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Thursday, May 05, 2005

IT Outsourcing Market

IT Outsourcing Vendors Will Reap $7 Billion in the Next Two Years - Research Report Now Available
The US Enterprise IT Outsourcing Market will grow 20%, from $46.3B to $55.5B in the next two years according to a new research report published by the InterUnity Group. While the On-shore market will grow by 5%, the Off-shore market will grow 11 times faster at 55%. A total of $7.8B will be shifted Off-shore increasing the Off-shore total to $21.7B in 2005. Enterprises will shift $930 Million of this growth to wholly owned Off-shore subsidiaries.

Concord, MA December 17 2003-The US Enterprise IT Outsourcing Market will grow 20%, from $46.3B to $55.5B in the next two years (Figure 1) according to a new research report published by the InterUnity Group. While the On-shore market will grow by 5%, the Off-shore market will grow 11 times faster at 55% (Figure 2). A total of $7.8B will be shifted Off-shore increasing the Off-shore total to $21.7B in 2005. Enterprises will shift $930 Million of this growth to wholly owned Off-shore subsidiaries.

Overall outsourcing growth will slow from 13% in 2004 to 7% in 2005. The slowdown in IT outsourcing growth is due to rapid market penetration and saturation.

The market for On-shore outsourcing from companies that currently outsource will decline by $3B from 2003 to 2005. This will be off-set by $4.6B growth in On-shore outsourcing from companies that do not currently outsource. Combined net growth will be 5% in the domestic outsourcing market.

The $21.7B growth in Off-shore outsourcing will come from enterprises currently outsourcing in US migrating Off-shore (40%) and from enterprises that do not currently outsource (60%) but plan to in the next 24 months.
Not all of the growth in the Off-shore outsourcing market is available to vendors. About 12% of Off-shore outsourcing will be performed through captive subsidiaries. This $1.7B segment in 2003 will grow to $2.7B by 2005.

Enterprises currently outsourcing have determined their Off-shore outsourcing strategy:
40% do not plan to go Off-shore, 7% are watching the market and 11% have Off-shore trials under way.
Two-thirds of companies doing Off-shore outsourcing have a proactive cost saving focus and one-third have a proactive strategic focus. The combined growth in Off-shore outsourcing from this segment is just over $3.1B over the next two years.

The largest opportunity for Off-shore outsourcing vendors comes from companies who have not yet done any IT outsourcing. The combined growth in Off-shore outsourcing from this segment is $4.7B over the next two years.
Since two thirds of Off-shore outsourcing is driven by a proactive cost reduction, vendors who can demonstrate significant cost savings to their prospects will win two thirds of the growth. The remainder will go to vendors who can align with prospects strategic enterprise needs for specific skill sets and industry expertise.

Conclusions
Vendors who clearly differentiate their offerings have an opportunity to capture market share. Strategies include:
Develop high-probability target customer profiles to focus sales and marketing resources on organizations that are developing outsourcing plans Demonstrate realizable benefits and cost savings Develop solutions that solve business problems specific to industry verticals and company size.

To be successful longer term, US based outsourcers must ramp up their Off-shore delivery capabilities, either through alliances or captive Off-shore subsidiaries, to maintain market share.
Definition of the US Enterprise Market
The US Enterprise Market includes the following industries:
Mining Construction Manufacturing Transportation, communications, and utilities Wholesale trade Retail trade Finance, insurance, and real estate Services
Government, Education, and non-profit sectors are excluded.
This article courtesy of [outsourcingconnections.com] You may freely reprint this article on your website or in your newsletter provided this courtesy notice and the author name and URL remain intact.