The Western European IT services market will grow at about five per cent a year till 2010 leading to pressure on service providers to consolidate, research has predicted.
After a very slow 2004 the Western European IT services market picked up in 2005 to reach 4.6 per cent growth, according to a newly published IDC study.
But, while the report predicts even better growth in 2006, it is not expected to rise above five per cent.
The analyst firm said that more than half of the predicted services industry growth will occur without extra cost for enterprises as a transition from internal staff to use of external service providers takes place.
Countries with a high acceptance of outsourcing, such as the UK and the Nordic nations, will continue to grow faster than central and southern Europe, which are still reluctant to outsource.
"An average of five per cent growth throughout Europe is too low to sustain the existing number of service providers, and we are set to see consolidation," said Mette Ahorlu, senior analyst for European services research at IDC.
"There are still fast growing niches, such as application management and IP telephony, but for the large service suppliers acquisitions are the main means to grow faster than the market average.
"Strong competition and cheap offshore resources put pressure on the margins of the less efficient service providers, and I would not be surprised if five years from now only five of the companies in the European top 10 still exist."
The IDC study predicted that western Europe will not experience double-digit growth in IT services again, but noted that enterprise customers are renewing investments in IT with an immediate impact on the services market.
Consulting and systems integration picked up across the whole of western Europe in 2005 and growth rates of six to seven per cent are forecast for the next three to four years in several countries.
"Although customers are still cautious with their money, the mood is changing," said Ahorlu.
"In the first years of the millennium it was all about cost saving. Customers are still very cost conscious, but creating business process efficiency is top of the agenda today, and that leaves room for investment in new technologies and solutions with a clear business case.
"But service providers will have to show how more IT will improve business. There is a lot of scepticism towards consultants and their promises of a bright future."
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