IT services market won't grow as expected: Whitehorse

Analysts from IDC have predicted that the market will experience a of compound annual growth rate of 6.8 percent to reach AU$14.6 billion in 2008; however, Whitehorse research suggests that the market is not yet ready for a sustained period of growth.

Research based on data taken from over 700 companies that represent 90 percent of the Australian IT income indicate that the IT software and services market is now worth AU$11.6 billion, however it makes "flat market projections for the next two six-monthly periods".

Whitehorse managing director Ian Dennis said that despite the potential of new outsourcing projects to contribute to the services revenue "the restructuring of large outsourcing projects either in review or re-tender, is offsetting any gains in fundamental IT services".

"The Australian outsourcing market growth will not continue at the high compound annual growth rates predicted by many industry analysts, and may retract from existing levels over time," he said.

Dennis adds that "Whitehorse also consider that the offshoring component of Australian IT outsourcing will grow for the next two years, but will also then level off from predicted CAGRs [compound annual growth rates]."

Demand for outsourcing in Australia has diminished, according to Dennis, as he said "the big deals are all taken or have been fragmented" and now outsourcers are forced to concentrate on a small mid-sized business market.

"The problem for [outsourcers] in Australia is where are these companies? The quantum of the small mid-sized business market in Australia wont make up for the deals they have lost at the top end of the scale," he said.

The report claims that 90 percent of all Australian employment is in small business, therefore, it said, there are not that many mid-size companies with "IT budgets of the size that can justify the overheads of an outsource".

"The level of competition to provide such services to mid-size and smaller clients is also broader, since it includes other IT service providers, often niche specialists, with lower overhead thresholds than the larger outsourcers," stated the release. "Since the market potential is diminished, it is unlikely to grow as quickly."

IDC also predicted that outsourcing will grow at 7.3 percent to 2008.

Dennis said that even though he agrees offshoring is set for a period of growth, it is still a small component of the IT services market.

"Legitimate and sensible offshoring is part of the overall balance of trade. We need to ensure that our IT services exports, in the form of work performed for overseas clients, exceeds our IT services imports, or offshoring of IT services. Unfortunately that is not the case at the moment," he said.