• How the global recession has affected and continues to affect the Information Technology industry

    The world was turn on its head in the last several years. The global recession has affected all aspects of society, ranging from social, economic, and political consequences. The Information Technology industry was not immune from its effects. The industry has certainly been altered by its ramifications, bringing about new policies and practices which continue today.

    The global IT industry had matured over the last several decades, so much so that it has emerged to be a principal contributor to the globe’s overall economic growth. The global economic slowdown, however, has made an uneasy ride for the world economies; great fluctuations and inconsistency have marred the path to greater growth. With the expectations of slack Gross Domestic Product (GDP) growth and consequent reductions in IT spending, national markets which have a higher dependency on the export markets have been affected more so than other national markets which possess economies developed based on stronger domestic demand. For instance, India, one of the world’s fastest-growing tech markets, succeeds primarily due to exports; because of this, it is also experiencing more significant affects from the global economic crisis.

    Information Technology spending, as a percentage of revenue generated, varies based on industry.  Typically IT spending ranges from four percent in manufacturing firms, five to six percent in global retail chains, and near ten percent in the banking industry. These figures have seen marginal decline as a result of recession; companies tend to hold spends on new IT deployments as a means to diminish overhead spending and realign profit margins. It is estimated that forty-three percent of Western businesses have cut back on their IT spending; in the same vein concerning, thirty percent of enterprises are scrutinizing IT projects for better returns. Some of these changes have led to the transfer of IT responsibilities to off shore support. The impact of overall reduction in discretionary spending- including offshore programs- cannot be denied.

    The IT industry is currently going through a structural transformation. This change will have a substantial effect on how IT service providers will have to conduct their future business. The slowing American economy has seen seventy percent of firms negotiating to decreased rates with suppliers; nearly sixty percent are cutting back on the utility of contractors altogether. With budgets tightened, just over percent of companies intend to increase their use of offshore vendors.

    Customers have started to reduce project scope as well as postpone new development. However, they are also trying to move more work to lower cost offsite locations; this tactic could theoretically increase IT budgets towards tangible cost saving measures. The impact is likely to be higher for discretionary outsourcing expenses rather than for critical, ongoing Application Development and Maintenance (ADM) services. Furthermore, whilst discretionary expenditures are being reduced, ongoing projects will likely continue, at least in the near term. This is especially true for those projects which are in the more advanced stages of progress.

    Not all is doom and gloom within the industry. Information Technology services are projected to report marginally positive revenue growth. These figures will run in line comparative to those of 2013.  Much of this improvement will be a by-product of the improvements found within the United States’ market. European market clients will be the industry’s most sought after off-shoring customers, given the relative saturation of the American market.  Client additions will improve compared to the last five years; however, it is not likely to reach the heights previous to the recession. Again, regional dynamics will continue to play a large role in the health of the industry.

    Categories: Information Technology, Recession

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