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Over the past year and a half, there was an ongoing debate about whether the shattered economy would help or hurt the outsourcing business. While some folks believed outsourcing would suffer right along with other forms of IT spending, others thought outsourcing might actually benefit if enough companies saw it as a way to further cut their IT costs at a time when it was imperative to do so.
Toward the end of last year, though, it became obvious that outsourcing was in a slump. Usually strong performer Accenture, for instance, reported a 41 percent drop in its fourth-quarter profit.
Gartner just released statistics that confirm it, reporting a 5.3 percent decline in worldwide IT services revenue in 2009. Though Accenture was hit the hardest, with an 11.8 percent decline in revenue, all five of the largest IT services providers saw drops. HP services revenue fell 10.4 percent, suggesting HP might be struggling to gain benefits from its EDS acquisition. Indeed, Reuters reported in August that HP was mulling a sale of its outsourcing unit to concentrate on areas of its business with higher profit margins.
Though Indian outsourcing providers were among those insisting the recession would benefit their business, they didn’t fare much better than their Western counterparts. India-based vendors grew only 3.6 percent, in terms of U.S. dollars, down from 15.4 percent growth in 2008. This was hardly a surprise, as Gartner points out, since Indian companies count financial services companies among their biggest customers and typically lead with offshore application development services, which companies are relatively quick to cut to save money.
What’s Gartner’s forecast for the near-term future? 2010 will be a year of “focused readjustment,” said id Kathryn Hale, research VP for Gartner’s worldwide IT services group. She said:
The discipline exercised in 2009 leaves the industry profitable and relatively nimble. But investors will expect to see revenue growth and managing those expectations, while maintaining margins, will be more challenging than the comparatively unambiguous goals of 2009, a year in which expectations were modest.
Services companies will roll out a number of new models, including outcome-based pricing, risk-shared partnerships and industry-specific applications outsourcing solutions, to boost their business in 2010, said several experts I surveyed to create a slideshow called “12 Trends that Are Shaping the Outsourcing Market.”