US subprime crisis may force IT cos to expand portfolios
Though the crisis will have some impact on the US market, it may not translate into high risk for IT service providers. BFSI firms may defer their IT expansion plans.
By TNN |
HYDERABAD: The sub-prime lending crisis in the US will not force companies there to cut their IT spends. The only exception could be firms in the banking, financial services and insurance (BFSI) segment. These companies may defer their IT expansion plans, but for a short period.
Hence, offshore vendor need to diversify their portfolios, focusing more on other segments such as manufacturing, according to Wayne M Mincey, president, The Hackett Group, a global strategic advisory firm.
``Though the crisis will have some impact on the US market, it may not translate into high risk for IT service providers. Other markets like Europe and Asia Pacific are growing and this could also help the US to tide over the crisis,’’ he told ET.
The US subprime mortgage crisis is attributed largely to defaults arising out of loans made to customers with low creditworthiness. Because these mortgages are traded in the markets, it has a spillover effect on banks, financial institutions and hedge funds who participate in it.
The Hackett Group has also unveiled a research finding which suggests that companies can potentially increase their savings by over 50% by selectively integrating transformation and process improvement efforts into their globalization (offshoring) initiatives.
``Over the past five years, much of the first wave of offshoring has focused on simply transferring processes offshore to save on labour costs without significant transformation. But over the next decade, as companies move beyond this phase, the necessity to integrate transformation into offshoring initiatives will increase”, says Michel Janssen, chief research officer, The Hackett Group.
According to him, this is both a threat and an opportunity for countries like India. “Wage inflation and currency fluctuations are escalating costs. As the market for offshore matures, outsourcing firms and shared service operations need to get much smarter about the services they offer.
The next wave of offshore services should focus on process excellence as it will help companies to cut down wage inflation by reducing the number of people doing low-end work,’’ he said.
Hackett advises its clients to look at a holistic business process sourcing strategy. “However, transformation may be a long, costly and sometimes a politically difficult process. Companies need to factor in these risks while offshoring processes. It can be an opportunity for Indian offshore vendors as they can help these companies transform their processes,’’ Mr Janssen added.
Hence, offshore vendor need to diversify their portfolios, focusing more on other segments such as manufacturing, according to Wayne M Mincey, president, The Hackett Group, a global strategic advisory firm.
``Though the crisis will have some impact on the US market, it may not translate into high risk for IT service providers. Other markets like Europe and Asia Pacific are growing and this could also help the US to tide over the crisis,’’ he told ET.
The US subprime mortgage crisis is attributed largely to defaults arising out of loans made to customers with low creditworthiness. Because these mortgages are traded in the markets, it has a spillover effect on banks, financial institutions and hedge funds who participate in it.
The Hackett Group has also unveiled a research finding which suggests that companies can potentially increase their savings by over 50% by selectively integrating transformation and process improvement efforts into their globalization (offshoring) initiatives.
``Over the past five years, much of the first wave of offshoring has focused on simply transferring processes offshore to save on labour costs without significant transformation. But over the next decade, as companies move beyond this phase, the necessity to integrate transformation into offshoring initiatives will increase”, says Michel Janssen, chief research officer, The Hackett Group.
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According to him, this is both a threat and an opportunity for countries like India. “Wage inflation and currency fluctuations are escalating costs. As the market for offshore matures, outsourcing firms and shared service operations need to get much smarter about the services they offer.
The next wave of offshore services should focus on process excellence as it will help companies to cut down wage inflation by reducing the number of people doing low-end work,’’ he said.
Hackett advises its clients to look at a holistic business process sourcing strategy. “However, transformation may be a long, costly and sometimes a politically difficult process. Companies need to factor in these risks while offshoring processes. It can be an opportunity for Indian offshore vendors as they can help these companies transform their processes,’’ Mr Janssen added.
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