The Global IT Industry

Table of Contents Introduction IT Services Industry Trends Pressure in outsourcing Growth potential Emerging areas of growth Conclusion Works Cited The global IT industry continues to show growth year after year, with the software market expanding at a whopping 8% per annum. The convergence of hardware, software and services is creating new markets, and we are witnessing a global paradigm shift from hardware to software.Advertising We will write a custom essay sample on The Global IT Industry specifically for you for only $16.05 $11/page Learn More It is anticipated that the IT services industry will expand along with the IT industry. In 2012, the IT services market will likely see a slowdown in demand from traditional IT services such as consulting and system integration, while cloud computing and convergence services should create new demand. Meanwhile, in the outsourcing market, cost reduction and operating efficiency are likely to be emphasized, while demand for business process and application outsourcing should increase (Roy 3). Introduction IT services companies are faced with global economic challenges with growth projections tempered by reticent stances in large developed markets such as North America and Western Europe, while focusing on fast growing economies such as China, India and Latin America. Gartner forecasted a 7.4% growth in overall IT Services spending from $793 million in 2010 to $851.6 billion in 2011. It also predicted increased software support over a multi-year period, between 2010 and 2015, with a compounded annual growth rate (CAGR) of 7.2%, followed by consulting at 5.8%, process management at 5.1%, development and integration at 4.9% and IT management at 4.8%. Over this same timeframe, hardware maintenance and support is expected to grow the slowest with a forecasted CAGR of 3.3% (KPMG, Quarterly Update for the IT Services Industry 1). IT Services Industry Trends Gartner indicated that there is inc reasing usage of specialized cloud based services, provided by a variety of cloud providers, which will increase the ability to aggregate, integrate, govern and customize disparate cloud offerings based on the needs and preferences of their customers. In addition to this, Gartner indicated that the need for governments in developed countries to achieve cost savings owing to budgetary constraints increase has resulted in pushing IT service providers to offshore low cost locations. The quarterly TPI Index displays trends on BPO and IT outsourcing and contract spending by regions and industries. The IT Outsourcing Total Contracting Value (TCV) for the third quarter of 2011 was estimated at $11.3 billion, representing quarter-over-quarter and year-over-year declines of 8.0% each (KPMG, Quarterly Update for the IT Services Industry 2). Pressure in outsourcing Strong pricing pressure is being exerted by buyers on outsourcing and other third-party service providers, though leading provider s are typically able to hold their own and avoid unprofitable deals. Some of the leading global business and IT service providers include: Accenture, Capgemini, Cognizant, CSC and Infosys (KPMG, KPMG Sourcing Advisory 4Q11 Global Pulse Survey 3).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Most of the service providers (61%) indicated that the growth levels in their pipelines for service deals cited a 15% drop in growth over the past quarter of 2011, with only 45% of the providers projecting an increase in the pace of customer demand for business and IT services over the next one to two, which is a drop of 14 percent from last quarter and 29% from 2Q11. Chart 1: service providers: new deal pipeline projections (KPMG) Growth potential BPO has been affected by evolving trends, which include: consolidation of vendors (CRM), slippage in deal size (FA), and shift to alternative services lik e BPU; resulting in lower transaction deal size. As for the ITO, the forecast has been lowered to 2.9% growth in CY12 (earlier 4.1%); however, there are growing evidences of vendor churns on accounts of better ROI, innovation and compelling pricing through off shoring. Gartner projects 16-21% revenue growth in USD terms for Indian IT companies largely driven by volume traction (Roy). The growth of individual companies in off shoring is dependent on a few factors including: the company’s size and market position, which is an important barometer since large IT services providers with leading market positions have an advantage over their competitors in terms of experience, talent pool, project knowhow, funding capabilities and client preferences; stability of the business structure, which requires a captive customer base, therefore, preference is given to IT services firms operating under a group umbrella over stand-alone firms as they enjoy stable sources of revenues; consisten t acquisition of overseas orders; and how well the company is prepared for newly emerging technologies (e.g. IT convergence and cloud computing) (Jeong 3). Emerging areas of growth Global spending on IT services has remained stable in the first half of 2011, whereas global outsourcing is growing faster. According to International Data Corporation (IDC), the spend on IT Services is expected to grow by 4% in 2011, higher than the 2% growth rate witnessed in 2010, while global outsourcing or outsourcing to low†cost destinations such as India, China and Philippines grew by 12% (Avendus 14). Information Systems (IS) outsourcing registered the highest growth rate of 12.3% in 2010, despite the overall spend growing by just 1%, indicating the growing demand for these services (Avendus 15). This growth momentum is expected to continue in FY12 led by higher technology spend globally.Advertising We will write a custom essay sample on The Global IT Industry specifically for you for only $16.05 $11/page Learn More Large Indian IT vendors like Infosys, TCS, Wipro and HCL Tech will benefit the most from this improved demand environment as compared to the smaller IT vendors. However, issues on the supply side like salary hikes and higher attrition will have a negative impact on their profitability in FY12. Conclusion US geography has outperformed lead growth for Indian IT vendors. Improved economic environment in US and better GDP growth will boost IT spending and lead to an improvement in sentiments. Europe has lagged behind in terms of growth but is expected to do well in FY12 as companies become more open towards offshore outsourcing (Taurani 4). Works Cited Avendus. â€Å"IT Services.† India Equity Research Technology (2012): 1-27. Print. Jeong, Dae-ro. IT Services. London: Daewoo Securities, 2012. Print. KPMG. â€Å"KPMG Sourcing Advisory 4Q11 Global Pulse Survey.† Equaterra (2012): 2-33. Print. KPMG. Quarterly Update fo r the IT Services Industry. USA: KPMG, 2011. Print. Roy, Arup. Indian IT Services. Mumbai: Reuters, Thomson Publishers and Bloomberg, 2011. Print.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Taurani, Karan. â€Å"Persistent Growth Momentum.† KSL – IT Sector Update (2011). Print. This essay on The Global IT Industry was written and submitted by user Jaylee Francis to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.