Gartner Updates Annual IT Spending Forecasts

The world's leading information technology research and advisory company Gartner has recently issued updated forecasts for the global IT spending. According to the new estimates, the worldwide IT spending will grow 7.1 percent this year to US$3.7 trillion, which is 1.5% higher than previously anticipated (Gartner’s previous forecast was of 5.6 percent). The growth is largely attributed to cloud migration and increased spending on software and IT services.

Below we also summarize the spending forecasts as to the IT segments:

• Hardware spending is expected to grow at a rate of 11.7 percent to $419 billion (this is slower than last year's growth rate of 12.1 percent).

• Spending in the software and IT services segments is largely driven by the growing adoption of public cloud services and software-as-a-service. On a percentage basis, spending on IT services will more than double, growing by 6.6 percent to reach $846 billion. Last year, spending on IT services totaled $793 billion, growing only by 3.1 percent. Software spending is expected to grow by 9.5 percent year-over-year to $268 billion, Gartner said.

• Spending on telecommunications will increase to $2.1 trillion, growing year-over-year by 6.9 percent.

Source: Computerworld

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Cloud On Top of Outsourcing Demand in 2011

According to a recent survey conducted by the global sourcing advisory firm EquaTerra, cloud computing will largely impact the IT services marketplace in 2011. Cloud based services will dominate the market and will attract more and more contracts from growing Small to Medium Business.

Alongside growth and importance of cloud computing, other key findings of the survey include the waning demand for outsourcing in its traditional, legacy form with a focus on generic, horizontal IT and the bulk of mega-deals. IT outsourcing will continue to evolve and diversify in a more fragmented manner. Established outsourcing models are going to be replaced by more flexible ones with the following characteristics:

• Smaller in scale and scope
• Larger efforts and ambitions, pursued more incrementally
• Greater focus on more strategic activities and specific vertical industry services
• Greater focus on functional areas such as legal, research and development, and real estate and facilities management
• Greater standardization of offerings and platforms with a nascent but growing focus on cloud computing delivery models
• More realistic and tighter business cases

The business and IT service market has matured over the past five years and the outsourcing buyers and service providers with inveterate mindsets and operating models will find it challenging and even threatening to survive amid the current market changes.

Source: EquaTerra

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European Trends in ITO for 2011 (Part II)

As promised in the previous post, here comes the continuation on the development tendencies of the European ITO market in 2011. Judging from the perspective of ITO services providers, the following trends and changes are anticipated:

It is expected that an increased demand to adopt outsourced IT services will come from the SME segment. This will force service providers to anticipate smaller and, thus, less profitable deals. To ensure more significant profits in the long term, IT providers will have to improve their adding-value service offering, cloud capabilities and modify current engagement models to help SMEs grow their business and, as a result, to benefit from their clients' growth.

Secondly, innovative outsourcing engagement models are anticipated to hit the mainstream. Outsourcing entire product or application development processes, the companies will demand from their potential partners transparent cost structures, no hidden agenda, options to easily scale up or down in compliance with the current business situation, etc., which makes service providers diversify/innovate their engagement offerings.

And the third trend reveals itself in the breakdown of the client-silo approach. As businesses aim to learn more best practices by sharing knowledge with their peers across different industries, IT providers will be challenged to transform their client-silo mindsets and encourage collaboration between clients from various industry domains.

All in all, 2011 promises a prosperous but at the same time challenging year for European ITO with focus on agility, processes optimization, transparency of transactions and payments, innovation, and cloud. But we’re looking with optimism into the new 2011!

Source: EzineMark

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Outsourcing Market is Ramping Up Challenging Established Locations

A newly released study by Duke University's Offshoring Research Network and PricewaterhouseCoopers has revealed that the long established outsourcing locations India and North America are steadily surrendering in the space of outsourced software development. Eastern Europe, Latin America, and Asia, on the contrary, are picking up steam and emerge as strong global rivals. The challenging service areas are named contact centers, business process outsourcing, and information technology outsourcing. The results are based on a global survey conducted among 514 outsourcing service providers in 50 countries.

The survey’s findings clearly indicate the growing potential of the outsourcing market with offshoring continues constituting its biggest part – the market continues to expand globally driving competition and more cost-effective services. "Growing competition has transformed the outsourcing industry into a global race for market share," PricewaterhouseCoopers’ Managing Director Charles Aird noted in his statement.

Other facts of interest according to the survey include:

• A large number of service providers expect to begin new software development and IT-service contracts over the next several years. Overall, 62 percent of service providers said they plan to expand the scale of their existing offerings.

• The survey also found that the economic crisis of 2009 reemphasized the importance of cost savings and efficiency improvement as the top strategic reasons for outsourcing, followed by access to qualified personnel.

