Decrease in IT outsourcing market reaches a ten-year minimum level
Global IT Outsourcing Market Hits Decade Low in 2012
The global IT outsourcing market experienced a significant downturn in 2012, according to industry reports. The total contract value (TCV) for the year reached a decade low of $96.8 billion, marking a shift from the rapid expansion seen in the previous decade.
The slowdown in growth was primarily due to a combination of factors, including market maturation, reduced aggressive cost-cutting by clients, and evolving vendor-client relationships. Clients began to focus more on value and innovation rather than just price reduction, impacting the growth of traditional outsourcing.
During the fourth quarter of 2012, the market showed an especially dismal performance. The TCV for the quarter saw a 34% year-on-year decline, reaching $20.8 billion. The number of deals signed during the quarter dropped by 17%, and no megadeals (worth $1 billion or more) were signed.
The weak IT services spending was observed in both the public and private sectors. Public sector activity has reduced due to pressure to cut public spending and a general reluctance to get involved in large-scale IT services deals. Hewlett-Packard wrote down the value of its IT services division by over $8 billion due to poor performances.
On the other hand, Accenture, an IT outsourcing and consultancy provider, managed to buck the trend, with a 9% increase in sales during its 2012 financial year, up to $27.9 billion. However, other major IT outsourcers like IBM struggled to maintain growth for their outsourcing business.
The Eurozone crisis has had a particularly significant impact on enterprise commitment to major projects, contributing to the overall weakness of the IT services market. The total number of IT services contracts signed during the year was 1,427, the lowest since 2002. The total value of contracts signed by private sector organizations during the year was the lowest since 1998.
Indian IT providers, who traditionally played a significant role in the global IT outsourcing market, have also shown signs of a slowdown. The number of deals signed in 2012 was not specified, but it is clear that the market is facing challenging times.
As the IT outsourcing market continues to evolve, vendors will need to adjust from volume-based deals to partnerships focused on outcomes and strategic advantage. Clients will be more cautious and selective, slowing large outsourcing deals. The market is expected to continue showing weakness, but those who can adapt to the changing landscape may find opportunities for growth.
- The downturn in the global IT outsourcing market, as evident in 2012, extended to various sectors of the industry, including technology and finance, as both public and private sectors showed weak IT services spending.
- Amidst the shifting landscape of the IT outsourcing market, characterized by a decline in large outsourcing deals and a focus on value and innovation, some companies, like Accenture, managed to buck the trend by emphasizing partnerships centered on outcomes and strategic advantage, rather than just price reduction.
