Developers are in short supply, and that's keeping IT services companies busy

IT services will grow this year despite recession fears.
Written by Liam Tung, Contributing Writer
Image: Shutterstock

Analyst IDC has forecast worldwide spending on IT and business services will grow through to the end of 2023, even as a global recession looks set to take hold. With a lack of developer talent for businesses to hire, IT services companies are one way of gaining access to those skills.

IDC is expecting spending in this category to grow 5.7% in 2022 and 5.2% in 2023 and is projecting a five-year compound annual growth rate (CAGR) of 5.2% from today, compared to its previous forecast of 4.9% in April 2022. 

The analyst said it remains "cautiously optimistic" for this market segment due to better-than-expected results from vendors in the first two quarters of 2022 – as seen in revenue, bookings and pipelines – as well as growth in the hybrid workplace and cloud adoption spawned by the pandemic. 

"While economic conditions for major economies around the world worsened in the last few months, given the services vendors' strong revenues, bookings, and other leading indicators, the worldwide services market will likely continue on its current growth trajectory," said Xiao-Fei Zhang, program director for IDC's Worldwide Services Tracker program. 

Also: Salary freezes and a return to the office? Not for software developers

Still, that trend doesn't mean it's easy for IT services companies to retain talent: "Also, the real threat to vendors may be from the supply side: with book-to-bill ratios above 1.1 or 1.15, attrition 25% plus, and utilization rate pushing close to 90%, something has to give. A cooler economy may actually help vendors to convert bookings to revenue faster by easing the labor market."

IDC said apps remain the key growth driver for managed services, as the pandemic added billions of digital users across the globe almost overnight, "exhausting the available software development talent pool worldwide". The workplace- and infrastructure-related outsourcing market outlooks have also been adjusted moderately upward as cloud and hybrid workplace continue to drive strong growth.

Fellow analyst Gartner last week said worldwide enterprise IT spending was "recession-proof", even though growth in 2022 was flat compared to 2021. Gartner forecasts the strongest IT spend growth in software, which includes cloud investements.  

IDC is predicting some projects will be delayed or put off indefinitely. Even though this will negatively impact business consulting, it's still expecting spending in this area to grow between 6% and 8% in the coming years. It also reckons managed services will be more shielded from economic downturns because they're critical services, while it's expecting some growth for application management, workplace and infrastructure outsourcing, and support services.

"So far, the European services market has weathered the storms of disruption exceptionally well, resulting in a solid market performance in the first half of 2022," said Milan Kalal, senior research manager, IDC European Services Group. "The demand has been fueled by the acceleration of digitization efforts in European organizations as well as their ongoing appetite to transition to the cloud."

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