Source: Outsourcing-Russia.com

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ITO Market Keeps Up Growth in the Third Quarter: Everest

Everest Group, a global consulting and research firm, has recently issued its Q3 Report on the global outsourcing market. The findings reflect certain improvement of the IT services (ITO) market compared to the previous quarter, while business process outsourcing (BPO) activity marginally decreased. The report mentions, that ITO activity was largely led by five "mega deals", each having contract values over $1 billion.

Other key highlights of the report include:

• North America continued to account for about one-third of total transactions; North America and the United Kingdom contributed toward about one-half of all deals. Notable activity was reported from select geographies, including Spain, Germany and India.

• The banking, financial services and insurance (BFSI) and manufacturing, distribution, retail (MDR) verticals continued to dominate transaction signings, with some high-value contracts also reported in the public sector.

• In addition to the five ITO mega deals, 60 large deals with contract values exceeding $50 million also were recorded during the quarter.

• Offshore activity saw 34 delivery centers established in the second quarter, the majority in Asia followed by Eastern Europe and Latin America.

Source: Global Services

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Nordic ITO buyers’ satisfaction fuels market growth

Apart from Central/Eastern Europe which is one of the world’s most tempting ITO spots, other European regions equally show positive tendencies and expand their ITO market. To get an insight into the current state of affairs of the Nordics outsourcing market let’s turn to EquaTerra’s recently released 2010 Nordics Service Provider Performance and Satisfaction study that covers the Information Technology Outsourcing (ITO) and BPO markets, usage and service provider performance.

The sweep of the survey is impressive: the 2010 Nordic study investigated over 440 outsourcing contracts held by over 220 of the top IT spending organizations in the Nordic region. The total annual value of the contracts included in this study is over €3 billion, accounting for around two-thirds of the total Nordic outsourcing market in terms of annual contract value. All commercial sectors are represented in the study.

The 2010 results reflect positive tendencies: the ITO market is growing and the buyers are considerably satisfied with the delivered services. In more detail, you can see the exact percentage ratios summarized below:

• 84% of all Nordic ITO buyers polled indicated they will continue to outsource at the same or higher levels going forward.

• 72% of Nordic ITO buyers, up 8% compared to last year, indicated that outsourcing contributes significantly or moderately positively to meeting the primary drivers and benefits sought from their efforts.

• 55% of respondents are very satisfied or satisfied with their ITO efforts, and 29 % are somewhat satisfied. Only 6% are very or somewhat dissatisfied.

• 84% of all Nordic ITO buyers are satisfied with their outsourcing service providers in terms of general satisfaction, and 91 % of buyers would recommend their service provider(s) to another outsourcing buyer organization.

The use of offshore outsourcing in the Nordics has significantly increased over the past year. 52 percent of Nordic ITO buyers are currently making use of offshore outsourcing, up 11 percent compared to last year. This complies with the global tendencies of greater use of nearshore resources with similar language skills, cultural proximity, and closer time zones.

Source: EquaTerra

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IT Services: Russia Excels. Part 2

According to a recent study by French analytical company Pierre Audoin Consultants (PAC), the growth rate of Russian IT services market is a bit lower compared to IDC calculations and it wasn’t half as high as in 2006 and increased by 18% only (vs 47.2% according to IDC). However, PAC’s estimation of IT services market volume equals to that by IDC: approximately 3 billion euro or 4.4 billion dollars.

Nevertheless, PAC admits that even with 18% growth rate in 2007 Russian IT services market is the fastest growing in the world. Its growth surpasses IT services market growth rate in Western (6.6% in 2007) and even Eastern Europe (15% in 2007).

Local integrators who participated in IDC survey don’t question its correctness. “We share the opinion that our market shows robust growth”, assured Sergey Matsotsky, Chairman of the Board and General Director of the IBS Company. "Outrunning growth of this segment [IT services] is obvious”, confirmed his opinion Andrey Ageev, Technoserve A/S marketing department manager. He claims that the market will continue to grow at the rate of 20% annually in 3-5 years to come, especially taking into account underdevelopment of IT services sector in the Russian Federation compared to Western IT markets.

Sergey Matsotsky and CNews confirmed the possibility of IT services market growth: “IT services comprise more than 50% in the mature market, whereas lion's share of sales in emerging markets is hardware. This world experience shows that Russian IT services market has “the whole life ahead of it”. Although growth rate can decrease a bit in the short-term prospects due to current global financial fluctuations. Still, in the long-term plan the market can develop quite dynamically at the rate of 25-30% annually. Obviously, Russian economy demand for effective IT which secures competitiveness will increase”.

