Outsourcing still on the up - thanks to the downturn

The difficult economic climate and continuing pressure on businesses to reduce costs will drive the IT outsourcing market this year, according to a report by outsourcing consultancy TPI.

Business process outsourcing (BPO) and offshore outsourcing to places like India, in particular, are boosting growth in a fairly flat services market. The number of BPO deals TPI has advised on for the first quarter of 2003 has more than doubled to 15 compared with the same period last year, while almost half now have an offshore component.

Duncan Aitchison, managing director at TPI, said: “2003 is going to be another good year for outsourcing. The traditional drivers for outsourcing are very strong. In addition most of our clients at least want to consider using low-cost high-quality offshore resources.”

Although many contracts are being signed for longer and for more money, traditional IT outsourcing deals have slowed as companies delay major financial decisions because of the economic and geopolitical uncertainty, claims the report.

An increasing number of service providers competing for deals combined with low-cost offshore options means businesses are able to get more competitive prices.

Aitchison said: “There has always been pretty heavy price competition in the outsourcing space because one of the primary drivers has always been and remains a cost reduction achievement.

“We’ve seen greater competition and awards going to a broader portfolio of service providers and that does make for a stronger price competitive market. It is an intensely competitive market today and that is having an impact on both new and existing relationships.”

CSC, EDS and IBM still maintain a firm grip on the outsourcing market but others are creeping up and there is an increasing number of suppliers, partly due to the rise in offshore activity, said Aitchison.

“HP, in particular, is making up some serious ground on the top three.”

The report is based on the company’s involvement in over 200 private sector deals worldwide over the last year, and shows financial services and manufacturing as the vertical sectors accounting for over two-thirds of outsourcing contracts it advised on.