The global IT outsourcing market grew by 13% over the year
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2021: Global IT Outsourcing Market Up 13%
The volume of the global market IT-outsourcing at the end of 2021 reached $360 billion, an increase of almost 13% compared to 2020. Such data at the end of April 2022 were published by Statista analysts.
According to them, the costs of such services in 2021 showed an accelerated recovery - before the positive dynamics for a long time were measured by less than 10%, and in 2020 there was even a decline - the coronavirus pandemic COVID-19 caught everyone by surprise, and at first many companies began to cut costs and abandon new projects, the study notes.
According to experts, the pandemic changed the world and made us realize the importance of digitalization in various industries. Home work, remote access to software and hardware, delivery services are at the heart of all the trends that the pandemic has forced, the basis is a strong technological component, and it is often provided by outsourcing.
The COVID-19 pandemic changed IT support requests. For obvious reasons, demand for infrastructure maintenance in offices has plummeted. But the need to maintain the work of employees on the "remote" - setting up the corresponding one, ON deploying "cloud" services, etc. Demand for creating virtual desktops, organizing document collaboration services, monitoring employee working hours at the remote site, and collecting data and preparing reports in a situation where employees are geographically scattered to different points has sharply increased.
Analysts believe that IT outsourcing costs will grow in all segments of this market and regions. The pandemic intensified the trend of digitalization, which used to be largely concentrated in industries such as health, finance, or human resources. Another problem that IT outsourcing can solve is the lack of technical specialists, which is a big problem in many developed countries. The same problem is worsening in India, which is considered one of the world leaders in the field of IT outsourcing. The problem of the Indian market is due to the fact that specialists there are becoming more narrowly directed and in demand.
According to analysts, the time when the project to implement an IT system, service or platform could stretch for a year or two has passed irretrievably. The new conditions require the prompt launch of products to the market, quick return on the project, minimizing the "test period."
This means that requirements for IT outsourcing companies are growing. Specialists from such companies should be ready to quickly deploy IT support - at the right time, in the right "place" and with a clearly calculated result.
According to researchers, IT outsourcing is switching to new technologies. Today's IT companies keep up with the times and seek to automate business processes. The most advanced already use, for example, robots, bots, artificial intelligence technologies and machine learning.
It is noted that despite some instability in the economy and social upheavals, 2019-2021 can be called successful for the IT outsourcing market, which continues to grow actively due to increasing business demand. However, this market has undergone some changes, including qualitative ones: new prospects and development paths have appeared, more non-standard design tasks have become, business interaction processes have changed, confidence in leading IT companies outsourcing technology services has increased.[1]
2019
How India became the main IT outsourcer and why now the failure has come
In December 2019, the Financial Times (FT) published an article on how India became the main IT outsourcer and why it has now failed.
At the turn of the century, Western technology companies worried that the "error of 2000" (Y2K, a problem due to the fact that developers released in ON the 20th century sometimes used two signs to represent the year in dates, for example, January 1, 1951 in such programs appeared as "01.01.51") could lead to a breakdown of computer systems. But the source of anxiety for one part of the world was a chance for a better life for another. Companies such as (Tata Consultancy Services the largest India IT outsourcer) started working by deploying teams of highly skilled and inexpensive workers to update the internal systems of multinational customers.
 | The problem of Y2K has become a defining moment, - said the executive director of TCSRajesh Gopinathan (Rajesh Gopinathan). - We have proved that we can solve problems at the local level, and where there is a local solution, there is a global one. |  |
By persuading foreign companies to outsource IT services to India, companies such as TCS, Infosys and Wipro helped the country join global sales chains. According to the Nasscom industry group, the annual income of the Indian IT industry is $170 billion, and 4 million people work in it. However, after the global financial crisis of 2008, customers became less willing to sign expensive contracts, reducing the income of outsourcers. According to Credit Suisse, the growth of the Indian IT outsourcing market decreased from 50% to 10% in 2019.
