Expect tech slowdown in US next yr: Forrester

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George F Colony, Chairman & CEO, Forrester Research expects tech slowdown in the US next year and therefore tech spending growth to slowdown to 3-4%. But, he says that lower IT spending in the US will not have much impact on Indian companies, adding that the next 12-18 months is a period of caution for the Indian outsourcers.

But Colony agrees that India will be the only viable outsourcing destination for two-three years, and large and complex deals are likely to flow to India.

He also sees some midcap companies to jump to tier I in two years, with Patni and Hexaware having a fair possibilty to enter the big league.

Excerpts from CNBC-TV18's exclusive interview with George F Colony:

Q: What are the prospects for the Indian IT industry, particularly in terms of offshoring and what big challenges might be in the next few quarters?

A: We see these companies continue to do well in the US, but we are expecting a tech slowdown in the US next year. Tech spending in this year was up around 8% and we expect it to be 3-4% the next year.

So a little tech slowdown could be a problem for these companies, but generally we believe that they are in a good shape except for the potential labour crunch in India.

Q: How vulnerable does that leave some of the Indian companies, which are indeed very heavy on outsourcing?

A: We think there will be a small impact of this tech slowdown next year, but typically what happens in the US when tech spending goes down is a shift of cost over here.

So we think that it will have a very small impact on the companies here in India.

Q: What do you see as the key challenges for this industry at this point because we have been talking about them actually getting a foothold into very big deals, so in that sense volumes are growing, but margins are a bit pitched?

A: By our analysis, only 50% of US companies will ever outsource or offshore, which means that there will be a limited number of companies, who will do this in the long run.

I think in the ten-year timeframe, that's the limitation for these companies, but also the second limitation is that in the US we would like to think that there is unlimited labour here in India, which in fact is not true.

We expect that there is only nearly about 100,000 acceptable engineers who graduate from the universities here. So that will eventually put pressure on the Infosys and the TCS because you also have the companies, who are looking to take their labour as well.

So I think that one of the factors that these companies will have to look to other markets for new labour, perhaps Russia, Brazil or Eastern Europe.

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