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March 2010 Quick Hits - News, Trends & Analysis

Gartner Predicts Speedy Recovery For Outsourcing Suppliers
Gartner's latest survey of company spending plans showed that 85% of organisations anticipate that their spending with external service providers (ESPs) will increase or stay the same. For the survey, conducted in November and December 2009, Gartner contacted 1,073 private sector organisations in the US, Europe and Asia/Pacific to determine how economic changes have impacted IT services buying and decision making. Most companies in the mid-market are still nervous about spending, and 40% of all CIO's from another survey on searchcio.com have mentioned that budgets are smaller than last year. However, in order to increase variable costs and free up cash, there might be a trend for companies to outsource IT Services, hence the prediction that outsourcing suppliers will experience solid growth during the recovery of 2010 and 2011.

Suppliers Can Now Be Penalised For Over Stating Capabilities
Last month when the high court ruled that EDS (now part of HP) was ordered to pay £270MM in damages to BskyB for a failed CRM solution. As commented by Karl Flinders on Computerweekly, "The case was not the landmark judgement many people first thought. But it will put pressure on suppliers to improve the way contracts are negotiated and managed. It is a warning to suppliers that unless they change their pre-sales processes they too could face fraudulent misrepresentation, particularly if they are not clear what they can deliver" This will add increased costs to pre-sales and some folks believe the suppliers will try to make it back somewhere else. However, given the nature of competition I believe most suppliers will absorb this cost and spend more money on refining legal contracts to ensure customer expectations are clearly documented and can be delivered against for complex projects.

Indian Provider Delivers Impressive Numbers But Predicts Gloomy Future
As commented in outsourcemagazine, "Infosys's results for the financial year ending 31 March 2009 showed revenues of $4,663 million, up 11.7% year-on-year, and operating profits rose 18.6%, from $1,159 million to $1,374 million. But the firm anticipates tougher conditions ahead, forecasting a revenue drop in FY10 of between 3.1% and 6.7%, to $4,350-4,520 million." This will be the first time in history that tier 1 Indian service providers will see a decline in revenue. All the traditional US and European Global providers have been through this before, so the question remains... how will the Indian companies respond? Many of them are heavily exposed to retail and financial services which are not recession proof verticals, so they are now trying to balance portfolios and moving into sectors like healthcare & food production to sustain revenue, but it might take a while to get established, hence the lower revenue forecast for 2010.

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