Globalization, in which IT companies flourished, suddenly flourished. The practice of sending Indian employees to richer markets on visas for local hiring has provoked a negative political reaction in the United States and other countries. Shifting interests caused by the trade war USA and, China as well as exiting Great Britain , EU prompted customers to hold funds previously outsourced. According to Nomura estimates, revenue growth of leading outsourcing companies will fall from 8.5% in 2019 to 7% and lower in 2020.
Such trends have caused internal clashes. So, Infosys employees accused managers of unfair business conduct when they tried to increase short-term financial performance. As a result, the company's shares fell in price, and the US Securities and Exchange Commission (SEC) launched its own investigation.
In addition, the market is trying to keep pace with technological advances. The growing number of companies offering cloud-based business software has provided customers with a cost-effective alternative to local data banks. In turn, automation has reduced the need for a large number of contractors for routine tasks. Hence the reduced demand for IT outsourcing providers.
By 2019, companies that sell ready-made cloud software for business and management, such as, began to flourish. Zoho The director of department of technological development of Zoho Rajendran Dandapani notes that cloud technology allow the companies to use applications of Zoho with the minimum investments. For example, Zoho offers customers full access to their products for 1 dollar per day.[2]
Notes
However, Indian IT giants such as TCS and Infosys believe that they can reverse these trends in their favor. They invest heavily in the development of AI-based "digital" devices to perform everyday tasks or deploy IoT-based technologies. These developments account for about a third of the revenue of both companies. In addition, the global IT industry remains fragmented enough to allow large players to gradually get rid of competitors.
Bangladesh cramps India by the number of programmers
The leader of IT outsourcing for 2019 is traditionally India, where there are many cheap programmers (albeit most of them have completed two-week courses).
But at this time, India is being crowded with new players, such as Bangladesh, which has become, thanks to the affordable Internet in cities and a large number of qualified specialists, already the second largest number of freelance employees in the world, it accounts for 16% of their total number. In this indicator, Bangladesh is still inferior to India (24%), but ahead of the United States (12%).
Russia ranks 12th in this market with a share of about 1%. This is stated in a study by the Oxford Internet Institute.
Every tenth of Bangladesh's 44 million young people is unemployed, and thousands of skilled professionals cannot find jobs. As a result, they receive an additional specialty in IT and outsource to a foreign company. According to ICT, of the 650,000 freelancers in Bangladesh, about 500,000 regularly work, earning more than $100 million a year.
How XaaS models are changing the future of outsourcing
By May 2019, there was a confrontation between traditional IT outsourcing and the unstoppable growth of all-as-a-service cloud models (anything-as-a-service, XaaS). Scalability, control and virtually unlimited flexibility XaaS attract more and more customers, undermining the basics of conventional outsourcing. But experts are confident that both approaches can coexist peacefully.
Thanks to XaaS, there has been a paradigm shift in the management of IT operations and infrastructure. The need for IT outsourcing teams in its current form is certainly decreasing, but this means that specialists will no longer have to perform small tasks. They can help organizations at a higher level - to innovate and use the experience of other enterprises from different fields, reports ComputerWeekly.
New approaches
Undoubtedly, IT leaders are striving to find the most effective outsourcing strategies in a changing IT environment while taking into account the benefits of all techniques. Transactions in the field of both traditional IT outsourcing and XaaS have increased significantly since 2016, although by different amounts - by 11% and 71%, respectively, by 2019.
Companies burdened with high costs for traditional IT services will certainly benefit from the transition to a cloud-based XaaS model. However, the true value of this transition will lie in the new technological opportunities provided to firms - because their savings will be reinvested in digital strategy initiatives.
Of course, pricing will remain the main part of any outsourcing offer, but the valuation should not be carried out on the cheapest offer, but on the ratio of the price and the overall quality of the service. For many IT organizations, we are no longer talking about efficiency, but about creating value-based services. IT is no longer a supporting feature, it is at the heart of all the company's products, services, and operations.
Aggressive competition
In 2018, only 15% of Forbes Global 2000 companies used outsourcing from one supplier, while in 2008 this share was 42%. As a result, competition among service providers is becoming increasingly aggressive, especially for new players offering relevant and unique outsourcing solutions, including XaaS services. Customers are increasingly turning to niche players who are creative in their solutions, especially in the field of SaaS and PaaS. In addition, suppliers need to first gain the trust of the client, just to offer the service is not enough.
