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Outsourcing prices likely to drop in 2010, but at what cost?

Stephanie Overby | Dec. 9, 2009
Outsourcing prices dropped overall in 2009, and industry watchers expect the downward trend to continue next year.

FRAMINGHAM, 8 DECEMBER 2009 - Outsourcing prices dropped overall in 2009, and industry watchers expect the downward trend to continue next year. It's not just the global economic slowdown that's sending IT service prices south, it is also the increased use of offshoring, pricing pressure from customers, and a reduction in vendors' services.

"We see more companies willing to outsource offshore to take advantage of global labor arbitrage opportunities than in the past," says Ben Trowbridge, CEO of outsourcing advisor Alsbridge, which owns price benchmarking firm ProBenchmark. "One of the issues we see is that lower prices can also be driven by disaggregated services." For example, lower desktop support prices might be due to a vendor delivering remote infrastructure management support. But they might just as well be the result of a reduced scope of services that leaves the client with a lower level of service or possibly having to retain other costs--which negates or reduces the customer's potential savings, Trowbridge adds.

Mark Toon, CEO of outsourcing consultancy EquaTerra, says that buyers of outsourcing services have remained focused on cost cutting and avoiding future investment throughout 2009. Toon believes that IT services customers will continue to focus on price through 2010. But, that "price pressure will be tempered by the need to ensure overall deal parameters do not jeopardize success," adds Stan Lepeak, EquaTerra's head of global research.

Should the economy show strong signs of life in the new year, some say it won't be a buyers' market at all. "Much depends on whether or not the apparent signs of economic recovery prove true," says Chris Kalnik, partner and managing director of financial analysis for sourcing advisor TPI. "If the economy strengthens, TPI believes that the service providers will attempt to recoup some of the price concessions that they have made over the past year."

RIM's Effect on IT Outsourcing Prices

On the infrastructure side of the IT outsourcing house, market share will continue to shift toward remote delivery of services where possible , and offshore players will drive desktop and network service prices to new lows. As remote infrastructure providers improve their capabilities, more infrastructure outsourcing customers may look offshore for savings, while the broader global economic slowdown will continue the pressure to reduce costs in the Americas, says Trowbridge. "These two trends are working together to drive overall market prices lower," he adds.

But those cost savings may be short lived and slight. What's more, RIM isn't for everyone. "Maturity in this market has led organizations to identify the processes that are better delivered locally and to select service providers [based] on flexibility and customer intimacy as well as price," notes Paul Cornelisse, managing director of Equaterra's information technology advisory.

 

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