Economy could break outsourcers, analysts say

Demand for IT services continues to grow in the depressed economy, but outsourcers still face financial challenges as the economy forces them to evolve their services and customers continue to seek reduced pricing and smaller deals.

[ See also: Outsourcing deals get small ]

Gartner this week at its Outsourcing and IT Services Summit in London discussed why service providers need to safeguard themselves against bankruptcy and shared the signs enterprise IT customers should watch for when selecting an outsourcer. Gartner recently reported that worldwide IT services revenue in 2008 totaled $806 billion, up 8.2% over $745 billion in 2007. IBM, HP and Accenture garnered the top three market-share positions and brought in $58.9 billion, $38.5 billion and $23.7 billion in 2008 revenue, respectively.

Yet that growth is significantly less than in previous years. For instance, while HP ranks second in terms of market share, due to its acquisition of EDS, the company grew its revenue by less than 2%. And India-based vendors increased revenue by 12.9% in U.S. dollars, but that is markedly less than the 39.8% growth the same vendors experienced in 2007.

“Vendors had six to eight months of ‘business as usual’ in 2008 and then approximately four months encountering the beginning of the global economic downturn, featuring widespread cost restrictions and cost reductions,” said Kathryn Hale, research vice president for Gartner’s worldwide IT services group, in a statement. “This is particularly surprising, because in economic hard times the potential cost savings from outsourcing usually keeps this market segment buoyant. However, apparently buyer hesitation to commit to long-term requirements of outsourcing agreements took precedence in 2008.”

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