Nearshore Americas

India Inc. Prepares for Outsourcing 2.0 and ‘Smart Computing’ Will Play a Lead Role

Source: WSJ

As technology spending patterns shift, Indian IT companies must make the transition from being outsourcing specialists to software makers who have their own products to sell, said Andrew Bartels, principal analyst at Forrester, the research firm, Wednesday.

Mr. Bartels shared with reporters the research firm’s updated forecasts on global technology spending, predicting 9.3% growth for 2010 to $1.5 trillion, a much more bullish outlook than rival Gartner research, which estimates 5.3% growth in tech spending for the year.

That’s a solid rebound after a 9.7% spending decline last year due to the recession and fallout from the financial crisis. Mr. Bartels said it would be powered by big increases in computer equipment purchases (13.4% growth) as companies re-stock and software purchases. IT outsourcing, India’s specialty, will grow only 5.2%, according to the forecast.

That’s partly because outsourcing spending lags spending on software, Mr. Bartels said, but there are also some signs of long-term changes in the services industry. “Outsourcing is becoming a much more mature industry,” Mr. Bartels said. “Growth is slowing in those categories. Even if volumes of deals are rising, the revenues are growing very slowly because of falling prices.”

He said Indian vendors like Tata Consultancy Services, Infosys and Wipro can better their prospects for the long-run by building on their experiences implementing complex software packages for companies. “One way is to take their development activities from systems integration projects and turn that into software that can be reused or potentially sold to new clients with much better leverage and much better margins,” Mr. Bartels said.

The Forrester analyst predicted that the anticipated rebound won’t be a one-hit wonder, but rather the beginning of another cycle of sustained growth in technology spending. He said the new wave of technology that will drive company purchases is “smart computing,” things that make existing technology more flexible or incorporate “awareness” such as smart electricity meters and censors.

Sign up for our Nearshore Americas newsletter:

Past rounds of tech spending growth were driven by similar major advances, he said, like mainframe computing, personal computing and network computing. Mr. Bartels said the much-hyped “cloud” technology, where companies can run all their necessary software off remote servers, is interesting but “is going to be a secondary phenomenon to smart computing.”

Most people “don’t want to be dependent on the cloud when the cloud might go out” with electricity outages and the like, he said.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

Add comment