Europe slows in outsourcing services spending

Europe is seeing a decline in the outsourcing services spending market despite the overall market rising, a Gartner report has found.

According to the analyst company, the challenging economic climate that worsened in late 2011 continue to affect government policies and end-user sentiment in many key European countries, resulting in a forecast for Western Europe ITO growth decline of 1.9 percent during 2012.

It said reinvigorated economic pressure was also delaying the willingness of many commercial organisations to focus on enhancing competitiveness rather than cost reduction, while the European public sector will continue to see a cautious budget environment throughout 2012.

It said this would force many central and local government entities to concentrate on outsourcing initiatives aimed at reducing IT cost through IT efficiencies and rationalisation.

However, on a global scale the outlook was more positive. Worldwide spending for IT outsourcing services, according to Gartner, is set to reach $251.7 billion in 2012, a 2.1 percent increase from 2011 spending of $246.6 billion.

The fastest-growing segment within the ITO market was identified as cloud compute services, which formed part of the cloud-based infrastructure as a service (IaaS) segment. According to Gartner, cloud compute services are expected to grow 48.7 percent in 2012 to $5.0 billion, up from $3.4 billion in 2011.

Gregor Petri, research director at Gartner, said: “Today, cloud compute services primarily provide automation of basic functions. As next-generation business applications come to market and existing applications are migrated to use automated operations and monitoring, increased value in terms of service consistency, agility and personnel reduction will be delivered.

“Continued privacy and compliance concerns may however negatively impact growth in some regions, especially if providers are slow in bringing localised solutions to market.”

Data centre outsourcing (DCO), a mature segment of the ITO market, represented 34.5 percent of the market in 2011, but growth will decline 1 percent in 2012, Gartner warned.

Bryan Britz, research director at Gartner, added: “The data centre outsourcing market is at a major tipping point, where various data center processing systems will gradually be replaced by new delivery models through 2016. These new services enable providers to address new categories of clients, extending DCO from traditional large organizations into small or midsize businesses.”

The application outsourcing (AO) segment, however, is fairing better, and is expected to reach $40.7 billion, a two percent increase from 2011 spending of $39.9 billion.

According to the company, this growth reflects enterprises’ needs to manage extensive legacy application environments and their commercial off-the-shelf packages that run the business.

“Change is afoot in the AO market. The burdens of managing the legacy portfolio, along with the limitations of IT budgets, have shifted the enterprise buyers to be cautious and favor a more evolutionary approach to other application services, such as software as a service (SaaS),” Britz said.

“New applications will largely be packaged and/or SaaS-deployed in order to extend and modernize the portfolio in an incremental manner. While custom applications will remain ‘core’ for many organizations, the trend in the next few years to SaaS enablement in the cloud will reflect in the growth of the AO outlook.”