In simple terms, outsourcing is an agreement in which one company hires an external partner (i.e. sub-contracting). They help execute a project, rather than putting it through the pipeline exclusively with in-house resources. To provide an IT-focused framework, outsourcing services include IT infrastructure, application development, maintenance, digital payments and, IT administration among others.
The effect of the pandemic
IT outsourcing trends for 2020, were straightforward and rising before the COVID-19 pandemic. Statista reported expected revenue growth annually (CAGR 2020-2023) of 1.6%, which would have resulted in a market volume of 171,822m USD by 2023, with most revenue being generated in the US.
Unfortunately, trends and predictions went silent once COVID-19 started impacting our daily lives. In this current economic climate, no one can predict the outcome in terms of numbers for the global IT outsourcing market. Small businesses to huge corporations across the global economy face new challenges and are trying to adapt.
The #UnemploymentRate in the US is up to 14.7%, and new data from the @BLS_gov show that ever industry has not been equally affected. 39% of new jobless claims came from the leisure & hospitality industry, and another 17% from retail. https://t.co/ZJ0Z4RO9gM pic.twitter.com/kc5dTLtN6t
— Statista (@StatistaCharts) May 11, 2020
Business Standard reports that travel, hospitality, oil and gas, and manufacturing companies have halted operations or significantly reduced their scale due to COVID-19. This includes companies from all across the United States, UK, and Europe. This also affects the outsourcing application and maintenance-related services for these industries as they down-scale as well.
The trend in the IT sector today
This also reflects on IT services companies from the APAC as they are forced to adapt to new realities. For example, Indian IT outsourcing service providers experience disruption especially in terms of growth.
These companies are safe for now. Despite setbacks, most contracts still hold short-term safety cushions (i.e. cash flow and reserves) in place. The market may experience a rise in demand for outsourcing services. This is when the pandemic curve starts to flatten and some semblance of normality returns.
Business leaders anticipate IoT, AI, and cloud solutions will have the most profound impact on their organizations. Learn more in our #ReadinessReport https://t.co/KpRvIaV4GC pic.twitter.com/WGQ7xgdxI2
— Deloitte (@Deloitte) January 28, 2020
A comprehensive report mentions that in the IT sectors, cloud services will have an increase in demand as companies move to remote working. Setting up secure, reliable networks and developing software is just the start of it. This is to facilitate the transition for their client companies as it becomes an area where outsource service providers can potentially generate a lot of added value.
What the future holds or the ripples on the global IT outsourcing market is still far too early to predict. Right now, IT companies try to balance the safety of employees with acceptable levels of service delivery and demand. Approaching each business day with a cautionary optimistic mindset, facing tough choices, and turning to both data and empathy is the way forward.
Image source: The feature image has been prepared by You X Ventures.
Sources: Statista / Debasis Mohapatra (Business Standard) / Kunal Purohit (South China Morning Post) / Deloitte