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10 outsourcing trends to watch in 2010

Stephanie Overby | Dec. 18, 2009
Outsourcing consultancy Everest predicts that although suppliers will see a resurgence in demand for IT and business process outsourcing services in 2009, growth rates are unlikely to return to pre-2008 levels.

4. Captive No More? While certain companies will continue to set up fully-owned IT delivery centers abroad, look for more captive center divestitures in the new year and a "marginally lower" number of new captives being set up, predicts Everest.

5. The Urge to Merge. The number of top-tier service providers shrunk this year, creating both challenges and opportunities for other vendors in 2010.

"Consolidation at firms, including HP, EDS, Dell, Perot, ACS and Xerox, may represent an opportunity for their competitors," says Charles Arnold, managing director of EquaTerra's IT advisory for the Americas. "From acquiring former staff of top-tier providers to snapping up now empty chairs at the bidding table, competitive providers may be able to leverage this chance to grow capability and market share in 2010."

The M&A party is likely to continue after we've rung in the new year. "This consolidation will most likely involve tier two and tier three providers, as they struggle to compete with the breadth and depth that their tier one competitors can offer," says David Rutchik, partner with outsourcing consultancy Pace Harmon. "We would not be surprised to see a non-offshore provider acquiring an offshore-based provider."

Everest predicts that most consolidation in 2010 will focus on acquisitions of "adjacent and complementary capabilities across functions, verticals and geographies," as opposed to mergers solely to increase scale.

6. Offshoring to...America? The greenback has had a grueling year. That could play out in some interesting ways. "With the continued decline in value of the dollar and sluggish employment, I would expect to see more U.S.-based sourcing solutions evaluated by private and public sector clients across the globe," says Peter Iannone, EquaTerra's executive director for the Americas.

7. The Mega-Death of Mega-Deals. Increased near-term cost pressures will drive a continued decline in mega-deals in 2010, Everest predicts. Customers will continue to eschew the billion-plus deals for more flexible approaches to outsourcing, says Lee Ayling, manager of Equaterra's U.K.-based IT advisory.

"In 2010, we will see many contracts focused on core processes with shorter, less expensive transition periods and reduced return on investment timescales," says Brad Everett, executive director of EquaTerra's human resource practice.

8. The Public Interest. All signs point to increased outsourcing in local and state government. "Budgets are tight, but demands for new technologies are strong," explains Glenn Davidson, head of EquaTerra's public sector practice. "The winners in the competition will be offering innovative financing and strong risk insurance."

However, he predicts decreased outsourcing in D.C. "The federal government, with its ability to print money and this administration's push for insourcing, is likely to continue its investment in internal solutions," Davidson says.

9. The (Slow) Return of the Discretionary Spend. Providers of application development, and maintenance and consulting services will develop innovative contract and pricing structures to win customers as the market rebounds next year, according to Everest. Both types of deals took a hit as buyers put discretionary spending on hold.

 

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