Challenging Times Ahead for Small IT Vendors

                                                                                         

The year 2008 was a mixed bag for small and medium enterprises (SMEs) in the IT sector. In the first two quarters of 2008, several companies recorded a higher top-line growth. This trend, however, did not continue throughout the year. Towards the second half, the growth rate of IT companies began registering a downward movement and the profit margins of small and mid-sized players started contracting. Going by the projections made by the analysts for 2009, it seems the downtrend is going to persist in 2009 as well owing to the impact made by the current economic slowdown. Analysts fear that the recession will further intensify in the coming months, thereby resulting in profit erosion for small players.

The lower business volumes arising due to the US economic crisis and pricing pressures are pulling down the growth levels of several small and mid-sized IT firms. Currency fluctuations and market volatility are further adding to the woes of IT firms. Unlike some of the big companies that have reported a year-on-year profit growth for December, a large number of small IT companies have reported a negative profit growth.

The export-oriented IT industry is projected to grow by a mere 15% for the current financial year, down from nearly 30% last year. The figures for 2009-10 are also not looking very bright. The offshoring revenue growth in 2009 is likely to remain flat in the first half, and is expected to turn positive only in the second half. The Indian Semiconductor Association (ISA) is also anticipating the compounded growth of the semiconductor market to remain at 13.4% for 2009-10 as against the earlier estimated 26.7%.

The next two years are expected to be challenging for small and mid-sized software companies as IT spending will slacken this year, growing at an annual 14.1%, down from 18.1% registered in 2008. Small scale IT vendors would be affected the most as companies across the country would curtail their spending on technology deployment. This would lead to consolidation among vendors. Unlike the larger vendors that would stand to benefit, the smaller firms will lose out under such circumstances largely due to their financial restrictions and scale issues.

About the author:
David Parks is a well known author and has written articles on B2B Website, B2B Portal, Online Currency Converter suppliers, Manufactures and many other subjects.

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