Decrease in IT outsourcing industry reaches a ten-year record low
The global IT outsourcing market experienced a significant contraction in 2012, with a 14% decline reported by Ovum. This downturn was primarily attributed to continuing economic uncertainty, shrinking IT budgets, and a push among enterprises to reduce costs by bringing services in-house or using alternative sourcing models.
The final quarter of 2012 showed a dismal performance, with the total contract value (TCV) falling 34% year-on-year to $20.8 billion. This was the lowest TCV since 2002, and the number of deals signed dropped 17%.
The year 2012 also saw the lowest number of contracts signed by private sector organizations since 1998, with only 1,427 deals being finalized, a 15% decrease compared to 2011.
Economic slowdown and fiscal austerity measures in key markets led companies to reduce discretionary spending on outsourcing contracts. Organizations increasingly shifted from traditional outsourcing to cloud-based services and automation, which reduced demand for conventional IT outsourcing deals.
Growing pressure on outsourcing vendors to lower prices squeezed margins, causing some clients to scale back or renegotiate contracts. The global financial crisis aftermath also drove cautious investment and impacted enterprise IT spending patterns.
These combined pressures led to a significant contraction in the market as enterprises reassessed outsourcing strategies and budgets.
Notable examples of this market contraction include Hewlett-Packard, which was forced to write down the value of its IT services division to over $8 billion last year, and IBM, which struggled to maintain even flat growth for its outsourcing business.
Public sector activity has also reduced, leading to a general reluctance to get involved in large-scale IT services deals due to pressure to cut public spending and high debt levels.
Despite these challenges, some companies managed to thrive. Accenture, an IT outsourcing and consultancy provider, saw a 9% increase in sales during its 2012 financial year, up to $27.9 billion.
Six megadeals (worth $1 billion or more) were signed during the second quarter of the year, but no such deals were signed in the final quarter. The global market for IT outsourcing services reached its lowest point in a decade last year, with a TCV of $96.8 billion.
This decline in the IT outsourcing market reflects the broader economic challenges faced by businesses worldwide in 2012. If you require precise figures or sector-specific impacts, consulting Ovum's original 2012 market analysis report would provide the most authoritative insights.
Businesses in the technology sector were significantly impacted by the contraction in the global IT outsourcing market in 2012, with many companies experiencing reduced demand for outsourcing services as a result of economic uncertainty, shrinking IT budgets, and the shift to cloud-based services and automation.
Financial pressures on companies led to a decline in the total contract value (TCV) of IT outsourcing deals, reaching its lowest point since 2002, and a decrease in the number of deals signed by businesses, particularly in the private sector.
