Neel Kashkari, assistant secretary in the US treasury and an Indian, to manage the $700-billion bailout will not provide an Asian solution. Asian economies are principally export driven, and considering a slowdown in demand for several sectors. Consequently, there will be a cyclical slowdown in the region. There is a widespread fear of the unknown. It is bound to have a knock-on effect as private consumption accounts for 71 per cent of the US GDP and 57 per cent of EU GDP. And that is sure to have a significant drag on the Asian economies.
Domestic demand in Asian economies is not adequate to sustain current levels of growth. The US consumer last year spent $9.5 trillion. Chinese consumers spent about $1 trillion and Indian consumers about $600 B. As business houses in the US try and recoup and recapitalise, the chances of even more money being taken out will rise too.
The situation in India is more complex. Unlike other emerging markets, India is a net importer of both goods and capital. And then there is high inflation. A liquidity reduction will hit India harder. And look no further than what happened in the markets this week, as SENSEX lost nearly 900 points in two days. Apart from financial markets, corporate India is cutting costs significantly. That may also leads to jobs cuts. Without doubt, the down cycle is likely to put additional strain on the common man.
IT and BPO
Assuming on the possible effects of slowdown in economy on the IT and BPO industry. The slowdown would impact profitability and revenues in short term. The industry is aiming at realigning existing service areas and increasing focus on non-US geographies and non-BFSI clients.
According to a study (by CIOL) conducted among IT professionals and decision makers. Nearly two-thirds of the buyers intend to go ahead with planned projects. Nearly 36 % do not see cut in IT spending across the board while 36.4 % admit prioritizing outsourcing in the short term. Almost one-half see cuts in the contract IT staff, full-time internal hires and IT consulting in the short-term. 33% see Strategic IT initiatives, systems integration, and managed services are likely to be allocated higher budgets.
During Q2 FY08 most of IT solutions services providers that works with numerous financial services firms, has recently seen several key clients delay large projects. Financial firms can restrict the cost of operations by reducing the headcount and by increasing the automation in process. Clients slow spending on new hardware and software, unless it can yield quick ROI and reduces costs with virtualization. Opportunities also exist in providing consulting services to help clients properly and fully utilize the resources they already have in-house, but have never learned how to use.
Large vendors with multi-shore delivery capabilities like TCS, Wipro, Infosys, Satyam and HCL Technologies are better equipped to exploit new opportunities during slowdown whereas mid-sized firms are more likely to face the pressures of exchange rate risk, lower billing rates, domestic inflation and slower deal closures. BPO firms like Genpact, WNS Global Services, EXL Services and Cambridge are among those more likely to offer better value to clients during this period.
