the world is flat

Why Indian companies cheer flat tech spending: Strong earnings from TCS and Infosys

January 14, 2013
January 14, 2013

India’s outsourcing sector is bouncing back.

Today, Tata Consultancy Services reported that its fourth-quarter profits rose 15% in dollar terms to $652 million; revenues rose 14% compared to a year earlier. That’s on the heels of outsourcing giant Infosys announcing a jump in revenues of almost 6% year over year to $1.91 billion, posting its first growth in eight quarters.

Indeed, things are looking up. In late November and early December, we surveyed 270 North American and European companies on their business outlook, overall information-technology spending plans, emerging technologies and outsourcing strategy in phone interviews lasting 30 to 40 minutes. Compared to the last couple of years, the generally mood seems positive, or at least not going further down for many. A large number of companies reported that they will keep their budgets flat or will increase by a small percentage. In absolute terms, this is not big or good news, but compared to what we have seen for last two to three years, it is is cause for celebration.

Now, while budgets remain flat or grow by small amounts, companies still have big plans and that’s great news for India. Why? Over the last three to four years, they have not refreshed their IT so a lot of equipment needs to be simply upgraded. Meanwhile, many verticals have undergone some change in business model (financial services, retail, media, healthcare etc.) so their IT systems need to represent the new models and processes and several verticals also have new requirements in terms of compliance or new regulations (such as banks, automotive, and healthcare). Business leaders want IT to play a bigger role and deliver more value and most businesses want to deploy emerging technologies such as mobile or big data analytics or on-demand software.

So on the one hand, budgets have increased only so much, and the  to-do list is growing longer. Enter India. As spending on services in general and low-cost services is expected to increase, we are forecasting India’s next fiscal year will see growth of 12-15%.

We welcome your comments at ideas@qz.com. 

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