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Buyers' Market Led to Strong 2014 for IT Outsourcing Deals

By ESOutlook | Thursday, February 12, 2015

According to analysis by outsourcing consultancy Information Services Group (ISG) the global outsourcing industry delivered one of its best years ever in 2014, capped by double-digit growth in the fourth quarter. The number of contracts last year signed inched up 4 percent to 1,218—the second-highest number of deals ever signed in a single year.

As per ISG,  the total annual contract values were up 16 percent from 2013 to $23.1 billion last year—the third best year in the last decade—driven by a buyers’ market, a rise in contract restructuring, and an increase in mega relationships.

“We’re seeing steady ITO demand, particularly around cloud infrastructure adoption,” Keppel says. IT outsourcing specifically saw annual contract values jump 19 percent for the year to $17.3 billion while the less steady business process outsourcing market finished the year up 8 percent at $5.8 billion in annual contract value. Outsourcing activity was particularly tough in the Americas, where IT organizations were eager to take advantage of a buyers’ market that offered more services for less money.

 “We believe the buyer’s market in the Americas will continue for the foreseeable future, particularly in the infrastructure arena where new economies-of-scale are at play with the growing adoption of IaaS,” says Keppel. “We expect cloud solutions to gradually penetrate other, less mature areas of IT.”

Point of fact, market share began shifting from infrastructure services to applications design and maintenance (ADM) in 2014 partly because of the downward pressure on infrastructure prices resulting from cloud solutions, automation, and increased competition and partly due to a rise in demand for applications.

“Every product, process, and service will be getting smarter," Keppel says. “Applications are increasingly important for two reasons: the market is catching up on the underinvestment we saw during the last recession, and enterprises are being forced to respond to the wave of digitization that is hitting all sectors.”

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