IT outsourcing by US to hit $79 billion this year

The US IT services market will return to its pre-downturn growth rate of 5% in 2010, going by the strong IT hardware demand seen in the last two quarters, Forrester Research has predicted.

The $85 billion US IT services market had shrunk 5% in 2009, affecting the growth rate of the $40 billion Indian IT and outsourcing industry.

“The cutbacks in tech purchases were in many cases driven by fear. Fear that the economy was headed toward a multiyear recession... and fear that firms would not be able to borrow from banks or the credit market if they needed, resulting in the drive to hoard cash and slash capital investment... As fears ease and prices rebound, the pent-up demand in those industries for IT goods and services will bounce back in 2010,” Forrester said in its report on the US IT industry last week.

The strongest segment in IT services will continue to be IT consulting, which grew even in 2009 as companies struggled to cut IT costs, followed by hardware support and system integration.
IT outsourcing, which grew from $75 billion to $76 billion in 2009, will hit $79 billion in 2010, Forrester analyst Andrew Bartels concluded.

However, Forrester warned that recovery in the system integration business will start only by around Q3 2010, despite strong sales expected in software in the first half.

The US software market too will shed its recession colours in 2010, going by the strong hardware sales. The industry, which had shrunk 10% in 2009, will grow more than 10% this year to hit a record $194 billion. Nearly all US software firms have offshore development centres in India, employing tens of thousands.

IT spending by US financial companies, the primary clients of Indian service providers, will jump 11.4% in 2010 to hit $95 billion, after declining more than 8% last year.

Meanwhile, technology research firm Gartner came out with similar projections for the global market. It said worldwide IT spending — software, hardware, IT services and telecom — will grow 5.3% in 2010 to touch $3.4 trillion, and grow 4.2% in 2011.

“Robust consumer spending on mobile PCs will drive hardware spending in 2010. Enterprise hardware spending will grow again in 2010, but it will remain below its 2008 level through 2014,” the agency said.

It identified web conferencing, team collaboration and enterprise content management as segments that would see double digit growth rates in the coming four years.

Gartner also forecast a 5.7% growth for the IT services segment, pegging it at $821 billion in 2010.


  1. great you think obama's policies will hurt outsourcing though ?

  2. Domestic business process outsourcing (BPO) units providing services to the American companies will not be affected by the proposed
    decision of US President Barack Obama to discourage outsourcing by imposing taxes, said global consultancy firm Ernst & young.

    "The companies which outsource business to third parties will not be impacted (by the proposed tax move)," said Ernst & Young Tax Director Rajendra Nayak. However, he added, the US companies which outsource services from their own arms including wholly-owned subsidiaries might face the heat of Obama's tax proposal, which is yet to be approved by the US Congress.

    According to the E&Y expert, the captive outsourcing units of Americans will be impacted by the proposal as it would be required to adhere to the regulations of the home country. On the other hand, the domestic Business Process Outsourcing units provide services to companies from different countries, including America, will primarily be governed by Indian laws
    and may escape the impact of changes in the US tax laws, Nayak said.

    The step, he said, is directed at encouraging the US companies to do business in the US. However, the success of this objective would depend on comparative advantage that locations like India provide over the loss of revenue because of taxes back home in the US, sources in the Central Board of Direct Taxes (CBDT) said. The US companies would stop giving business to their subsidiaries in India only after evaluating if the benefit they have in India based on lower production costs
    in the country is higher than the tax to be borne in the US itself, they said.

    So if you look at the overall perspective, the impact of this policy on India is negligible. Hence we do not need to worry at this point in time and can be assured that indeed, "Outsourcing is here to stay".


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