Companies' outsourcing spend to increase

Majority of firms expect to spend the same or even more on external service providers when economy returns, according to recent survey.
Written by Liau Yun Qing, Contributor

A recent Gartner survey found that 85 percent of organizations anticipate their spending with external service providers (ESP) to increase or stay the same when the economy returns, pointing to a return to growth in the IT services market in 2010.

In a Monday report, the research firm said 76 percent of organizations surveyed were optimistic about the economic recovery time frame and had indicated in their business planning cycles that there were seeing recovery as early as 2009 or occurring in 2010.

The survey of 1,073 respondents was conducted from November to December 2009 across the US, Europe and Asia-Pacific regions to determine how economic changes have impacted IT services buying and decision-making. Respondents were taken from a range of company sizes and vertical markets, excluding government organizations.

Allie Young, vice president and distinguished analyst at Gartner, said the recession was clearly felt by organizations who reported increased contract renegotiations with ESPs as well as increased use of offshore services.

Organizations also saw greater influence from the chief finance officer (CFO) and procurement over IT services spending, she said.

The global recession in 2008 through 2009 was significant, and in some cases radically changed a vertical market or a company's competitive position, said Young. Buyers of services were impacted, making them more cautious when it came to IT spending.

However, Young noted that the majority of organizations will increasingly turn to ESPs to support IT strategies execution with the economic recovery. The results of the survey showed an overall positive market acceptance of ESPs, though regional and vertical differences will apply and must be factored into client needs.

Gartner said the overall mean average for spending with ESPs is predicted to increase to 7.13 percent. However, there is a great degree of variation in different countries. Indian users, for example, expect an increased spending of 17.4 percent, while Japanese users foresee a decrease of 1.5 percent.

Despite the positive signs of a return to growth, Young said providers will remain in a hypercompetitive IT services environment for some time to come. There will be more provider options for buyers to consider, with buyer considerations dominated by a focus on cost, and the likelihood of more providers pursuing the same opportunities.

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