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IT Offshoring Losing Pace

by: Admin

Sunday, August 15, 2010 |

Offshore Outsourcing Losing Traction?

A new survey by Everest Research indicates that global IT outsourcing and offshoring may not quite be at full recovery yet.  The study showed that after a growth spike in the fourth quarter, the pace of global outsourcing has been slipping.

The quarterly survey by Everest Research uncovered a contraction in the value of new IT outsourcing and offshoring contracts, having returned to their normal pace in June after experiencing a growth peak in the previous quarter. The total value of new IT outsourcing deals is down from $2.8 billion in the March quarter to $1.5 billion in June. 

Despite performing weaker than expected, analysts believe that the signing of new deals is perceived as a positive forecast to revenue growth in the remaining quarters. Last quarter’s performance saw some of the highest rates in terms of new contract addition which was followed by a healthy performance in June.

The survey reveals a declining value for purely IT contracts having gone down 46%. A 25% decline can be seen even when comparing this year’s performance to the same quarter last year in which the recession was reaching its heights.  At the time, the value of global IT outsourcing and offshoring contracts was at $2 billion and dipped to just $1.3 billion in the December quarter.

Although India accounts for 60-65% of the global IT outsourcing market share, the study indicates that the decline was owed to a large extent to the depreciation of European IT and BPO (business process outsourcing) deals. The total value fell 41% during the June quarter compared to the same period last year.  Rounding the top 8 firms with the most number of deals signed last quarter are Infosys, TCS, and Wipro.

“IT outsourcing is more dependent on discretionary spending by companies; for example, to expand their operations; but BPO tends to be more basic,” commented Everest Group vice president Amneet Singh. He further explained that the growth in BPO outsourcing has become directly affected by the need for recession-impacted companies to cut costs throughout the last two years.

“If you want to show an immediate reduction in costs, in two quarters or so, it is easier to do it by outsourcing business processes,” Singh said.

Global outsourcing and offshoring in June saw a third consecutive decline in the size of new contracts. BPO contracts slipped to an average of $3 billion between April and June compared to about $4 billion in new IT contracts in December.

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