Buyer's market to deliver better outsourcing deals

3 February 2005
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03 February 2005 | Cara Whitehouse

Purchasers outsourcing business in 2005 could benefit from a better choice of suppliers and cheaper contracts, according to an industry expert.

Nick Mayes, lead analyst for Global Computing Services at research firm Datamonitor, told SM that outsourcing is currently a "buyer's market".

He said a growing trend for medium-sized deals had opened the market to smaller, more specialised suppliers with expertise in niche areas such as outsourced human resources.

"From the outsourcing customer's point of view, there is now a lot more choice available, which plays into their hands."

Mayes added that increased competition had curbed the previous dominance of super-brands, such as IBM, with offshore contracts also helping to keep prices down.

"Foreign competition is expected to increase significantly over 2005," he said. "Companies with a workforce based entirely or partially in countries such as India are able to drive down their costs of contract delivery, which is good news for the client."

His comments follow the publication of new research on the global outsourcing sector by Datamonitor and Everest Group, an outsourcing advisory company. It revealed a sharp rise in the total value of deals in 2004, which climbed from $118.9 billion in 2003 to $163 billion.

But in Europe, the Middle East and Africa, which accounted for 31 per cent of deals tracked, the value of contracts fell by 12 per cent to $50.6 billion.

IBM Global Services retained the largest share of contract awards, although this was nearly halved from 21 per cent of the market in 2003 to 10.7 per cent last year.

Denis Kenny, managing director at consultancy QP Group, agreed that an increasingly competitive market is helping to fuel better prices and wider choice. But he said big players were unlikely to lose their dominance.

"The outsourcing cake is expanding and smaller companies have an opportunity to grow, but big players will continue to take the significant slices."



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