Global IT outsourcing deals rocket up to $163bn

The IT outsourcing market grew by 37 per cent in 2004, but was characterised by a larger number of smaller deals and greater competition among vendors, according to new statistics.

The IT Services Contract Tracker by analyst Datamonitor and outsourcing advisers Everest Group found the combined value of 2004 deals globally rose by 37 per cent to $163bn.

Datamonitor measures all new outsourcing, systems integration and consultation deals worth over $1m and tracked 1,814 outsourcing deals in 2004 - up 4.4 per cent over 2003.

IBM Global Services remains the market leader with a 10.7 per cent share, but the research found increased competition among some newer IT services vendors. The top ten vendors accounted for only 57 per cent of the total market in 2004 compared to 68 per cent in 2003.

Megadeals also declined with a corresponding rise in the number of mid-size outsourcing contracts. The number of multi-billion dollar deals dropped from 29 in 2003 to 25 in 2004.

Datamonitor said this shows clients are increasingly adopting selective sourcing models where they outsource specific IT and back office functions to specialist outsourcing vendors rather than hand over their entire IT department to a single supplier.

Michel Janssen, president of supplier solutions at Everest Group said the traditional 'big six' IT outsourcing firms are coming under pressure from smaller players and the offshore outsourcing companies.

"We are seeing increasing competition from a variety of firms like ACS, Hewitt, and Perot that are beginning to win deals that were traditionally won by those in the top ten vendors. Looking further down the road, we are also seeing the top tier offshore vendors such as TCS, Infosys, and Wipro compete, and win, in head-to-head deals against top tier Western vendors - and the wins are increasingly larger in size," he said in the report.

The results tally with the findings of another report last week from outsourcing advisers TPI, which said the total value of the outsourcing market hit a €58bn record high in 2004 despite the 'big six' losing their stranglehold on the market.