Landmark quarter for IT outsourcing as spending increases

Global businesses are spending on IT again after three quarters of reduced IT outsourcing investments

Global businesses are spending on IT again after three quarters of reduced IT outsourcing investments with the scope of contracts and discretionary spending increasing.

According to the latest research from NelsonHall, which analysed global IT services spending in the third quarter of this year, IT services spending increased 1.5% compared to the previous quarter.

Professional services spending grew by 3.5% and although the IT outsourcing segment was flat, this was significant because it is the first time in six quarters that ITO spending did not decline.

NelsonHall analyst Dominique Raviart said the three-month period “was a landmark quarter for ITO”.

“This is the first time since the fourth quarter of 2012 that spending is not negative. Quarter after quarter, corporate clients are back into investment mode, awarding slightly higher scope to outsource, as well as increasing somewhat their discretionary spending embedded in long-term contracts".

NelsonHall expects the overall worldwide IT services spending to increase 2% in the short-term with the ITO component continuing to be flat. It added that the increased use of offshoring will continue to drive prices down, resulting in lower overall spending.

Suppliers from low cist regions, such as India, continue to eat into the traditional customer bases of the large western IT services firms. This is reducing spending through lower prices. At the same time, large listed IT services firms in the West are being forced to heavily discount to retain customers when contract are up for renewel.

In 2015, NelsonHall expects IT services spending to increase by 3%, but ITO spending to remain flat.

According to recent research from Information Services Group (ISG), European IT outsourcing recorded a 15% actual contract value increase for the first three quarters of 2014 compared with the same period in 2013, while the volume of ITO contracting in Europe hit an all-time high, with the number of deals up 16%.

It said the amount of money spent on outsourcing contracts this year in Europe is expected to be one of the highest figures ever.

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