Western European IT services market to sustain 5% growth, contributing to service providers’ consolidation pressures, says IDC
LONDON, UK – MAY 9, 2006 – According to a new IDC study, the Western European IT services market will grow at about 5% a year till 2010. After a very slow 2004 the Western European IT services market picked up in 2005 and reached 4.6% growth. 2006 will see even better growth, but then IDC expects growth to stabilize at around 5%.
This is still roughly double the forecast growth in GDP, but far short of the growth seen in the late 1990s. The growth reflect major changes in the IT services world. More than half of the services industry growth will occur without extra cost for the enterprises as a transition from internal staff to use of external service providers takes place, and countries with high acceptance of outsourcing, such as the U.K. and the Nordic countries, will continue to grow faster than Central and southern Europe, which are still reluctant towards outsourcing.
"An average of 5% growth throughout Europe is too low to sustain the existing number of service providers, and we are set to see consolidation," said Mette Ahorlu, senior analyst for European services research at IDC.
"There are still fast growing niches such as application management and IP telephony, but for the large service suppliers acquisitions are the main means to grow faster than the market average. Strong competition and cheap offshore resources put pressure on the margins of the less efficient service providers. I would not be surprised if five years from now only five of the companies in the European top 10 still exist."
Western Europe will not experience double-digit growth in IT services again, but enterprise customers are renewing investment in IT, with an immediate impact on the services market. Consulting and systems integration picked up across the whole of Western Europe in 2005 and growth rates of 6% to 7% are forecast for the next three to four years in several countries.
"Although customers are still cautious with their money, the mood is changing," said Ahorlu. "In the first years of the millennium it was all about cost saving. Customers are still very cost conscious, but creating business process efficiency is top of the agenda today, and that leaves room for investment in new technologies and solutions with a clear business case. But service providers will have to show how more IT will improve business. There is a lot of skepticism towards consultants and their promises of a bright future." The study, Western European IT Services Market Forecast and Analysis, 2005-2010 (Doc #Q02N, April 2006), forecasts the development of 12 IT services segments as well as country level and industry sector development for the period 2005 to 2010. It discusses drivers and barriers for the different service types and examines what it takes to succeed as a service provider in Western Europe.
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