IT SERVICES OUTSOURCING MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2024-2031)

IT Services Outsourcing Market Size and Trends

Global IT services outsourcing market is estimated to be valued at USD 387.46 Bn in 2024 and is expected to reach USD 702.32 Bn by 2031, exhibiting a compound annual growth rate (CAGR) of 8.9% from 2024 to 2031.

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With increasing globalization of businesses, more companies are outsourcing their IT services such as infrastructure management and support to lower costs and focus on their core operations, the market is expected to witness significant growth during the forecast period. The key drivers of this market include focus on core competencies, access to advanced technologies, scalability, and cost optimization. There is rising demand for outsourcing application development and maintenance services, especially among small and medium enterprises. Growing penetration of cloud-based technologies and automation are also expected to boost the IT services outsourcing market.

Technological advancements and digital transformation

With technology advancing at an ever-increasing rate, it has become almost impossible for organizations to keep up with the latest innovations on their own. There is constant change in areas such as cloud computing, mobility, analytics, automation, Blockchain, and artificial intelligence. Moreover, customers are demanding improved digital services and experiences. Organizations are under pressure to quickly adopt new technologies and digital business models in order to remain competitive. This is driving greater reliance on IT services providers that have specialist skills and can help accelerate digital transformation journeys.

Outsourcing non-core technology functions such as infrastructure management, application development and support allows companies to focus internal resources on their core competencies. IT service providers invest heavily in research and building centers of excellence to stay ahead of the technology curve. They have the capabilities and expertise to integrate new technologies seamlessly into clients’ systems and operations. Particularly for newer and emerging technologies, outsourcing reduces the risks associated with in-house development and implementation. Service providers effectively share the costs and responsibilities of continuously evolving technology landscapes with their clients.

For instance, In February 2023, Oracle, a leading cloud technology company, launched Oracle Banking Cloud Services, a new suite of cloud-native, software-as-a-service (SaaS) solutions for the banking industry. This componentized and composable suite of services is designed to help corporate and retail banks modernize their applications and meet customer demands with agility. The services can be selected and combined to create tailored solutions that address each bank's unique requirements, enabling them to innovate with speed, security, and scale without compromising their existing environments.

Market Concentration and Competitive Landscape

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Growing Demand for Flexible Workforce and Managed Services

Rather than maintaining expensive in-house IT teams to handle various tasks, many companies now prefer outsourcing non-core IT functions. This provides operational flexibility and reduces fixed costs. Global capability centers of IT service providers can scale resources up or down instantly based on changing business demands. Their workforce is trained and certified on a wide range of technologies, with different skill levels available on an as-needed basis.

Outsourcing frees internal teams to focus on strategic priorities instead of routine maintenance and support activities. IT service vendors offer managed services for applications, infrastructure and security through shared services models. They closely monitor clients’ IT environments using advanced tools and take care of ongoing operations, upgrades and issues reported. This streamlines processes, improves service quality through specialized management skills and frees clients’ employees for more critical tasks. It also removes resource and budget planning uncertainties related to in-house maintenance of ageing systems.

Furthermore, managed services pricing is mostly aligned to actual usage rather than large upfront capital investment and operating expenditures. This subscription or pay-per-use pricing makes IT costs highly predictable and visible. IT outsourcing models like cloud and "as-a-service" suit cash-strapped industries in the current uncertain macroeconomic conditions. They allow optimizing existing investments before incurring new expenses for IT modernization programs. Overall, the growing requirement for variable workforce and managed services delivery is a significant factor propelling increased IT outsourcing globally.

Key Takeaways from Analyst:

The global IT services outsourcing market continues to grow steadily driven by the need for cost reduction among organizations. More companies are outsourcing parts of their IT functions to managed service providers as they aim to optimize operational efficiency. North America dominate the market due to high technology adoption rates and mature outsourcing industry. However, growth in emerging markets like Asia Pacific and Latin America is expected to outpace the overall market growth.

