Decline in IT outsourcing market challenges service providers

By Stephanie Overby, CIO |  IT Management, outsourcing

Providers seeking new contracts are eyeing emerging markets. The total value of outsourcing deals signed by U.S. companies in 2012 dipped below its five-year average of $7.05 billion to $6.77 billion, while companies in the Asia Pacific region signed a record $3.1 billion in contracts.

Large customers in India and China entering the IT outsourcing market for the first time fueled the activity, says Keppel. "Together, China and India had 39 companies in the Forbes Global 500 in 2012, up from just 16 five years ago."

[ Related: Is IT Outsourcing a Dying Concept? ]

They're also putting together offerings that stitch together mobility, analytics, social media, and cloud computing.

"We just don't see any one of these technologies moving the annual contract value needle on its own. There simply aren't a lot of $250 million cloud services contracts filling up industry pipelines, and we don't really anticipate that changing anytime soon," says Keppel. "And as these trends converge, we believe clients will seek to use more collaborative approaches to identify service provider solutions that can help them achieve a transformative effect."

According to KPMG's quarterly report, there "is an ongoing bifurcation between leaders and laggards in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics."

But, says Keppel, "to win this kind of business, service providers will need to rethink their approach to the market and their relationships with clients."

Infrastructure-as-a-service could also be a bigger opportunity for outsourcing providers in 2013. While 57% of outsourcing customers surveyed by Everest Group said they already had a software-as-a-service model in place, just 32% had existing cloud infrastructure with 48% indicating that they had plans to implement it.

Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.

Read more about offshoring in CIO's Offshoring Drilldown.


Originally published on CIO |  Click here to read the original story.
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