XaaS models change many of the parameters established by traditional outsourcing, especially in the field of service differentiation. For example, cloud technologies have made it possible to distribute extensive off-the-shelf application services provided as PaaS. They automate many processes, simplify services by forcing standardization, and reduce costs.
Bad reputation
The problems of outsourcers such as Carillion, Interserve and Capita, widely covered in the media, contributed to the negative perception of the industry. Large IT outsourcing companies operate on a serious scale, so any, even minor, errors can jeopardize the business. Experts believe that many companies are focused on earnings and do not create long-term partnerships.
Given the mistakes of large outsourcing companies, their customers are trying not only to meet the needs of the business in the near future, but also to cover the full range of possible failures with a contract. Experts suggest that companies move from a simplified system of outsourcing at a daily rate, which can generate competitive relations between the client and the supplier, to a results-based approach. This will allow the client and the outsourcing company to work together to achieve a common goal and open the way for small innovative companies that cannot yet work with larger enterprises.
Appropriate application
IT outsourcing has long adapted to new technologies and competing services. However, there are a number of situations where XaaS services are more suitable for firms than traditional outsourcing models.
So, XaaS is ideal for interchangeable services. Hosting services are the most obvious examples, but XaaS can be used wherever standard services are provided, whether it is a database in the form of a PaaS (platform as a service), standard software in the form of a SaaS (software as a service) or business processes provided as a BPaaS (business process as a service).
It is important to automate simple tasks in a time of huge work shortage so that qualified employees can focus on more complex and value-oriented problems. For example, SaaS providers are responsible for updates, patches, and security by removing these tasks from the client. In areas such as marketing, this is of great importance as core staff do not have the knowledge and skills to perform such support work.
Traditional forms of outsourcing are transformed by cloud-based XaaS models and allow even small businesses to use once-expensive applications, including enterprise resource planning (ERP) and customer management. And this opens the way to the use of innovation even to the smallest companies.[1]
2018
Forrester Global Tech Industry Wheel
2015
EMEA Market
On August 5, 2015, the analytical consulting and company Information Services Group (ISG) announced the results of a study of the outsourcing market in the region EMEA according to the results of the second quarter and the first half of the year.
According to ISG estimates for April-June 2015, the outsourcing market in Europe, the Middle East and Africa grew by 23% year on year, reaching 2.2 billion euros. This is the total value of 169 outsourcing contracts concluded in the region. This number of transactions is a record for the quarter, in the second quarter of 2014 there were more than a third fewer, experts say.
Despite the high three-month results, in the first half of 2015, the outsourcing market in EMEA lagged behind the indicators of a year ago by 12% in monetary terms due to weak first calendar months. In January-June 2015, the number of transactions amounted to 293 against 322 a year earlier.
In their study, analysts noted a downward trend in the average size of orders in the field of outsourcing. So, in the second quarter of 2015, only two transactions worth from 80 million euros were concluded. In the first half of pre-crisis 2008, 199 outsourcing transactions generated revenue of 5.7 billion euros, and seven years later 293 contracts provided a total financial indicator of 4.1 billion euros, draws attention to the president of the northern European representative office ISG John Keppel.
It also follows from the report that according to the results of the first six months of 2015, the volume of the business process outsourcing market in EMEA remained at the level of the previous year and amounted to 900 million euros. The value of contracts in the field of IT outsourcing decreased by a quarter to 3.2 billion euros, while in previous years this segment showed a semi-annual volume of 4.3 billion euros.
Analysts call the most attractive outsourcing market the British, which in the second quarter of 2015 increased by 150% in money. In Eastern Europe, there was a slight increase both in monetary terms and in the number of contracts, but this subregion, by the standards of the whole EMEA, is characterized by a small sales of outsourcing services.[2]
The struggle for giant contracts between Hindus and Americans
On August 31, 2015, it became known that large IT outsourcers representing India and the United States are preparing to enter the fight for contracts worth billions of dollars.