IDC forecasts that in 2009 IT services in Russia will reach 8 billion dollars and this segment will comprise 26%.

Source: CNews

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Eastern Europe Came to Stay

In 2007, Europe saw a considerable increase in their outsourcing activities. Of about $12 billion in mega deals awarded globally in 2007, over two third (68 percent) were closed in Europe. The demand for offshoring among Western European countries rose by 50 percent from 2004 to 2006, with Eastern Europe being a favorite destination. McKinsey estimates that offshoring operations in Eastern Europe could triple, to more than 130,000 jobs, from 2005 to the end of 2008. Dell, IBM and Morgan Stanley in recent times have outsourced their operations to Eastern Europe. At present, Eastern Europe’s outsourcing business is approximately $2 billion, which is still not a big fraction of about $386 billion global market. However, according to Gartner Dataquest, the growth in Eastern Europe would exceed growth in the rest of the market over the next four years; the outsourcing business is expected to expand by nearly 30 percent in Eastern Europe by 2010, as compared to 25 percent for the global market. Eastern Europe’s software industry grew by 12.53 percent in 2006, and is expected to grow at a Compounded Annual Growth Rate (CAGR) of 10.87 percent until 2008.

Many CEE countries have already come up as compelling alternatives to traditionally established destinations for offshore software outsourcing. Poland, Hungary, and the Czech Republic have shown bright prospects in the IT outsourcing market segment, newer destinations in CEE, including Romania and Bulgaria, are upcoming too.

It is forecast that 2008 will be the biggest year for the expansion of IT-service delivery and outsourcing capabilities beyond India. This has already helped to open new markets in regions like CEE, which can offer long-term benefits to its clients. According to A.T. Kearney’s Global Services Location Index study, CEE countries continue to be popular among European companies that are seeking alternative locations for their IT and business-process outsourcing services. And it’s no wonder as this region offers an educated, multilingual labor force, talented professionals who are trained in key technologies, reliable IT infrastructure, moderate to low cost of labor and access to the greater EU. Its secondary educational system and technology-oriented higher education has made it a strong contender for software development, R&D and engineering services.

Source: Global Services magazine

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Security Essential in IT Outsourcing

Many companies ignore the security problems associated with IT outsourcing until it is too late, it has been claimed.

According to the Information Security Forum (ISF), IT outsourcing and offshoring are attractive because of their potential to cut costs and increase speed to market.

Simone Seth, author of a new report published by the group, said the long term success of the outsourcing project can be damaged by a lack of security expertise or poorly identified information risk.

"Failure to involve information risk managers at the start of a project and through its lifecycle increases the enterprise's exposure to risk," she continued, adding that this could constitute data theft, information leakage or disputes that may arise from questions of ownership of intellectual property.

Earlier this week, the Irish Sunday Business Post reported comments made by the PFH Technology Group, which claimed businesses of all sizes are now choosing to outsource their IT operations and requiring different approaches from their service providers.

Source:ihotdesk

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The Old World to set the pace of outsourcing

Europe took the lead over Americas and now is the world’s largest it outsourcing market, both in the number of major contracts signed and in their total value.

In the past year European share of the IT outsourcing market showed impressive growth and even left both Americas far behind. While American companies signed 194 contracts, worth €21.3bn (£16bn), Europe settled 220 major contracts for €32.7bn (£24.5bn).
According to Duncan Aitchison, TPI Europe president, the reason behind such a leap is the rising popularity of the outsourcing model in the countries, traditionally avoiding it.

Apart from the well-established outsourcing market in the United Kingdom, Northern European countries like Germany, Netherlands, Switzerland, Sweden and France enhanced their outsourcing activity lately. Compared to 2006 rates, the number of contracts in Europe has surged by 31%, while the worldwide increase amounts to mere 13%.

The global market keeps growing. The last quarter of 2007 brought contracts for more than €12bn (£9bn), and proved to be the strongest one in total value over 11 years. According to Aitchison, the similar market growth is expected in Europe and Asia-Pacific region. According to Mark Kobayashi-Hillary, director of the National Outsourcing Association, the main reason for such outsourcing boost is the global credit crisis, which is illustrated by the companies’ desire to save money in the first turn rather than to build strategic partnerships.

All these seem to facilitate nearshoring and multisourcing trends. IT buyers from Western Europe are quite likely to find providers from Eastern Europe the most convenient partners due to their proximity, both cultural and geographical, let alone their renowned expertise in complex software engineering. With strong resource pool, stability in terms of employee retention and market position, such companies as EPAM Systems, the largest IT outsourcing services provider with development centers across Central/Eastern Europe and Russia, gather momentum in setting the highest delivery standards.

Source: Computing

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