IDC Forecasts Worldwide Outsourcing Spending Will Approach $180 Billion in 2004

FRAMINGHAM, MA – JUNE 13, 2000 – As the incentives driving worldwide outsourcing shift from optional decisions based on cost savings to almost mandatory matters of survival, the worldwide market will add more than $60 billion to its coffers. IDC reports revenues will increase from $116 billion in 1999 to $177 billion by 2004.

 

"Outsourcing spending will increase worldwide as companies struggle to restructure themselves around ebusiness and compete in the Internet economy, simultaneously contending with economic factors such as globalization, privatization, deregulation, and technological innovations," said Cynthia Doyle, senior analyst with IDC's IS Outsourcing and BPO program. "These factors have increased competition in many industries and regions across the world; to remain competitive, many companies outsource as a way to reduce costs, increase efficiencies, refocus critical resources, and keep up with rapidly advancing technologies."

As the worldwide outsourcing market continues to grow, IDC believes it will begin to transform. Changes that IDC expects include increased acceptance of equity stakes as a form of payment, more use of offshore outsourcers, a shift in focus from present needs to future requirements, and shorter contracts. "Because of the quick pace of technological advancement and rapidly evolving business models, companies will become fearful of being locked into a long-term contract that may be obsolete long before it comes up for renewal. As a result, they'll demand shorter contract lengths," Doyle said. "They'll also reevaluate the long-term contracts they signed in the mid-1990s and possibly try to renegotiate based on their current IT needs and ebusiness strategy."

The United States represents the biggest opportunity for outsourcers. U.S. outsourcing spending will jump from $56 billion in 1999 to $87 billion in 2004. Throughout the five years, the United States will account for almost half of worldwide spending. Banking spends more than any other U.S. industry on outsourcing, but the federal government is increasing its spending faster than any other industry.

In 1999, large companies accounted for 49% of U.S. outsourcing spending. However, IDC believes smaller companies will increase their outsourcing activities, and by 2004, large companies' share of U.S. outsourcing will fall to 43%.

"Many small firms don't have the skilled IT staff needed to harness Internet and other advanced technologies. To make the problem worse, short technology life cycles and a fast time to market for products and services require quick action," Doyle said. "Because small companies can't take the time to hire and train their own workers, they are more frequently turning to outsourcing to access skills and technology."

IDC recently published a report analyzing the outsourcing market. Worldwide Outsourcing Market Forecast and Analysis, 1999-2004 (IDC #B22043) examines worldwide outsourcing spending through 2004 by service type (IS outsourcing and processing services) and geographic region. The report discusses major trends, market drivers, and market inhibitors. The top 10 worldwide outsourcing deals are also discussed. Additionally, the report examines outsourcing in the United States. U.S. forecasts are segmented by service and industry. The top six U.S. outsourcers are listed with their revenues and growth rates. The top 10 U.S. outsourcing deals are also included. To purchase the report, contact Jim Nagle at 1-800-343-4952, extension 4549 or jnagle@idc.com.

About IDC

IDC delivers dependable, high-impact insights and advice on the future of ebusiness, the Internet, and technology to help organizations make sound business decisions. IDC forecasts worldwide markets and trends and analyzes business strategies, technologies, and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC provides global research with local content through more than 500 analysts in 43 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies, and the financial community. Additional information can be found at http://www.idc.com.

IDC is a division of IDG, the world's leading IT media, research and exposition company.

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