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IT outsourcing year in review, rating our 2011 predictions

Stephanie Overby | Dec. 15, 2011
We revisit our IT outsourcing predictions for 2011 to determine which one were solid hits, which were foul tips, and which were swings and misses

American politicians preach protectionism and limited offshoring, but little comes of it.

With the 2012 elections on the horizon and American unemployment a hot-button issue, preaching protectionism and anti-offshoring continued to be a popular tactic on both sides of the aisle. But while 2011 did see continued scrutiny of H-1B and L-1 skilled worker visa applications and a lawsuit filed against Infosys for alleged misuse of the B-1 visitor visa program, there was little in the way of actual anti-offshoring legislation. A bipartisan bill that would penalize companies for moving call center overseas was introduced in December, but similar propositions have stalled in the past.

IT service providers attack labor costs through layoffs and increased offshoring.

All the major U.S. providers continued to ramp up offshore operations around the globe. And while Indian providers heavily marketed their U.S. hiring strategies, they too made most of their labor investments abroad. "Selective domestic growth is occurring," says LePeak of KPMG, "though not as fast as advertised by some."

Strikeouts on IT Outsourcing Predictions

A big merger between U.S. and Indian ITO provider occurs.

IT outsourcing observers have been predicting a mega-merger between a big name Indian provider and a major U.S. outsourcer for several years. Still hasn't happened. "The capabilities of Indian outsourcing providers are being built up by multinationals and they see no reason to pay a hefty premium for acquiring these companies," says Rutchik of Pace Harmon. "There may be a merger of Indian providers in the future to provide more scale to compete with the larger multinationals, but even this scenario has its hurdles as many Indian providers are still family-owned or controlled with ingrained cultures and business differences."

China, Brazil and Egypt take center stage.

Egypt made headlines this year, but not for IT outsourcing. China is booming, but mainly as a provider of domestic and regional IT and business process services. "They haven't figured out how to provide high-value services outside their borders," says Michael Engel, managing partner at outsourcing consultancy HfS Consulting. Brazil, too, has a strong internal market for IT services "but service exports lag, in part because of restrictive trade policies," says KPBG's LePeak.

Close Calls on IT Outsourcing Predictions

Smaller IT services deals dominate the market, with activity creeping up by year's end.

IT outsourcing deals did, indeed, get smaller this year. In the third quarter, we reported the IT services market's first substantial decline in 12 months during the third quarter of this year with transaction volumes fell for both the IT and business process outsourcing markets. We won't know if deal activity picked up in the final months of 2011 until after we've rung in the New Year. But with the continued uncertainty about the economy's direction, it's unlikely. "The big deals—$1 billion-plus—won't happen until after mid-2012," says Ruckman of Sanda Partners. "People are waiting to see the impact of the European issues and if China falters."


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