IT Services Outsourcing Market Size, Share & Trends Analysis Report By Service (Application, Emerging Technology), By Location (On-shore, Off-shore), By End-use, And Segment Forecasts, 2020 - 2027

Report Overview

The global IT services outsourcing market size was valued at USD 520.74 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 7.7% from 2020 to 2027. The industry is anticipated to witness substantial demand for IT operations to allow companies to focus on their core tasks and reduce the operational costs. The growing vigilance regarding data security and customer-centricity in projects, especially in the aerospace & defense and BFSI sectors, are fuelling the demand for information technology services outsourcing. The market is also progressing owing to the ever-increasing demand for consultancy related projects. The growing need for proficiency in formulating and streamlining IT strategy, enterprise architecture advisory, portfolio consulting, and ensuring effective and smooth digital transformation further boosts the industry growth.

Rapid innovations, offering various benefits to different industries globally, will also support market growth. Delegation of time-consuming and tedious tasks to service providers empowers businesses to concentrate on their central functionalities and reduces the load on their internal resources. It also offers optimization of capacity, resources, flexibility to meet demands of the changing commercial environment, and better access to innovation and intellectual property.

Service providers are coming up with different operational and pricing models to gain a competitive edge over others. The advent of cloud computing has fueled market growth as it enables firms to automate and ease their business applications and processes. Hence, enterprises, especially Small & Medium Businesses (SMBs), are largely deploying Software as a Service (SaaS) model and Infrastructure as a Service (IaaS) model, which has compelled the service providers to capitalize on the cloud-based offerings.

Companies are even seen engaging in multi-sourcing that involves division of a project into different components, which are handled by several independent vendors. This allows the companies to reduce their operational risk and dependency owing to the project’s split amongst different vendors. In 2017, A German electric utility firm, E.ON SE outsourced its network system to T-systems International GmbH and its data center and desktop operations to Hewlett Packard Enterprise Development LP. Various key companies in the industry, such as NTT Data and Capgemini, have implemented the multi-sourcing models. However, these models can be challenging to implement as the company has to co-ordinate between the suppliers continually.

The growth of IT operations outsourcing is further anticipated to be driven by the commencement of digitization trends prompting the SMBs as well as the large businesses to opt for advanced IT infrastructure. Development of the Industrial Internet of Things (IIoT) across the Industry 4.0 platform is expected to fuel the demand for IT operations within the hybrid information technology-managed environment. Companies are subcontracting these IT operations to keep pace with the market dynamics and reduce their overhead costs and lead time. However, the global market is witnessing a shrink in its growth rate due to increasing number of Global In-house Centers (GICs) of companies. According to Nasscom, in FY2019, around 1,250 MNCs worldwide set up more than 1,750 Global Capability Centers (GCCs) in India.

Service Insights

The eight primary services evaluated in this market report comprise application services, emerging technology, data center operations, helpdesk offering, infrastructure capacity, managed security operations, network operations, other services. The other IT outsourcing segment includes quality engineering & assurance and consultancy operation. The application business segment accounted for the largest revenue share in 2019 and is anticipated to maintain its dominance over the forecast period. Infrastructure capacity business forms a vital fragment of the global market, thereby providing infrastructure design & implementation, cloud computing, and remote infrastructure management services to businesses. The network operations analyzed in the study are on an upsurge for several functionalities, the most important ones being network optimization, wireless infrastructure, contact center transformation, and Unified Communications and Collaboration (UCC).

Various industries are observing a shift in their processes as automation takes over traditional methods. Companies, as well as their vendors, strive to implement state-of-the-art technologies in their business processes. Hence, the emerging technology services segment is anticipated to witness the fastest CAGR during the forecast period. Managed security operations segment is expected to observe considerable growth rate from 2020 to 2027. The upsurge in the growth of this segment is attributed to the growing demand and vigilance of data security, governance and compliance, risk management, and threat & vulnerability management.

Rapid expansion of the e-commerce sector, usage of smartphones and social media, various governments’ emphasis on the digital economy, and rise in technology-driven start-ups have led to the speedy growth of the market. In addition, rise in the number of cloud service providers is adding to the data space requirement, thereby supporting market development. Demand for outsourcing of helpdesk services is also on surge as it allows companies to save on internal resources, costs, and time, to focus on core business processes.

Location Insights

Based on location, the market has been classified into on-shore and off-shore locations. The off-shore segment accounted for a larger revenue share in 2019 and is expected to observe a considerable growth from 2020 to 2027. Offshoring information technology operations to developing nations to avail cost benefits, mitigation of currency risks, and fulfillment of offset obligations have been driving the off-shore business over decades. Companies have preferred the Asia Pacific countries as their offshoring destination mainly because of the ample availability of skilled talent and low-cost labor. The market is likely to witness a shift in this trend and prefer onshoring over the forecast period.

Onshoring of IT operations mitigates the hurdles of off-shore outsourcing. The indirect costs of quality lapse, communication gap, and security & intellectual property risks are lesser in onshoring. Therefore, the industry is observing a shift towards onshoring information technology operations. Moreover, on-shore activities enable the businesses to partner with the vendors in their time zone and work inside the same legal authority. This allows an easily streamlined and improved communication amid the two firms, which in turn surges the effectiveness of services outsourced. The on-shore segment is expected to register the highest CAGR from 2020 to 2027.

