Each year, IT Outsourcing (ITO), is becoming more influential in the business sector. The ITO market has seen and experienced many significant changes over the past decade. Businesses also saw a shift in how they operate remotely due to the global pandemic of 2020. IT outsourcing saw a substantial rise at the end of 2010. Businesses are now able to assess the state of the ITO market and make critical decisions about how to outsource or where to outsource.
Many enterprises had to make risky business decisions over the past 20 years due to global disruptions and challenges. The IT market was completely transformed by the global financial crisis of 2008-2009 and the COVID-19 pandemic in 2019. Let's take a look at the ITO services in the 2010s to get a better understanding of how these events have affected today's outsourcing market.
ITO Market Recession 2008-2010
Businesses were more cautious about outsourcing after the 2008 global financial crisis. Businesses were less confident about their decision-making due to global financial uncertainty. This led to a shift in the IT outsourcing destinations.
Businesses rethought investing in outsourcing software development after the 2008 global financial crisis.
Global unemployment rates rose dramatically during the economic crisis. Many employees were forced to accept lower wages and shorter working hours in order to survive. The US saw stagnant job growth in 2008, followed by a dramatic drop in 2009-2010. This has had an impact on the IT outsourcing market globally.
Particularly, the number of contracts in Central and Eastern European IT outsourcing market experienced a 15% to 20% decrease in contract volume in 2009 compared to 2008.
Forrester's 2009 study on IT management revealed the following:
- 43% of Western European businesses were cutting their IT outsourcing expenses.
- 70% of US companies tried to negotiate lower rates on IT services.
- Nearly 60 percent of US businesses had decreased their spending on contractors
Even the darkest nights will end, and the sun will rise. The ITO market began slowly to recover in 2011, and this was the case with it.
ITO Market Recovery 2011
2011 was a year when businesses began to grow and tried to reach pre-crisis levels of employees. As a result, investment in outsourcing information technology has also grown.
However, there was still a lot of hesitation around outsourcing. HFS 2011 research found that 39% of 347 representatives from buy-side organizations said they were unable to outsource due to unclear capabilities and uncertain long-term benefits.
What has Influenced ITO Market Growth Through the Years?
Global economic trends, recessions and new technologies have all influenced the evolution of the IT outsourcing market. The ITO is still a popular business relationship.
Geographical Factors
Organizations have many key drivers that encourage them to outsource. These factors vary by geographic area. The main driver for outsourcing in all areas is lowering costs. Each country and each region has its own drivers. The US, UK and continental Europe all wanted to internationalize their business services. Access to new technologies and improvements in business processes are key factors for the Asia-Pacific region.
Technological Innovation
The need for IT outsourcing was increasing as new technologies became more prevalent. According to Deloitte Global Outsourcing Survey 2014 (157 respondents) 69 percent said cloud computing would be their main reason for outsourcing in the future. This includes 140 entities from the private and public sectors.
Multi-Sourcing
Global organizations have moved from sole-sourcing towards multi-sourcing since 2014. They no longer cooperate with one IT service provider, but instead have chosen to work with multiple providers. This was done in order to reduce risks and gain experience working with multiple ITO vendors.
The COVID-19 Pandemic
The ITO market was threatened by the 2016 and 2017 robotic process automation leaps. The pandemic, however, has increased the demand for ITO services as many companies didn't have the resources to support the digital transformation. The crisis caused a boom in the demand for digital solutions and new technologies across industries such as manufacturing, agriculture, and healthcare. AgriTech and FoodTech investments reached a record $45Billion in 2020, compared to $24B in 2019. In 2019, and 2020, healthcare saw a rapid growth in artificial intelligence (and machine learning) in 2019.
The Current IT Market State: COVID-19 Consequences
The IT market has been significantly affected by the pandemic. Based on responses from 4,219 IT business leaders in 83 countries, the 2020 KPMG study on IT leadership reveals key shifts in the sector. You can also explore the online communication tool we created for KPMG. The key takeaways from KPMG's survey:
Location Doesn't Limit Business Cooperation
COVID-19 has reduced the importance of face to face communication and made remote working more common than ever. This transformation has led to new collaboration models. These may include contract and permanent collaboration, or an amalgamation of nearshore and offshore IT outsourcing strategies.
Higher Investment in Technology
Because of the pandemic, technology was used in a wide range of industries. 75% of respondents to the survey reported an increase in IT investment after COVID-19 was introduced on the global market.
Cybersecurity is of Primordial Importance
75% of respondents to the survey said cybercrime has increased during the COVID-19 pandemic. There has been an increase in spear phishing and malware attacks.
Collaboration between People and Technology
Respondents to the survey believe that robotics and artificial intelligence will open up new opportunities for humans and machines to work together. These technologies can enhance human capabilities and improve business performance. This trend may lead to a wide range of business needs that companies will soon have to meet.
IT Headcounts
To prove the above statement, 45 per cent of respondents intend to expand their IT departments to continue technological growth. Many business leaders feel that automation cannot replace human skills. This is where the healthcare industry is most focused. The IT workforce will increase by 54 percent according to healthcare representatives over the next year.
Top Outsourcing Drivers among Businesses
These findings are a good way to understand the current IT landscape. Let's now take a look at what drove organizations around the world to outsource, as revealed by the Deloitte Global Offshoring Survey 2020.
