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Cost to trump sensitivity in new government IT contracts

Cost considerations could trump political sensitivities in future government IT contracts, opening the doorfor India-based IT services companies...

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Cost considerations could trump political sensitivities in future government IT contracts, opening the doorfor India-based IT services companies to win more public sector business.

Alexander Simkin, senior analyst at market research firm Ovum, said he had detected a "subtle change" in public sector attitudes to offshoring.

The need to control costs was increasingly overcoming political sensitivities in contract decisions. This was making it more likely for offshore IT services companies, particularly in India, to win more UK government business, he said.

Simkin was speaking following the launch of Ovum's Market Trends 2008-competitive landscape, a survey of market positions of the leading IT services companies in the UK. The top 15 together held 69% of the market, Simkin said. Most of them have non-UK owners.

EDS, now part of Hewlett-Packard, led the field, followed by IBM and Capgemini. CSC, which picked upa lot of government business last year, including Fujitsu's £1bn share of the NHS's National Programme for IT contract, was in eighth spot.

Accenture, which won a lot of government contracts when Labour came to power, was "steady, not stellar", Simkin said. Year on year growth at EDS and Fujitsu dropped, he said.

Simkin said he expected the market to consolidate this year, with small and medium IT services companies joining forces to ward off predators. "It is an eat-or-be-eaten scenario," he said.

Provided their cash flows held out, Indian IT services companies were most likely to be looking for acquisitions in Europe and the UK to gain market share, he said.

While public sector business was likely to be steady, the outlook for private sector contracts was "bleak", Simkin said. Although some sectors were in decline, growth inthe business process outsourcing sector was likely to hit high single digits by 2012, he said.

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