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Despite the Economic Downturn, IDC Expects Growth in IT Services for 2008


MADRID, SPAIN . - According to a recent study published by IDC, the Western European IT services market will grow 4.8% in the next five years, to reach $249 billion by 2012. Despite the economic downturn, higher demand for outsourcing combined with the increasing externalization of custom application developments will drive IT services spending upwards by 5% in 2008.

Companies looking for greater predictability of IT costs are driving demand for outsourcing services. Today, as in the early ’90s, to get IT off the balance sheet and as an operating cost is a major driver for outsourcing. In addition, increasing access to cheap resources and customers’ need to modernize applications has revitalized the custom application development market, leading customers to increasingly externalize the whole project instead of hiring contractors to work on internal projects. Indian pure-play service providers are winning most of this growth, and even though they still account for a small proportion of the market, their aggressive growth is pushing the custom application development market up.

During the first half of 2008, we hardly noticed the effects of the downturn on the IT services market. IDC believes the impact on IT services will be more visible from early 4Q08 and for the following 18 to 24 months, until the market rebounds again around the second half of 2010. Countries such as the U.K., Ireland, and Spain are the most likely to feel the impact of the downturn, due to the deterioration of the housing market and GDP growth in those economies that created a more gloomy business sentiment across all industries, including IT.

From a market segment perspective, we expect consulting and project engagements to be the most affected by the crisis, whereas we anticipate higher growth in outsourcing as enterprises try to reduce costs. The project-oriented segment represents around 38% of the services market, so the final impact on the overall IT services market will remain rather limited.

IDC is taking a more conservative view of the IT services market’s growth, which was lowered to 4.5% for 2009. We anticipate that many businesses will see fewer new IT initiatives started in 2009, as clients refrain from starting new projects, and large projects already launched are split into smaller parts, with go-ahead needed for each new phase. Also, small and midsize businesses across Europe will be less keen to invest in IT in the coming years, bringing bad news for IT vendors looking to unlock the SMB space.

Even though we expect the downturn to continue until the first half of 2010, we believe the effects in the IT services market will remain relatively limited, as the market is already business-case driven and not led by over investment like in the dot-com crisis.

This IDC study, Western European IT Services Market 2007-2012, a 3Q Forecast Update (IDC #Q78Q, August 2008), provides an update of the Western European IT services forecast published in April 2008, and includes a quantitative analysis of IT services spending by 12 foundation markets and 16 countries. “As the European economy cools, the outsourcing segment continues to be the growth engine of the IT services market,” said Research Manager Laura Converso, IDC European Software and Services. “Even though we adjusted the growth expected in consulting and project engagements downwards for 2008, due to the effects of the downturn, the growth we expect in the application development market and the estimated higher growth in the IS outsourcing market more than offset the downward effect of the crisis.”


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