Global outsourcing contracts tail off in 2008

Businesses are hesitating to commit to the long-term requirements of outsourcing

Companies showed a marked disinclination to sign new outsourcing agreements in 2008, according to a new report from Gartner.

The analyst firm said that global IT services revenues reached $806bn (£499bn) in 2008, an increase of 8.2 per cent on the previous year. Gartner had predicted the growth to be more like 9.5 per cent, and to exceed $819bn (£507bn) in value.

Outsourcing providers experienced business as usual for the first six to eight months of 2008, the report found, but then encountered the beginning of the downturn.

"This is particularly surprising, because in economic hard times the potential cost savings from outsourcing usually keeps this market segment buoyant," said Gartner analyst Kathryn Hale.

"However, apparently buyer hesitation to commit to the long-term requirements of outsourcing agreements took precedence in 2008."

IBM continues to lead the IT services market with a share of more than seven per cent. HP is in second place, largely because of its acquisition of EDS, but the cost of integrating EDS with the rest of the business meant that HP's revenue for IT services grew by just 1.9 per cent over the past year.

Accenture, the largest global outsourcing vendor, experienced 15 per cent growth in revenue during the same period, while Fujitsu held the fourth biggest share, followed by CSC.

India-based vendors grew 12.9 per cent in US dollar terms in 2008, down from 39.8 per cent in 2007.

Gartner explained that the Indian vendors were affected early in the economic downturn, as they sell especially heavily into the financial sector, and typically lead with offshore application development services which are relatively easy to delay in tough times.