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Indian IT: The road ahead

Nov 14, 2008

IT industry is passing through a challenging phase. Amidst financial crisis in the US and Europe and worsening economic scenario worldwide, leading IT research firm IDC released its projections for 2009 this week. In the backdrop of financial meltdown and economic crisis, IDC has drastically reduced its projected numbers. According to its revised projections global IT spending is expected to grow by only 2.6% YoY in 2009, significantly lower than earlier projected 5.9% growth.

As regards spending on regional basis, IDC has forecasted that spending growth in Japan, Western Europe, and the US will be around 1% in 2009. These numbers are also much lower than the agency’s earlier projections. In contrast to the Western economies, the emerging economies of Central and Eastern Europe, the Middle East and Africa, and Latin America is expected to experience healthy growth going forward. However, IDC expects growth will be lower than the double-digit gains previously forecasted.

To put things in perspective, let us analyse some historic numbers. As per IDC and NASSCOM ‘Strategic Review 2008’, the IT total spending grew by 7.3% YoY in 2007, from US$ 1,570 bn in 2006 to US$ 1,685 bn. While IT services witnessed growth of 6.2%, BPO, packaged software and hardware witnessed growth rates of 9.7%, 8.3% and 5.8% respectively.

US$ bn 2006 2007 Change
IT Services 467 496 6.2%
BPO 421 462 9.7%
Packaged Software 230 249 8.3%
Hardware 452 478 5.8%
Total 1570 1685 7.3%

As per the report, during 2007, North America contributed 48% of total IT service spending followed by Western Europe, Asia Pacific and developing economies, which contributed 31%, 15% and 6% of total spending.

IT Services Market % of Total Market
North America 48%
Western Europe 31%
Asia Pacific 15%
Developing Economies 6%

What to expect?

The slowing IT spending globally is likely to impact Indian IT companies as well. However, these companies are in much better position than ever to weather slowing economy, considering that they are already involved in operations which remain critical to achieving further cost efficiency and productivity during slowdown. Although the short term picture is grim but on a longer term, IDC has projected that IT spending will be up by 6% in 2012.

Furthermore, to put things in perspective, these projections by IDC have been made on a most likely case scenario where its economists have assumed that global gross domestic product (GDP) will grow by 1.8% in 2009. According to them, even in the downside scenario (which assumes that global gross domestic product to grow by only 0.3% in 2009), global IT spending will grow by 0.1% in 2009 with negative growth in the US, Western Europe, and Japan.

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