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Story URL: http://management.silicon.com/itdirector/0,39024673,39296618,00.htm

When CIOs tighten their belts, what feels the squeeze?
"It's hard to find winners - it's just a question of who will be the least losers"

By Steve Ranger

Published: Thursday 02 October 2008

Offshore IT services and software companies are likely to be among the few to benefit from the ongoing financial crisis.

As CIOs come under pressure to cut costs as a result of the general economic downtown it could be smaller IT companies, which can't reduce their own costs by pushing work to lower-cost offshore locations that could feel the most pain, according to Anthony Miller, managing partner of tech analyst firm TechMarketView.

While most of the recent headlines have focused on the impact of the credit crunch on investment banks, the repercussions are already being felt more widely, he told silicon.com.

"It's not just the banks that suffer - anything that involves liquidity problems permeates through all industry sectors. This has already started to permeate through IT in general. For the last few quarters the tone of trading updates has changed quite materially," he said.

End users' organisations are already being very careful with their IT budgets and cutting back on discretionary spending.

Miller said: "You will find that CIOs will not be able to make significant new purchases and they will have to stretch out what they have as best they can. From a software and applications point of view, anything up to 80 per cent of the budget goes on support and maintenance and that's where CIOs are looking to cutting their costs. There is more opportunity to cut cost and CIOs will be under more pressure to do so."

He said this meant CIOs will be putting pressure on suppliers to lower their prices - and the suppliers that will be best placed to do so will be those who can increase the amount of their services they can deliver via offshore - and therefore cheaper - channels.

"The offshore vendors are rubbing their hands with glee," Miller said. "The services suppliers that have low-cost delivery capabilities will be less impacted."

He warned: "This favours the Indian players. Some of the European and UK firms are not as well equipped and that will be difficult."

"It takes time to set up offshore so this is why I am worried that for some it could be too late. It's brighter for those that are well prepared and not living in denial. It's hard to find winners - it's just a question of who will be the least losers."