The growth of IT outsourcing is limited in Europe due to economic turmoil, but will grow in the U.S. and Asia.
Driven by spending on cloud computing services, the worldwide market for IT outsourcing is expected to reach $251.7 billion in 2012, a 2.1 percent increase from 2011 spending of $246.6 billion, according to a report from IT research firm Gartner.
Cloud computing is on pace to grow 48.7 percent in 2012 to $5 billion, up from $3.4 billion in 2011. The application outsourcing segment is expected to reach $40.7 billion, up 2 percent from 2011 spending of $39.9 billion.
"Change is afoot in the AO [application outsourcing] market. The burdens of managing the legacy portfolio, along with the limitations of IT budgets, have shifted the enterprise buyers to be cautious and favor a more evolutionary approach to other application services, such as software as a service (SaaS)," Gartner research director Bryan Britz said in a statement. "New applications will largely be packaged and/or SaaS-deployed in order to extend and modernize the portfolio in an incremental manner. While custom applications will remain 'core' for many organizations, the trend in the next few years to SaaS enablement in the cloud will reflect in the growth of the AO outlook."
Gartner also projected growth in the data center outsourcing segment would decline 1 percent in 2012. Data center outsourcing represented 34.5 percent of the market in 2011.
"The data center outsourcing market is at a major tipping point, where various data center processing systems will gradually be replaced by new delivery models through 2016, Britz said. These new services enable providers to address new categories of clients, extending data center outsourcing from traditional large organizations into small or midsize businesses.
Worldwide, Gartner predicted the emerging Asia-Pacific IT outsourcing market would lead all other areas in growth, nudging up 1 percent in U.S. dollars in 2012 and exceeding 2.5 percent growth in 2013. The need among global and regional businesses to scale up their operations was the main indicator of growth in the market; however, the report noted there would be some impact from the ongoing business slowdown due to sovereign-debt issues in Europe and slowing exports in China.
IT outsourcing growth in North America will be driven by enterprises' reluctance to hire or make large capital purchases, as well as their pursuit of asset-light IT strategies as buyers seek to transition more IT work to annuity-managed service relationships for cost take-out and IT costs. Continued economic difficulties in Western Europe mean the IT outsourcing market will decline 1.9 percent in U.S. dollars this year, the report said, with European companies focusing more on cost reduction rather than enhancing competitiveness.
"Today, cloud compute services primarily provide automation of basic functions. As next-generation business applications come to market and existing applications are migrated to use automated operations and monitoring, increased value in terms of service consistency, agility and personnel reduction will be delivered", Gregor Petri, research director at Gartner, said in a prepared statement. "Continued privacy and compliance concerns may, however, negatively impact growth in some regions, especially if providers are slow in bringing localized solutions to market."