The market is highly competitive with top players aggressively targeting smaller clients. Price pressures may restrain profits. Data security concerns also remain a challenge, as clients are wary of critical systems going online. Regulations on data storage locations continue to pose compliance issues. Currency fluctuations too impact outsourcing contracts. However, as digital transformation gains momentum worldwide, opportunities around cloud, IoT, and analytics are boosting demand. Growing multi-shore, co-sharing delivery models are also expanding outsourcing scopes.

Market Challenge - Cultural differences and communication challenges

One of the key challenges faced by the global IT services outsourcing market is cultural differences and communication challenges. As organizations outsource their IT requirements to third-party vendors based in other countries, there are bound to be differences in work culture, communication styles, and business practices. Different countries have their unique set of values, traditions, attitudes and cultural norms which impact the work environment and employee behavior. When teams working on outsourced projects are separated by great geographical distances, it becomes difficult to build rapport and understand each other fully due to lack of face-to-face interaction. Miscommunications can occur more frequently owing to language barriers and differences in accents or terminology used. Resolving conflicts or issues also becomes challenging without personal connections. Cultural differences may lead to conflict, delays in work or dissatisfaction among remote employees. Organizations need to invest in cultural awareness training and implement robust communication frameworks to tackle such challenges effectively.

Market Opportunities - Emerging Technologies such as AI, ML, and IoT

One of the major opportunities for the global IT services outsourcing market lies in emerging technologies such as artificial intelligence, machine learning, and internet of things. As these technologies grow in prominence, they are dramatically transforming various industries and business processes. However, building strong in-house AI/ML/IoT capabilities requires huge investments of capital and resources which many smaller companies may not be able to afford individually. IT service providers which have already established center of excellences for these technologies can help such organizations gain the benefits of these disruptive technologies via outsourcing models in a more cost-effective manner. Outsourcing the implementation and management of AI/ML/IoT solutions to capable third-party vendors allows clients to focus on their core business while leveraging cutting-edge technologies. This will significantly drive the demand for advanced outsourcing services around emerging technologies and present substantial growth opportunities.

For instance, In June 2023, IBM, a global technology and consulting company, announced the expansion of its partnership with Adobe, a leader in digital media solutions, to assist brands in accelerating their content supply chains through artificial intelligence (AI). This collaboration will utilize Adobe's AI-powered services, including Adobe Sensei GenAI and Adobe Firefly, to enable brands to create, manage, and deliver content more efficiently and effectively.

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Insights By Service Type - The Paint Application Segment Dominates Due to Its Focus on Quality and Efficiency, Emphasizing Growth

In terms of service type, paint application contributes the 41.8% share of the market in 2024 owing to its focus on quality and efficiency. Paint application is the leading service type segment in the global IT services outsourcing market as it allows for optimized processes and consistent results. With paint being a core part of any vehicle manufacturing or repair work, applying it correctly and efficiently is critical. Outsourcing paint application allows companies to leverage providers with specialized expertise and equipment for this task. This ensures a smooth, high-quality paint job every time without the need for substantial capital investment in facilities, workers, and technology onsite.

Using an outsourced partner also provides flexibility since demand can vary. During busy seasons or rush jobs, the outsourcer's resources can be tapped without concerns about capacity constraints internally. They are focused solely on paint application so can scale up or down quickly based on current needs. This helps companies avoid backlogs and meet tight turnaround requirements. The outsourcer's economy of scale also means paint application jobs can usually be handled at a lower total cost than doing it in-house.

Insights By Outsourcing Model - Full Outsourcing Leading the Market as Companies Prioritize Control Over Service Quality, Ensuring Accountability

In terms of outsourcing model, full outsourcing contributes the 60.4% share  in 2024 due to companies prioritizing control over their service quality. Within the outsourcing model segment, full outsourcing is the most common choice as it allows companies to fully relinquish responsibility for non-core services. By outsourcing an entire function like IT rather than parts of it, organizations gain a high level of control over service delivery and quality standards. With partial outsourcing, some management aspects may still need to be handled internally.

