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Article by Mohan Babu

US economy bottoms out

With the economy in a critical stage, it is hard to envisage a return back to the glorious days of 1990s in the immediate future, writes Mohan Babu

Currently, along with the war in Afghanisthan, one of the most talked-about topics in the US is the state of the economy. First the bad news — it has become official that the economy is in recession. Next the good news: according to the National Bureau of Economic Research (NBER), a panel of economists considered to be the arbiters of the nation’s boom and bust cycles, the nation has been in recession since early March. What this means is that we have already started seeing the economy bottoming out. The day this was announced, November 26, the stock market, instead of going down, reacted buoyantly by moving up in the hope that the worst may be behind us.

End in sight?
One of the pressing questions in everyone’s mind is that when the recession is going to end? Though the NBER doesn’t forecast a bottom for the current downturn, economists say the recession could likely last into next year. How deep and how far is anyone’s guess, but people are bracing themselves for anything, hoping the worst is behind them. Of course, by all indications, we might have already seen the bottom, especially with the news of layoff’s and joblessness tapering off. As I mentioned in an earlier article, even Indians in the US were not spared during the current downturn. Some lost jobs and had to return back to India. It has been a learning experience for most of us.

There is indeed some indication that there is light at the end of the tunnel, albeit a fuzzy and bleak light. There are still unanswered questions of what, when and how we will see the trend reverse and I will not even hazard a guess. But one thing is certain; we are seeing the economic climate thaw. Most corporate executives are already taking the current economic woes in their stride. Companies, reconciled to the current economic conditions, have already started budgeting for the next year. The budgets are extremely conservative, but are giving an indication that the worst may be behind us.

Opportunities in disguise
It is a fact that most non-essential business spending has come to a halt. Along with business spending, IT systems and projects have also come to a grinding halt. Most companies across the US are only spending on projects that are ‘critical’ to the operations, shelving non-essential projects. The nice-to-have systems and technical upgrades are out of the door. Needless to say, overtime and spending on R&D is being discouraged. Interestingly, some smaller companies, especially those with cash reserves, are bargain hunting, using the down economy as an excuse to hire DBA’s, systems analysts and web-programmers cheaply. They are rebuilding their antiquated systems and streamlining the operations.

There is a pent-up demand, especially in companies with large IT houses, for new system and software upgrades and projects that can enhance and add-value. However, that pent-up demand is being controlled and will find an outlet the moment the economy turns north. One or two quarters of profits and growth will see a renewed focus on IT spending.

Will things get back to normal?
By reading this far, if you are visualising a rebound, back to what it was in the late nineties, you must be kidding yourself. The growth we saw in the late nineties had a number of things going for it. It was the period when the fear of Y2K reached hysterical levels, prompting governments (state and federal) and Fortune 500 companies to spend enormous amounts of money in Y2K readiness. This was also a period that saw the and Internet mania sweep across the country (and the world). Instead of trying to understand the real value that these technologies afforded, companies perpetuated a gold rush by spending billions of dollars in trying to compete with their Internet cousins. Without these two factors, it is hard to envisage a return back to the glorious days of 1990s.

However, this does not undermine the need for IT systems and solutions that can add true business value and solve the needs of business users. There will be a renewed demand for world-class systems and software that can solve and show business leaders a real Return on Investment (ROI)

For Indians and Indian companies, this latent demand translates to opportunities waiting to happen. A number of large Indian software houses are already starting to consolidate their operations, focusing on building on their strengths. Now is the time for Indian companies to invest in some world-class PR (public relations) and marketing. If we get the message out that India is still a top-notch supplier of software and services, which can be done cheaply, we will kill two birds — get the word out on the street (in the US) and position ourselves for a rebound. Companies with cash reserves should start building goodwill with their down-and-out clients in the US by reducing margins and even working on a cost-basis. Their clients and customers will remember this gesture, especially as the economic growth and the latent projects become a reality.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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