2007 Outsourcing Trends

As outsourcing professionals we track multiple sources and research results of various organizations like Gartner, IAOP, IDC, neoIT, the Outsourcing Institute, TPI, DiamondCluster, etc. Here is a short summary of current outsourcing trends with no discussion of reasons and consequences of these trends.

1) There is an increasing trend toward multi-sourcing. Multi-sourcing means engaging multiple service providers across different geographies and business functions.

2) The market share of Big 6 (Accenture, ACS, CSC, EDS, HP, and IBM) is decreasing. This is a strong trend since 2002. More and more service providers compete for more deals resulting in remarkable increase in service provider diversity, specialization and geographies.

3) In 2006, both total contract value and number of mega-deals (>$1B) were down 8-10% in the American market, with some growth in European and Asian markets, resulting in about flat total number of mega-deals with some decrease in total contract value.

4) Overall, European and Asian outsourcing markets are expected to grow faster than American.

5) Outsourcing contracts tend to have shorter durations with more flexible contracting relationships.

6) Mid-market outsourcing, as more and more mid-size companies adopt outsourcing concepts, grows faster then the Global 2000.

7) In 2006, BPO market did not grow. Additionally, there is a trend toward fewer multi-process deals in favor of single process and even a particular industry specialized single process.

8) Main outsourcing drivers, in descending order, are: Cost Reduction; Focus of internal staff on core business and strategic projects; Decrease time to market/Expedite launch of new technologies; Standardization of technology across enterprise; Expertise shortage; Risk mitigation of heavy infrastructure investments and/or staff retraining.

9) Main CIO priorities, and respectively areas where service providers can help, are: Delivering projects that enable business growth; Aligning business and IT strategies; Building business skills in the IT department; Demonstrating the business value of IT; Attracting, developing and retaining IT personnel; Applying metrics; Improving the quality; Developing flexible technology infrastructure; Improving IT governance.

10) Areas of IT where many organizations will need help during next two years are: Legacy Modernization; ERP Implementation; Process Improvement & Certification; Application Quality; Shared Services Development; Consolidation of ESPs; Creation of PMO; ASP/SaaS Adoption; Portfolio Rationalization.

11) During 2001-2006, rates for outsourced IT services like help desk, customer support, infrastructure management decreased on 20-40% due to decrease in cost of hardware, communication channels, etc. Application development rates slightly increased.

12) Driven by both internal cost increases and growing demand, the further increase of offshore outsourcing rates should be expected. Annual growth of salaries in 2007-2010 is predicted to be about 6% in Asia and Latin America (with about 9% in India and 5% in Mexico) and about 5% in EMEA (with about 7% in Russia.)

13) Satisfaction level with outsourcing providers measured by Service quality, Performance, and Price of services on the scale of 1 (not at all satisfied) to 7 (very satisfied) is about 4.5. To improve the satisfaction, both buyers and sellers better and better understand that partnering relationships shall be established and managed during the entire contract duration. Respectively, there is a move from "sign and forget" toward co-management and building organizational trust.

14) India remains the main offshore outsourcing destination, especially for the United States companies (75-80% of US outsourcing buyers outsource to India) but growth is slowing down. China is widely anticipated to be “next” destination but real growth of outsourcing to China is far less than expectations. The fastest growth of outsourcing over next 3-5 years is expected in Eastern Europe and Latin America.

15) There is a strong consolidation trend in the outsourcing industry. In 2006, M&A activity was up on 24%.

About Intetics Co.

Intetics Co. is a leading global software development company focused on custom application development, software testing, web system design and offshore staff augmentation services. Since 1995 Intetics has completed over 500 projects for about 150 customers in more than 30 countries. The company has two ISO 9001 certified development centers in Eastern Europe. The company's innovation and growth achievements are reflected in winning prestigious Deloitte Technology Fast 50 award two years in a row. CMP-CyberMedia Global Services magazine placed Intetics on their 2007 list of the World's 100 Most Innovative Service Providers and ranked the second in the Top 5 Global Emerging Service Providers. Intetics also is listed in the Global Outsourcing Top 100 companies by IAOP and Fortune.

For more information, visit www.intetics.com