Offshoring gives boost to IT services market in 2003

Offshore outsourcing gave a boost to the IT services market in 2003, helping it to grow 6.2 percent over the previous year, according to preliminary figures released by Gartner on Monday.

The worldwide IT services market grew from US$536 billion in 2002 to US$569 billion last year, with U.S. vendors continuing to lead the pack in terms of revenue and market share, Gartner said.

IBM ended up on top, with 7.5 percent of the market, after seeing a revenue rise of 6.2 percent to US$42.6 billion in 2003. Electronic Data Systems landed second, with 3.7 percent of he market and revenue of US$21.1 billion.

Some U.S. vendors saw strong growth from offshoring trends, as their international presence allowed them to drive sales abroad, Gartner said. But Indian companies were also major beneficiaries. India's high-skill, lower-wage outsourcing market attracted a wide array of companies to its shores and added to the need for IT services. Indian IT services vendors saw a 29 percent revenue increase in 2003, although they only made up 1.4 percent of worldwide revenue, Gartner said.

"India is gaining mostly on geographic positioning and almost all the work they are doing is offshoring (services)," said Gartner analyst Dean Blackmore. Blackmore added that 92 percent of India's IT services revenue came from outside of the country.

Europe, the Middle East and Africa (EMEA) also reported growth, although their performance was inflated by the effect of the weak dollar, Gartner said. In fact, EMEA's IT services market slid 4.8 percent in 2003 based on euros, Gartner said.

Due to the weak dollar, growth rates in Europe have been greatly inflated when in fact there has been minimal growth, Blackmore said.

In the services being performed, business process outsourcing has seen the greatest take up, however, while project-based work continues to drag due to budget cuts, he said.

The Asia/Pacific region reported strong growth -- at 10.3 percent -- although this figure was also inflated by currency issues, Gartner said. Most of the region's growth happened in the second half of the year as the global economy gradually improved, the researcher noted.

China, which like India has seen piqued outsourcing interest due to its lower wage costs, posted 6.8 percent growth with revenue of US$3.7 billion.

While most IT services markets saw flat or negative growth in real terms for 2003, the market is on an upswing, according to Gartner.

"It does appear that we've pretty much hit rock bottom and there are signs that we will pick up at a slow rate," Blackmore said. The market is expected to grow from 4 percent to 5 percent annually for the next two to three years, he added.

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