Outsourcing Activity Showed Healthy Growth in 2011

Outsourcing activity grew by 7.8 percent last year, with Indian-based providers and cloud-based services reaping most of the benefit.

Outsourcing activity surged by a healthy 7.8 percent last year, with Indian-based providers and cloud-based services reaping most of the benefit, according to market-watcher Gartner Inc.

IBM Corp. was tops, by a large margin, followed by Hewlett-Packard Co. (HP), Fujitsu, Computer Sciences Corp. (CSC), and Accenture. Globally, outsourcing revenue approached the quarter-trillion-dollar mark ($246.6 billion), up from just over $228 billion in 2010.

"Revenue cannibalization resulting from client adoption of industrialized, and often cloud-based, services risks muting the growth opportunities for the ITO providers that are heavily weighted in infrastructure outsourcing," said Bryan Britz, research director at Gartner, in a statement. "Strategies will vary as clients are likely to pursue hybrid cloud strategies requiring providers to deliver some asset-light and some asset-heavy offerings -- which will result in varying growth trajectories among competitors over the next several years."

Big Blue wasn't just tops globally -- it controlled nearly 11 percent of overall market revenues -- but took the lead in every region, too, according to Gartner. IBM's revenue growth (7.8 percent) exactly matched the rate of the entire outsourcing market. The performance of No. 2 player HP, meanwhile, failed to match that of the overall market. Nevertheless, Gartner said, HP still controlled 6.1 percent of outsourcing revenues, good for the second spot on the list.

Fujitsu leapfrogged CSC largely on the strength of currency gains, Gartner said.

The five biggest vendors accounted for just under seven-tenths of all outsourcing revenues. As a result, Gartner indicated, there's still plenty of opportunity for up-and-comers. In fact, fully 43 players posted $1 billion or more in outsourcing revenues last year.

That said, most of these vendors were either based in hot locations (India), catered to hot and/or emerging markets (e.g., cloud specialists), or grew by dint of acquisition. Excluding these special cases, Gartner said, the rest of the IT outsourcing market grew by a comparatively anemic 6.5 percent in 2011. "For many leading providers in the [IT outsourcing] market, 2011 revenue results demonstrate how challenging simply maintaining a market share position has become, much less gaining share -- and this challenge is likely to worsen over the next few years for providers that do not address these forces," Britz continued.

"The challenges are likely to spur consolidation to augment growth, posing risk to the consolidators, because acquisitions have been a challenge in the IT services market," he said.

About the Author

Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.