Offshore outsourcing demand up: Gartner Dataquest

As the IT services industry works through a difficult year, the IT
outsourcing industry will look to applications services to drive growth in 2003,
according to Dataquest Inc, a unit of Gartner Inc.

A November 2002 survey among 36 outsourcing vendors showed that offshore
application management was ranked as the highest growth service opportunity for
vendors in 2003, followed by nearshore application management. With the focus on
lowest costs, there is a growing adoption of offshore outsourcing, primarily for
applications, but also emerging in BPO and IT infrastructure management.

Offshore
outsourcing accelerated during the past year, and it will continue in the next
two years as a means to offer alternative lower-cost labor. Gartner Dataquest
analysts feel that services vendors will look for more partnering opportunities
with offshore companies, as well as acquisitions.

"Already some of the larger services companies have responded to
offshore players in the area of applications support by acquiring or setting up
their own offshore delivery capabilities through acquisition or significant
alliances with lesser-known players," says Allie Young, chief analyst for
Gartner Dataquest’s IT Services program.

"As an alternative to Indian offshore, the near-shore outsourcing
market, in particular the Canadian provider market, will be considered by global
providers as a way to hedge their bets against political unrest and the
potential calamity of a regional war in the Middle East," says Allie.

While low-wage countries are attracting attention with application services,
IT infrastructure outsourcing activity is hot on a grand scale around the world.
As of year-end 2002, there were at least 14 megadeals worth a total of $28.4
billion compared with nine megadeals in 2001 worth a total of $15.1 billion.
There are at least four pending megadeals, worth an estimated total of $15.3
billion.

"Despite concerns that mega-deals in outsourcing were drying up, 2002
saw an above-average number of contracts worth $1 billion or more," said
Bruce Caldwell principal analyst for Gartner Dataquest’s IT services program.
"We’ve seen ample evidence that the 10-year deal is no longer the
standard, and that multibillion dollar contracts, as well as consortia or
alliances of vendors are increasingly common," adds he.

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