End-use Insights

Based on end use, the market has been categorized into aerospace & defense, BFSI, healthcare, retail & e-commerce, telecom & media, and others. The other end-use segment includes automobile, energy, public service, and utility sector. The segment is poised to grow at a CAGR of over 8.0% in the forecast period. The BFSI segment registered the largest revenue share in 2019. It is anticipated to continue its dominance from 2020 to 2027 owing to its significant investment in automation, AI-based conversational systems, and cybersecurity. The retail & e-commerce segment is anticipated to observe the fastest CAGR over the forecast period. This growth can be attributed to the numerous start-ups deploying an online shopping platform for customers. Moreover, technological advancements have enabled customized shopping experience for consumers using AI, Virtual Reality (VR), and deep learning techniques. Increasing deployment of these technologies in the sector is anticipated to drive the market growth.

The aerospace & defense segment is projected to have substantial growth owing to increasing adoption of autonomous systems, AI, sensors, and additive manufacturing in the sector. Implementation of IoT in this sector, which is mostly not an automotive company’s expertise and is an outsourced service, offers better operation & control, traffic planning, material management, staff & passenger information management, energy management, and data analytics. Moreover, deployment of IoT delivers unscheduled aircraft maintenance, sensory inputs, tail allocation, reliable & secure communications, and cloud application development services. These technological deployments need a skilled and experienced workforce, thus fueling the market growth.

The healthcare sector is driving the growth of the IT services subcontracting due to a surge in the development of tailored software platforms as per the requirements of healthcare providers and increasing usage of big data in the medical sector. Health information management across computerized systems is of vital importance to the healthcare sector. Hence, organizations outsource their information technology solutions to ensure a secure exchange of information between providers, consumers, and quality monitors. Usage of information technology in healthcare allows medical organizations to minimize human errors and reducing costs in maintaining patient records for their safety & reliability. Furthermore, telecom operators are under relentless pressure to manage their principal disbursements in network deployment to cut their operating costs. Hence, the industry has observed several telecom operators subcontracting their value-added services comprising next-generation communication, content, and commerce services to IT service providers.

Regional Insights

North America accounted for the largest revenue share in the market in 2019. The majority of technology-driven companies are based in North America, and the region has been observing higher revenue share due to the early adoption of new technologies. U.S. accounted for the highest revenue share owing to the tenacious countrywide expansion in the IT sector and the growing deployment of information technology operations, enterprise software, data center systems, and communication systems.

Asia Pacific is anticipated to emerge as the fastest-growing region over the forecast period owing to the increasing number of partnerships between the businesses and IT service providers. Software development is one of the prime IT tasks, which is outsourced to the countries in this region due to cost-effectiveness, enhanced quality, time management, and availability of skilled developers.

The Europe region was valued at more than USD 145 billion in 2019. However, the demand for subcontracting services in European countries is estimated to be sluggish from 2020 to 2027 due to ferocious competition, market saturation, and challenging economic conditions in the region. Germany, in particular, is expected to witness considerable growth over the forecast period. Latin America and Middle East & Africa regions are predicted to register a significant growth from 2020 to 2027 owing to the proliferation of end-use industries and wide-scale deployment of IT, especially in oil & gas and coal & mineral mining sectors.

Key Companies & Market Share Insights

Intense competition in the market has now shifted the focus to cost-effectiveness, innovation, and quality of the service. Both IT vendors and companies utilizing their services are looking for leveraging on variations in contracting models. These variations will ensure that IT subcontracting will be more value-driven and interpersonal. New projects are more focused on responsibility and risk sharing between the client and the vendor. This tightens the competition in the already saturated industry and makes it mandatory for the service providers to deliver value.

Companies in India and China who have been preferred for offshoring information technology tasks are now facing stiff competition from new IT services outsourcing markets not only in the APAC region but also in Europe. Some of the prominent players in the IT services outsourcing market include:

• Accenture

• IBM

• Fujitsu

• Hewlett Packard Enterprise Development LP

• SAP SE

• Capgemini

• Cognizant

• Infosys Limited

• NTT Data Corporation

• Oracle

IT Services Outsourcing Market Report Scope

Segments Covered in the Report

This report forecasts revenue growth at global, regional, and country levels and provides an analysis of the latest industry trends in each of the sub-segments from 2016 to 2027. For the purpose of this report, Grand View Research has segmented the global IT services outsourcing market report on the basis of service, location, end use, and region:

• Service Outlook (Revenue, USD Billion, 2016 - 2027)

  • Application

  • Emerging Technology

  • Data Center Operations

  • Helpdesk

  • Infrastructure Capacity

  • Managed Security Operations

  • Network Operations

  • Others

• Location Outlook (Revenue, USD Billion, 2016 - 2027)

  • On-shore

  • Off-shore

• End-use Outlook (Revenue, USD Billion, 2016 - 2027)

  • Aerospace & Defense

  • BFSI

  • Healthcare

  • Retail & C-commerce

  • Telecom & Media

  • Others

• Regional Outlook (Revenue, USD Billion, 2016 - 2027)

  • North America

    • The U.S.

    • Canada

  • Europe

    • The U.K.

    • Germany

  • Asia Pacific

    • China

    • Japan

    • India

  • Latin America

    • Brazil

    • Mexico

  • Middle East & Africa