Gartner: Services revenue to grow, especially in AP

The global information technology (IT) services market is forecast to cross US$707 billion by 2007, recording a compound annual growth rate (CAGR) of 5.7 percent according to research firm Gartner.

The primary drivers for growth will be spending by governments, manufacturing, communications, and financial services, Stamford, Connecticut-based Gartner announced in Mumbai Wednesday at its Gartner Summit India 2003.

The highest growth in spending on IT services will be witnessed by the Asia Pacific (APAC) region at 9.5 percent CAGR from 2003 to 2007, followed by Eastern Europe, Middle East and Africa, Japan, Latin America, North America, and finally Western Europe, according to Gartner. Within APAC, the Indian and Chinese markets will experience maximum growth.

The growth in the global IT services market is likely to provide opportunities for IT services companies in India, whose revenues come primarily from outsourcing from the U.S. and Europe. Gartner described offshore outsourcing as the world's fastest growing IT industry segment. From 2002 through 2007 offshore IT services is expected to grow by 29 percent CAGR, while offshore business process outsourcing (BPO) is forecast to grow 68 percent CAGR, according to Gartner.

But the market for IT services is getting competitive, even for leading outsourcing locations like India, according to Gartner. "Application development and maintenance has long been the stronghold of Indian IT service providers, but increasingly, due to low entry barriers, providers from other developing countries are actively pursuing such offshore provisions," said Craig Baty, chief of research of Gartner's Global IT Management Sector.

In a recently concluded user study by Gartner on "Total Cost of Engagement (TCE) Offshore v/s Nearshore," three engagement models were evaluated on parameters such as direct cost, indirect cost, productivity losses cost and risk/convenience cost. The results indicated that for a U.S.-based customer, cost could be significantly lower when processes were outsourced to a near-shore destination like Mexico rather than to an offshore destination like India, under certain circumstances.

"The future for Indian IT service providers is to consider co-opetition with the emerging nearshore destinations to garner a larger share of the global opportunity," said Rita Terdiman, vice president and research director for offshore sourcing at Gartner.

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