Despite concerns that companies’ technology budgets will be hard-hit in a slowing economy, analyst firm International Data Corp. (IDC) forecasts that spending on services worldwide will grow to $965 billion (Rs41.1 trillion) by 2012 and soon top $1 trillion, representing 30% growth in the next four years.
In a study called Worldwide Services 2008-2012 Forecast: Finding Opportunities in a Challenging Time IDC said companies and government agencies will spend more than $746 billion on external services in 2008, representing a growth of 6.8% over 2007.
Despite a weak US economy, market forces are driving enterprises toward service vendors for assistance. Further, increased use of services such as hosting, software as a service (SAAS) and utility computing will encourage service providers, especially outsourcers to focus their investments in these areas.
Indian vendors such as Tata Consultancy Services Ltd and Infosys Technologies Ltd face challenging times over the uncertainty in spending by clients on technology deployment and maintenance, especially in the US, the largest IT market from where they earn more than 60% of revenue. Customers have delayed decisions following a slowdown in the economy, induced by the subprime crisis. As a result, most Indian firms expect growth to come only in the last two quarters of this fiscal year.
IDC said the worldwide services competitive landscape is intensifying with many new entrants with new business and pricing models as well as the strengthened capabilities of up-and-coming players that are extending their reach into new markets. “This is a time for service vendors to aggressively review their portfolio of offerings, account targets, investment strategies, business processes, and delivery practices,” said Marianne Hedin, program manager for worldwide services and service oriented architecture at IDC.
In 2007, IT services continued to represent three-fourths of the overall services market, which stood at $698 billion. But, the business services market offered by the likes of Oracle, SAP and Salesforce.com is slowly catching up, with a compound annual growth rate (CAGR) of 9.6%, compared with the IT services market’s CAGR of 5.6%.
Though representing the smaller component of the outsourcing market, hosted application management is expected to grow the fastest at a five-year growth rate of 15.9%, with business outsourcing services by a tenth.
IDC said service providers continued to aggressively pursue expansion across the globe, including Indian vendors expanding into Europe and the US.