The economic slowdown in North America and Europe has made 40 per cent of the large businesses cut their overall IT budgets, but companies were expanding their services spending by taking more activist sourcing approach to governance, according to survey by technology research firm Forrester.

Forrester surveyed nearly 950 senior managers across North America and Europe on their IT services spending and overall services strategies and priorities. While 43 per cent have already cut their overall IT budgets in 2008 in reaction to a slowing global economy, 24 per cent have put their discretionary spending on hold. About 28 per cent said the economy has had no impact on their IT budgets.

The Indian IT vendors, who earn over 60 per cent of their revenues from the US, have been facing challenging times as a result of uncertainty in the largest IT services market. The National Association of Software and Services Companies (Nasscom) has forecast that the country’s IT and BPO exports would grow at a slower pace at 25 per cent in the current fiscal, as compared to 29per cent growth witnessed last year.

“This is not an across-the-board spending slowdown. The impact of the economy on IT budgets varies widely by industry and geography,” said Mr John McCarthy, Vice-President and principal analyst with Forrester Research. The survey showed that IT departments in financial services were hit hardest with 49 per cent respondents in the sector having cut their budgets.

Further, IT departments of North American firms have been affected more by the economy than their European counterparts. About 49 per cent of the North American firms have cut their IT budgets compared to 31 per cent in Europe.

“The slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly,” McCarthy said.

Forrester said the demand for services hold steady with 45 per cent of those surveyed planning to increase their use of applications outsourcing and 43 per cent of them moving work offshore. The survey showed that only 9 per cent of respondents used offshore resources, while 14 per cent planned to ramp-up use, 19 per cent piloting and 22 per cent not using but actively tracking developments. While those not sending work overseas, a majority cited the questionable quality of the work done offshore.