Offshoring still "small beans" despite outsourcing boom

Offshoring remains "small beans" in a booming global outsourcing market despite the recent hysteria around firms moving IT services and jobs to India, according to new figures from analyst Datamonitor.

Datamonitor's IT Services Contract Tracker records all global deals over $1m that are publicly disclosed and the latest report shows that the value and number of IT contracts rose by almost 50 per cent to $119bn in 2003.

The appetite for outsourcing mega-deals also increased, with the number of deals over $100m rising 49 per cent to 244 and those in excess of $1bn more than doubling to 29. The UK's Inland Revenue topped the chart for the biggest contract award of the year when it dumped EDS for Cap Gemini Ernst & Young in a $5.1bn, ten-year agreement.

Nick Mayes, managing analyst for the global computing services division at Datamonitor, told silicon.com the government sector was a major driver but that strong growth was evident across the board.

"We had a bumper fourth quarter, which slightly skewed the figures, but it was a particularly strong year," he said. "What we saw in the commercial sector was the culmination of two years of planning to drive down costs. The big projects in the commercial sector are driven by cost reduction but the public sector is driven by modernisation."

Offshore outsourcing grew by 890 per cent to $1.66bn but the report found that just 1.4 per cent of deals in 2003 involved offshore delivery.

"It is still relatively small beans," said Mayes. "But one thing to look out for in 2004 that may not be that visible is the likes of IBM and EDS building up their offshore operations."

One surprising area of decline was the banking sector, which saw a 14 per cent drop in the total value of contract awards to $13bn. Mayes said that was skewed slightly by several major billion-dollar financial services IT deals, including ABN Amro and the Bank of America, in 2002.

Mayes predicted that 2004 has "a lot more potential for megadeals", with contract awards pending for the UK's Ministry of Defence and the US Department of Defense and Department of Homeland Security.