Rise in IT spending in US fuels hope of Indian companies

Most of clients considering engaging with services providers using newer models to have better control over costs

Information technology (IT) spending in North America, the primary market of India’s export-driven IT services industry, is looking up, with analysts and companies signalling a steady rise in the demand environment.

After last several years of ups and downs, clients in the US are looking at increasing the pace of offshoring. According to experts, most clients are considering engaging with services providers using newer models to have a better control over costs. However, decision making on large multi-year contracts is taking more time, primarily because of the immigration-related concerns.

“North America is looking more positive compared to Europe. We are seeing activity; people are talking about projects and the next round of benefits from offshore. So, the demand environment is much better compared to the last two-three years, though it is not as brighter as it was in 2006 or 2007,” said Sudin Apte, chief executive officer (CEO) and research director at Offshore Insights, a management consultancy.

In its latest report, consultancy Forrester Research said the US would be at the forefront of technology spending in 2013. Technology spending by US corporations and the government are expected to grow 5.9 per cent in 2013, when the global spend is expected to rise 2.3 per cent to reach $2.07 trillion. The technology spending by the US will continue to expand at a healthy 6.9 per cent in 2014, the research firm said.

Noida-based NIIT Technologies, which announced its financial results for the April-June quarter on Tuesday, said the company was upbeat about the current demand scenario with a strong recovery in the US in sight. "We are seeing an uptick in the US, there are clear signs of it based on recently released economic indicators and job created numbers," said Arvind Thakur, CEO of NIIT.

In the June quarter, Infosys posted a strong 4.9 per cent sequential growth in North America, its largest market from where it derives 60 per cent of revenues. The company management also said the deal funnel from North America looked stronger.

According to Peter Bendor-Samuel, founder and CEO of technology advisory and research firm Everest Group, even though Infosys' success can't be taken as an industry benchmark, there has been a definitely a modest rise in demand. "As far as the overall business environment is concerned, we can expect TCS (Tata Consultancy Services) and Wipro also to perform better than expectations,” he told Business Standard.

Industry experts and analysts also believe with the uptick in demand, most American clients are now looking at engaging with vendors under newer business models.

In a recent report, research and analyst firm Gartner said clients in North America were expected to seek transitioning more IT work to annuity-managed service relationships for cost take-out and more predictability in costs. “This will keep IT outsourcing growing in the region through 2016,” it added.

According to Apte of Offshore Insights, clients are primarily trying to use new delivery models, primarily to get incremental benefits using shared services or vendors’ IP.
BRIGHT & DISTANT SHORES

• Demand in North America looks much better compared with the past three years
• Clients looking at new engagement models to have a better control over cost
• Large outsourcing deals taking time due to immigration-related concerns