Reduction in Cost
Due to the COVID-19 pandemic, and subsequent recession, outsourcing is now primarily driven by lowering costs. Clients stated, for example, that speed to market was more important than cost reduction in 2018.
Cloud and RPA Solutions
More businesses are adopting cloud computing and robotic process automation (RPA) solutions since 2020. This has increased the demand for outsourcing solutions. AI technology is also growing in popularity, as RPA solutions are more common.
Architecture of Micro Service Software
Micro service architecture is a software solution that consists of multiple services, instead of just one. This architecture provides better software security and scalability. Find out how we created a micro-service architecture for a logistics and delivery system. The cloud service providers who offer micro service architectures are likely to outperform traditional IT service suppliers.
Less Contracts and More Flexibility
Another trend that is growing in ITO delivery has been induced largely by COVID-19. Companies and outsourcing destinations are being scrutinized more carefully by businesses. It's important to sign short, flexible contracts today. Clients expect more than just software delivery from vendors. Clients want vendors who understand their business and can provide timely solutions.
The above-mentioned changes and drivers in IT will result in an increasing demand for ITO providers. The statistics from HFS OneOffice Pulse Study H1 2021 show that 60% of respondents (800 global enterprise representatives) plan to invest more Onshoring and 57 percent will invest more nearshoring. Offshoring is less popular than it seems, with only 53 percent of respondents indicating that they would increase their spending.
The Top IT Outsourcing Trends in 2022+
Organizations outsource IT services for many reasons. These include operational flexibility, new skills, cost savings, and the need to be more flexible. But, market trends are changing. GSA UK's report states that some outsourcing trends may be less important than in the past.
2021 was the year that the change became visible.
Companies who want to remain current with the latest outsourcing trends must be prepared. In general, partnerships between enterprises and outsourced developers will be as important as those that foster innovation in the IT outsourcing industry.
Outsourcing trends for 2022, given the global changes that 2021 brought, will be more agile, diverse, and automated. The outlook for outsourcing trends in 2022 is promising. The IT outsourcing industry can help companies deal with the new challenges posed by the crisis.
In-Demand Technical Skills
According to a report by Burning Glass Technologies, 2021's tech job needs are high. Expertise in connected technologies, quantum computing, and fintech as well as AI, machine-learning, and AI will be in demand. Expertise in cloud computing, cybersecurity, and automation will be sought by employers.
There are currently 197,810 available positions. The demand for Machine Learning and AI skills will grow at a compound annual rate of 71% from now through 2025. Cybersecurity Ventures estimates that 3.5 million cybersecurity jobs worldwide will be available in 2022. Important to note is that cloud services have seen rapid growth since the pandemic and are now more powerful than ever. Cloud skills are highly in demand as every digital company seeks to be agile to meet growing client demands and ensure business continuity.
Companies Need Vendors to Be More Flexible
Client expectations are changing as the IT outsourcing landscape changes. Clients expect flexibility from their providers in many areas. They will want their providers to be able to scale up or down according to their requirements. Vendors will need to be able to quickly restructure teams and deliver faster results.
IT outsourcing partners must be able to accept the company's business ethics and can adapt quickly. It is important for companies to feel that offshore developers are easy to integrate with their company and can communicate with the internal team.
Modern clients also want to stay on top of new technologies. They expect their remote IT specialists to be open to using the latest technologies. They will also consider vendors that are willing to invest in training its workforce, if necessary.
Eastern Europe is Rapidly Becoming an IT Outsourcing Hotspot
Eastern Europe will be more attractive as an IT outsourcing destination. While India and China will continue to be the top outsourcing countries, where the majority of global outsourcing revenue is generated globally, Ukraine, Poland and Belarus will be a strong competitor. According to the latest CEE software development report, CEE outsourcing is growing at 4-5 times faster than global, the US and EU being the major customers. This trend will continue into 2021. Businesses will choose offshoring over nearshoring in order to access the best talent in CEE in the face globalization.
Despite all odds, 2020 was a record year for investments in Europe's tech sector. Atomico reported that $41B was spent on European tech. By comparison with 2019, Ukrainia's capital investments in tech grew by $4M.
Regulatory Agency
New regulations are expected to emerge in 2021. Service providers and tech companies must be flexible enough in order to adjust to changing standards. They must carefully negotiate contract clauses that reflect new procedures and back-end processes, taking into consideration all costs associated with their implementation.
The UK is no longer part of the EU single markets or the EU customs Union since 1 January 2021. Legal changes will affect the relationship between the UK and clients. The EU will also introduce two new laws: the Digital Services Act (one called Digital Markets Act) and the Digital Services Act (one called Digital Services Act). They aim to stop the spread of harmful content, and increase competition. Similar regulations have been put in place in other countries. Last week, US regulators sued Facebook for illegally suppressing competition. In October, Google was also subject to an antitrust lawsuit. China's government is taking steps to crack down on tech giants such as Alibaba. Australia, India, Brazil and Brazil are just a few of the countries that are currently discussing new regulations. This trend is expected to continue into 2022.
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The Key Takeaway
The world has seen a lot of change over the years. The COVID-19 has caused many businesses to look for a way out. Digital transformation can help businesses survive and combat the economic consequences.
This digital mandate is not new. However, tech talent can't keep up with the changing technologies. Companies should look beyond their offices to find outsourced minds. Businesses will be looking for partners in 2021 to help them share risk and get digital transformation moving.