According to experts from ISG (Integrated Services Group), which specializes in industrial outsourcing, consulting, business process reform and integrated integration, several major outsourcing agreements expire in 2016. At least six transactions are valued at more than $1 billion. Among the customers are the American retailer Gap and the British telecommunications corporation Vodafone.
In addition, in 2016, nine contracts for the provision of outsourcing services worth from $500 million will be completed. In particular, the multinational metallurgical company ArcelorMittal and the manufacturer of defense solutions BAE Systems participate in them. Experts do not specify the names of the performers of orders.
It is only known that IBM collaborates with Vodafone, and their $1 billion IT contract expires in 2016. At least four months before the onset of this year, companies began to conduct preliminary negotiations on the extension of the contract, The Economic Times reports, citing senior officials directly related to the deal.
"Every year the number of discontinued contracts increases, which is the result of certain market trends. We see a rapidly growing number of outsourcing transactions over a long time. At the same time, the average duration of agreements has decreased. Hence the increase in the rate of expiration of contracts, "said Dinesh Goel, partner and head of the Indian office of ISG.
According to analysts on August 31, 2015, in the next 36 months, the duration of outsourcing transactions with a total value of $250 billion will end. Although American giants IBM and HP are likely to maintain partnerships with current customers, Indian competitors continue to actively increase their market share.
According to ISG data for the first half of 2015, under the control of companies from India is 27.1% of the global outsourcing market, compared to 23.6% a year earlier. They were able to strengthen their position due to the failures of European competitors such as Capgemini and Atos, experts say.
Indian IT firms, such as Tata Consultancy Services and Infosys, target large contracts and use better pricing for customers to attract customers, and also offer them to work without large advance payments.[3]
2014
Global Market
On May 19, 2015, the analytical company International Data Corporation (IDC) announced some of the results of its research into the global IT outsourcing market. In their report, experts pointed to the strong positions of Indian vendors.
According to the results of 2014, analysts named IBM as the largest provider of IT outsourcing services, whose revenue in this market amounted to $13.8 billion. The top three also included CGI ($2.8 billion) and Cognizant ($2.7 billion). Following are Capgemini and Wipro with revenues of $2.6 billion and $2.3 billion, respectively.[4]
According to experts, in 2014, in almost one in four (23%) of the world's largest transaction for the provision of services for transferring information technology functions to a specialized firm, the executor was a company from India.
According to IDC analyst David Tapper, Indian outsourcers have shown their ability to compete successfully with market veterans in the fight for major deals due to the following factors: efficient use of the offshore business model and new methods of providing services (hosting, cloud services, etc.), active investment in expanding opportunities in such areas as analytics, social networks and mobile technologies, as well as strengthening local strategic resources.
The IDC report also said that in 2014, more than half of the total contract value (TCV) in the IT outsourcing market accounted for the five largest vendors, while a year earlier this share figure was measured at 43%. At the same time, the average value of the transaction continues to fall due to a decrease in the number of mega contracts (from $1 billion and higher).
EMEA Market
The beginning of the year for the EMEA outsourcing market was the best since 2010: both the number and volume of contracts in monetary terms in the 1st quarter of 2014 showed double-digit growth compared to the 1st quarter of 2013. This was announced in April 2014 by the American analytical agency Information Services Group (ISG).
According to analysts, the outsourcing market in EMEA in the 1st quarter of 2014 reached a volume of €2.4 billion, increasing by 10% quarter to quarter and by 29% - year to year. The number of contracts for services concluded per year increased by 21% to 165.
These growth indicators were supported by five large - over €80 million - contracts concluded in the 1st quarter, including in the UK, France and the Scandinavian countries, ISG analysts say. The company adds that EMEA, which accounts for more than half of global outsourcing activity, continues to be dominant in the global market.
The largest segment of this service market in EMEA remains IT outsourcing: it accounted for about €2 billion of the total market volume in the reporting period. Quarterly growth was 18%, and year-on-year growth was 33%.
Analysts note that at the same time, EMEA in the 1 quarter of 2014 year concluded 127 contracts for IT outsourcing services, which was the highest indicator in the region ever recorded for the quarter.
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