US slowdown may hit mid-size IT cos

New Delhi, May 12: Mid-sized IT services and BPO companies are vulnerable to the adverse impact of US slowdown due to exchange rate volatility, slower deal closures, inflation and low billing rates compared to their bigger counterparts, a study said on Monday.

"The mid-size IT services companies are more likely to face the combined pressure of exchange rate risk, lower billing rates, domestic inflation and slower deal closures," the study by CyberMedia publications for the outsourcing industry said. Large vendors with multi-shore delivery capabilities such as TCS, Wipro, Infosys, Satyam and HCL Technologies would be better equipped to exploit new opportunities in the slowdown period, it added. However, the study said slowdown in US economy will have moderate impact on the global IT services and BPO industry.

The economic slowdown in the US would impact profitability in the short term, the study said. The industry is gearing up with a two-pronged approach of re-aligning existing service areas and increasing focus on non-US geographies to shield itself from impact of a slowdown. Nearly 75 per cent of the service providers who were surveyed said that by adopting this approach, their companies could marginalise the net impact on revenue growth, it added. Nearly half of the service providers, primarily representing BPO, infrastructure management and application maintenance areas, indicated that the slowdown has not impacted the deals pipeline in the current quarter. On the contrary, many of these companies are seeing a stronger deal pipeline and accelerated sign-ups. However, companies representing the new application development and offshore engagements reported delays, down-sizing or re-negotiation of contracts. Nearly two-thirds of the buyers of outsourcing said that their companies would go ahead with the planned projects. On cutting down the IT spending, nearly 36 per cent responded in the negative. However, 36.4 per cent of the respondents admitted that their companies may prioritise the outsourcing of IT projects in the short term. Almost one-half of the respondents identified cuts in the contract IT staff, full-time internal hires and IT consulting as the likely areas to get impacted the most in the short-term.

The BPO-related services are least likely to be affected by slowdown. Within BPO, 47.2 per cent of the respondents said that spend on sectors like finance, procurement and customer care will go as per plan. In the claims, mortgage, travel related BPOs, 44.1 per cent felt that their clients would continue their BPO projects. (PTI)