cuts are ‘mild'. “Companies which have reduced budgets by 3-5 per cent will tend to continue outsourcing the same work but at a cheaper rate. This could mean additional business moving to offshore centric Indian players,” said Mr Apte.

Published on December 05, 2011

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