While the US information technology (IT) environment is showing signs of stabilising, the Indian IT’s offshore business is also expected to double over the next two years. Offshore budgets, while small are expected to double from 1.7 per cent last year to over 3 per cent of the total IT spending over the next two years, says a recent report brought out by global management consultancy firm, Merrill Lynch.Although the India-based vendors continue to maintain small advantage in sourcing new work, they are still being threatened by global vendors as well as internally-owned operations of customers, the report says. At the same time, Indian vendors may be able to expand pricing for India-based IT services/BPO projects by around 3 per cent, which is contradictory to the results of the earlier India focussed CIO survey, which showed that 60 per cent of the users expected 0-9 per cent price cuts this year versus 33 per cent in 2002, the report says.Of the CIOs planning to outsource IT services to India, 41 per cent preferred local India-based vendors, 30 per cent preferred local operations of global vendors and 28 per cent preferred internally-owned operations. Key reasons for preferring global vendors are better domain expertise, better quality of solution and lower prices.As far as the source of incremental IT services work to be outsourced to India is concerned, the survey conducted by Merrill Lynch reveals that three key sources are permanent employees (28 per cent), new spend (25 per cent) and large vendors (20 per cent). As a result, the report says, lay-off issues may slow down pace of offshoring and competitive pressure from global vendors is likely to grow.The Merrill Lynch report further goes on to say that on an overall IT services front, price stabilisation is on the cards. Over the last survey in March 2003, the current survey reveals that business process outsourcing (BPO) fares best while IT outsourcing and consulting remains relatively impacted.
