The shortage of information and communications technology skills in developed countries could become a serious issue once the worldwide economic crisis starts easing.
This will be exacerbated by the falling number of masters and PhD holders in science and engineering, restrictions on cross-border movement of IT professionals and the US H-1B visa programme.
However, this vicious circle could be mitigated by the Indian service firms increasingly recruiting internationally, according to a new Organisation for Economic Co-operation and Development report on employment trends in the ICT sector.
The report notes that Indian tech firms like TCS, Wipro and Infosys have seen slower recruitment since the first quarter of 2008.
However, the pent-up demand in the European economies and the US will ensure that good workers are available for the taking when these companies are looking to further expand their international operations.
"Concerns have been raised whether increased offshore activities could lead to a shortage of ICT skills in the OECD countries in the long term," the report said, adding that such a shortage could reinforce the need for further offshoring as ICT skills shortage is known to be a driver for offshore outsourcing.
The report said that while no additional largescale layoffs have been announced by the top 10 IT services firms, employment levels will stay at almost the present levels until 2009-end.
IT services firms like IBM and Cap Gemini have announced slower hiring for 2009. So have Indian IT giants like Tata Consultancy Services and Infosys, which despite the crisis, still expect to grow in single digits in the third quarter of 2009-10.
The economic crisis has put IT service costs under pressure, but this may benefit outsourcing due to the increased internal cost-cutting and perceived benefits from more flexible external sourcing of IT and business process services.
The recent quarterly data on the outsourcing markets indicate that despite the number of outsourcing transactions still on the rise, revenue growth through IT and BPO will probably decline in 2009, due to the falling total contract values, the OECD report said.
However, the Asia-Pacific region has been performing well with TCV in the first half of 2009 increasing over 150 per cent over the first half of 2008.
The report suggested that higher TCVs in the APAC region could explain the optimism of the Indian tech service firms who have been changing their product-product mix to adapt to the changing market demands.
"Recruitments have already started to slow in the beginning of 2008 when new hiring by leading Indian service providers dropped 22 per cent in the first quarter of 2008 and by almost 50 per cent in the second quarter compared to the same period one year earlier. These lower recruitment rates are also reflected in the decreasing number of new offshore centres opened by IT services firms," the report added.
