Gartner forecasts surge in offshore IT services

The current U.S. economic slowdown might have another side effect.

It could lead North American and European buyers of information technology services to use more labor in lower-cost countries such as India, according to Stamford-based Gartner Inc.

Gartner predicts buyers of IT services will shift from cost containment to a greater focus on cost reduction and productivity gains in their sourcing decisions.

"Factors that will give India the edge over other offshore locations are scale and quality of labor," said T.J. Singh, research director at Gartner.

"Whether it is the indigenous India-centric service providers that have a wide-reaching impact on the IT services sector, or a vast and growing IT labor pool being trained to support a global client base, India will continue to be the most sophisticated country option to source offshore IT services in the near term," Singh said.

Gartner sees two possibilities that will affect offshore services adoption in the coming months: a temporary economic downturn, considered the best-case scenario, or a more sustained recession, seen as the worst-case scenario.

"In the best-case scenario, buyers will aggressively seek cost-saving measures by accelerating offshore delivery or, for first-time users, moving IT services to offshore locations," said Allie Young, vice president and distinguished analyst at Gartner.

In the worst-case scenario, if a more sustained economic slowdown leads to a prolonged recession in the United States and possibly other global economies, Gartner expects more aggressive cutting of IT budgets.

"Again, buyers will aggressively move toward offshore destinations and service providers that can offer a global delivery model to access lower-cost IT labor for routine IT work that must continue for the business to operate," Young said. "However, noncritical projects may be delayed indefinitely, and for most organizations, any discretionary IT spending will be canceled," she added.

An official with the Poughkeepsie, N.Y.-based International Association of Outsourcing Professionals agreed that the economic downturn might reduce IT spending overall.

"While it is probably true that companies will look for every cost-saving opportunity, there are competing trends, which may balance each other in the end," said Jagdish Dalal, the association's managing director of thought leadership. "With higher foreign currency (values) and lower IT spending, at least lower IT spending growth, there may not be a noticeable change."

The declining U.S. dollar will raise the cost of using overseas IT labor, and higher unemployment in this country might trim wages to make domestic IT costs lower, said Jonathan Huneke, spokesman for the New York City-based United States Council for International Business.

"A faltering economy certainly puts pressure on businesses to cut costs all over the place," Huneke said. "But other factors may negate the pressure to outsource overseas, one of which is the falling dollar."

http://www.stamfordadvocate.com/ci_9090956

Business Financial Services

Gartner forecasts surge in offshore IT services