Precis - IT outsourcing contracts fall in quantity and value

What?  Research by consulting firm Everest Group has revealed a fall in IT outsourcing contracts in the second quarter of this year in comparison to the same period last year. The number of outsourcing contracts declined by 20% from 516 to 411, and the total value of contracts fell by 11% to $2.3 billion from $2.6 billion.

So what?  Salil Dani, practice director for global sourcing at Everest Group believes that the slowdown, particularly in this quarter, is due partly to the economic crisis in Europe and in part to the impending US political elections. Firstly, the economic crisis and market uncertainty in Europe has seen many IT departments suspend expenditure on IT and processes. Many companies are wary of incurring large expenditure on IT amidst cautious profitability forecasts. Secondly, the political election contests in the US have re-focused attention on the anti-off-shoring debate and deterred some US companies from outsourcing outside the country. Whilst some companies in the US have begun to in-source IT functions within the country, these contracts are likely to be smaller in size and value because it will not be as cost advantageous as outsourcing to international companies based in countries with lower cost bases.

Although at first sight the results may be worrying, it is important to remember that the research was limited to publicly available data. Moreover, the results also showed some positive signs as there were some considerably large IT outsourcing deals including 2 contracts valuing more than $1 billion each.