The global market for IT Services Outsourcing is expected to grow at a CAGR of 6 percent until 2022, according to Beroe Inc., a procurement intelligence firm. The IT outsourcing industry is currently in an evolution phase and it will be driven by the innovations in demand such as technology and cost-effectiveness. IT Services Outsourcing 

Regions such as Western Europe, North America, and some parts of APAC (China, India, Australia, and Singapore) have high market maturity for outsourcing IT services. Some regions of Latin America are also expected to be the future growth-driving markets.

The IT services outsourcing market is driven by end-user computing services and technologies such as process automation and virtualization. These factors along with an increase in security service outsourcing and Cloud adoption will continue to drive the market over the next 3 – 5 years. Moreover, the IT outsourcing services are managed by top 8-10 Tier 1 players, but an increase in competition from Tier 2/3 players will lead to a demand from mid-size enterprises as well.

The threat of substitute services is medium for IT outsourcing, as there are plenty of emerging and developing markets such as Philippines, Poland, Brazil, and Egypt, for providing cost advantages in terms of labor force and skill sets. The emergence of RPA/automation process in developing economies also downsizes the threat factor.

Technological developments in the outsourcing of IT services such as artificial intelligence (AI) has helped upgrade RPA (robotic process automation) to cognitive RPA or smart RPA in which automation can be extended to operations that require subjective judgments.

Key Findings:

• India is one of the most preferred offshore locations for outsourcing by most service providers due to an extensive talent pool and low cost of operations. However, India suffers from operational risks and rising costs such as inflation.
• The bargaining power of suppliers becomes less as most of their businesses come from the same geographies. Due to this, competitive pricing and stiff competition exist across all lines of players.
• Despite the competition and challenges, Tier 2 suppliers are growing by differentiating themselves based on industry vertical, geographical market focus, and services offered.
• ERP players such as SAP and Oracle derive a large chunk of revenue from maintenance fees, which forces the buyers to engage with third-party vendors such as Rimini Street and Spinnaker to maintain and support the ERP system to optimize costs.
• For the best vendor engagement model, buyers should have a mix of large and mid-size suppliers. Large suppliers can yield best practices followed in the industry and support mission-critical applications, and the mid-size suppliers can offer a competitive price and deliver specialized expertise.

The research methodology adopted for the report included:

• Experts with twenty years of domain experience
• Interaction with buyers
• Inputs from supply chain partners

Outsourced IT service providers are restricted to work on the products of their customers and they don’t possess any ownership. Hence, any innovation that emerges as a result of the work carried out belongs to the provider. Therefore, the enterprises that outsource their services always have concerns for IP loss as the providers serve multiple customers including their competitor.