Under a full outsourcing agreement, clear service level agreements (SLAs) are established upfront regarding expectations, responsibilities, and accountability. The outsourcer then owns end-to-end management and has full control to configure people and technology solutions as they see fit to meet the agreed upon terms. Companies do not need to integrate outsourced services piecemeal with existing internal systems.

Rather than dividing focus between in-house and outsourced operations, full outsourcing centralizes all activities and oversight with one external partner. This provides a single point of contact for issues and a streamlined approach. Companies gain transparency into service costs too since they involve a fixed price contract versus variable cross-charges under partial outsourcing.

Taking a fully outsourced route means the partner's entire business hinges on customer satisfaction. They have strong incentive to implement rigorous quality controls and continuously improve service delivery through innovation. Ultimately, full outsourcing gives companies the greatest ability to detach themselves operationally while still maintaining defined control over outcomes.

Insights By End User - The Body Shops Segment Drives Growth by Optimizing Internal Expertise for Core Repair Services

In terms of end user, body shops contribute the 51.2% share in 2024 since outsourcing allows them to optimize internal expertise for core repair service. Body shops represent the largest end user segment for IT outsourcing due to their specific business requirements. As repair facilities, their core competence lies in damage assessment and physical vehicle restoration rather than support functions. Outsourcing non-essential IT services enables body shops to concentrate on internal human and capital resources on honing their repair expertise.

Through outsourcing, complex IT infrastructure and application management is shifted to vendor partners. This frees up body shop technicians, managers, and owners to focus full-time on continually expanding their repair certifications, using the latest tools and technologies, and streamlining repair processes. They can stay on top of emerging vehicle materials and repair methods without distraction.

Outsourcing streamlines interactions with insurance companies and parts suppliers too through specialized supplier relationship management applications and workflows. This simplifies administrative tasks for body shops. Vendors also provide scalable IT resources and capabilities which are not practical for many small repair facilities to invest in directly.

By leveraging external IT support, body shops gain access to innovations that may not be cost-justified internally but can create efficiencies. For instance, outsourcers implement enterprise resource planning tools that integrate estimating, scheduling, inventory, payroll, and accounting. This maximizes uptime for billable repair activities within each shop. In the end, outsourcing optimizes available talent toward customers' core automotive needs.

Regional Insights

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The North America region continues to dominate the global IT services outsourcing market with 32.7% share in 2024 owing to a well-established technology infrastructure and a conducive business environment. With abundant availability of skilled workforce and technology talent, countries like the U.S. and Canada have emerged as major sourcing hubs for IT services. Proximity to client locations and shared time zones allow seamless collaboration and prompt issue resolution.

Meanwhile, the Asia Pacific region has emerged as the fastest growing IT Services Outsourcing Market . Countries like India, China, the Philippines, and Vietnam offer attractive pricing benefits due to lower cost of operations and workforce. The mature IT infrastructure along with government initiatives to promote technology adoption have made nations in the Asia Pacific region an attractive outsourcing destination.

The availability of qualified English-speaking talent pool equipped with technical expertise has attracted several Multi-National Companies (MNCs) to set up captive centers and R&D facilities across countries like India. India, in particular has established itself as the leading source for software development, IT support and back-office outsourcing globally. Demand for niche services around cloud, IoT, analytics is on the rise from companies looking to gain business advantages. Export of IT services has significantly contributed to the economies of major Asian nations, underscoring lucrative growth opportunities for market players.

