Info-tech

IT budgets go up in US, Canada, but outsourcing rate declines

Adith Charlie Mumbai | Updated on March 12, 2018

For the first time in four years, companies in the US and Canada are investing more on developing internal IT operations, resulting in a decline of outsourcing percentages.

This signifies a new phase in the economic recovery of the Americas, according to a study by California-based Computer Economics.

“This reverses a four-year trend and marking the first time since the start of the recession that IT organisations have begun shifting spending plans on a percentage basis toward developing internal operations and capabilities and away from outsourcing partners,” it said.

IT outsourcing as a percentage of companies IT budgets fell to 10.6 per cent in 2013 from an average 11.9 per cent in 2012.

“On the other hand, IT operating budgets are rising 2.5 this year at the median and IT capital budgets are up 4 per cent,” the research firm said, on the basis of an annual survey of more than 200 organisations in the US and Canada.

At a new phase

Computer Economics’ view is that IT outsourcing budgets are not necessarily ‘shrinking’. “It could just signal that we are at a new phase in the recovery. In the early stages, IT organisations first turned to service providers out of reluctance to hire permanent staff. Now they are turning their attention to long-delayed infrastructure upgrades, system improvements, and unfilled positions,” the report said.

Going forward, will this lead to “back-sourcing”, where in companies bring back some of the work done by third party providers such as Tata Consultancy Services, Infosys and others?

“Some organisations may be making strategic decisions to back-source as well, if they find they have the economies of scale to efficiently deliver IT services…If other manufacturers are reconsidering their insourcing-outsourcing mix, this could have a significant impact…,” the report said.

It may be recalled that General Motors stoked this debate in 2012, when the company announced it would hire 10,000 technology professionals over the next three to five years and reduce its dependence on outsourcing.

However, representatives of India’s $108 billion IT industry do not feel that ‘back-sourcing’ is becoming mainstream.

‘Back-sourcing’

“Back-sourcing may have happened in few cases, but that is definitely not the trend. Companies may be evaluating different models to offshore, such as mix of third party and captive centres but there is no slowdown in offshoring,” said Ameet Nivsarkar, Vice-President of Nasscom, India’s software industry body.

According to Nivsarkar, the basic ‘fabric’ of decision making in large organisations is changing as IT budgets are moving away from the Chief Information Officer to various functional heads.

> adith.charlie@thehindu.co.in

Published on August 22, 2013

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