Economic Slowdown in the US to Accelerate Offshoring of IT Services

In a recently published report, Gartner said that the current U.S. economic slowdown will lead buyers of IT services to consider increasing the percentage of their labor 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.

With concerns that the US economic slowdown could extend to other geographies, organizations are refocusing on IT cost reduction and taking steps to accelerate the use of offshore labor. 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.

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).

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

According to Gartner, while the recent appreciation of the Indian rupee and rising wage rates have made some of the long-held benefits of India’s offshore services’ cost competitiveness less predictable, the more sophisticated providers have made critical process investments, thus minimizing the impact of wage increases alone in their final price of services to buyers.

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