Market Report Scope

Key Developments

• In June 2023, Accenture, a leading global professional services company with 732,000 people serving clients in more than 120 countries, acquired Flutura, an India-based industrial AI company headquartered in Bangalore, to bolster its industrial AI services for clients in the energy, chemicals, metals, mining, and pharmaceutical industries. The acquisition of Flutura, which has approximately 110 professionals specializing in industrial data science services, is a strategic move by Accenture to expand its reach in the industrial AI market and help clients achieve high-value outcomes in their production operations.
• In June 2023, Accenture announced plans to invest US$ 3 billion in its Data & AI practice over the next three years. This investment is intended to support clients across various industries in achieving rapid and sustainable transformation, leveraging artificial intelligence to drive higher growth, efficiency, and resilience. Additionally, Accenture's Data & AI practice will expand to offer more industry-specific solutions and pre-built models tailored to the needs of its clients.
• In June 2023, Hewlett Packard Enterprise (HPE), a global edge-to-cloud company, announced the expansion of its partnership with Amazon Web Services (AWS) to facilitate hybrid cloud transformation for enterprises. This enhanced collaboration aims to provide customers with a more streamlined approach to managing and migrating workloads between HPE's on-premises infrastructure and AWS.
• In April 2023, Fujitsu, a leading Japan-based information technology (IT) company, announced the expansion of its digital transformation (DX) consulting capabilities across Europe. The company opened two new Near Response Centers (NRCs) in Spain and Estonia, providing clients with quick access to highly skilled experts who can assist with their digital transformation challenges.
• In March 2023, IBM, a leading global provider of hybrid cloud and AI solutions, announced a partnership with Cohesity, a prominent data security and management company, to address the critical need for resiliency in hybrid cloud environments and data security. The collaboration will integrate the companies' data protection, cyber resilience, and data management technologies to create IBM Storage Defender, a new service that incorporates Cohesity's data protection capabilities. IBM Storage Defender is designed to help enterprises safeguard their data against various threats, including malware, ransomware, and data exfiltration, while providing users with a unified view of data security across cloud, on-premises, and hybrid environments.

*Definition: The global IT services outsourcing market refers to the practice of hiring third-party service providers across various countries to handle major non-core functions or processes of a company's information technology operations. This includes services related to application development and maintenance, infrastructure management, system security and disaster management which are outsourced to external IT vendors or IT outsourcing companies globally. Outsourcing such services helps businesses optimize costs, access advanced IT skills and scalability.

Market Segmentation

• By Service Type Insights (Revenue, USD Bn, 2019 - 2031)
• • Paint Application
  • Surface Preparation
  • Quality Control
  • Logistics and Supply Chain Management
• By Outsourcing Model Insights (Revenue, USD Bn, 2019 - 2031)
• • Full Outsourcing
  • Partial Outsourcing
• By End User Insights (Revenue, USD Bn, 2019 - 2031)
• • Body Shops
  • OEMs (Original Equipment Manufacturers)
  • Aftermarket Service Providers
• Regional Insights (Revenue, US$ Bn, 2019 - 2031)
  • North America
    • U.S.
    • Canada
  • Latin America
    • Brazil
    • Argentina
    • Mexico
    • Rest of Latin America
  • Europe
    • Germany
    • U.K.
    • Spain
    • France
    • Italy
    • Russia
    • Rest of Europe
  • Asia Pacific
    • China
    • India
    • Japan
    • Australia
    • South Korea
    • ASEAN
    • Rest of Asia Pacific
  • Middle East & Africa
    • GCC Countries
    • Israel
    • South Africa
    • Rest of Middle East & Africa
• Key Players Insights
  • Accenture PLC
  • Capgemini SE
  • Cognizant Technology Solutions Corporation
  • DXC Technology Company
  • Fujitsu Limited
  • HCL Technologies Limited
  • IBM Corporation
  • Infosys Limited
  • LTI (Larsen & Toubro Infotech)
  • Mindtree Limited
  • NTT DATA Corporation
  • Tech Mahindra Limited
  • Tata Consultancy Services Limited
  • Wipro Limited
  • Zensar Technologies Limited