US slowdown will keep India as hot IT offshore

The US economic slowdown will lead buyers of IT services to consider increasing the percentage of their labour in offshore, lower-cost locations. India will remain the dominant location for IT offshore services for North American and European buyers as a result of its scale, quality of resources and strong presence of local and traditional service providers, according to Gartner.

With concerns that the US economic slowdown could extend to other geographies, organisations are refocusing on IT cost reduction and taking steps to accelerate the use of offshore labour, Gartner said. Buyers of IT services will shift from cost-containment goals to a greater focus on cost reduction and productivity increases in their sourcing decisions.

This will lead to a steady increase in the adoption and expansion of offshore services - primarily from India, but increasingly from other countries as well.

“Factors that will give India the edge over other offshore locations are scale and quality of labour. North American and European buyers of IT services have been the force behind a growing offshore services market and India is central to almost any discussion of offshore services delivery for these buyers,” said Gartner research director TJ Singh.

Gartner sees two possible scenarios that will have an impact on offshore services adoption in the coming months: temporary economic downturn (best case scenario) or a more sustained recession (worst case scenario). According to Gartner vice-president Allie Young, “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.”

In the worst case scenario, if a more sustained economic slowdown leads to a prolonged recession in the US, Gartner expects a more-aggressive movement to cut IT budgets