IT Outsourcing Market

Market Overview

The global IT outsourcing market size was valued at USD 565.2 billion in 2022.  The market is projected to grow at a CAGR of 9.3% from USD 565.6 billion in 2023 to USD 1416.3 billion by 2031.

IT outsourcing is the external use of service providers to efficiently deliver IT-based business processes, application services, and infrastructure solutions for business results. IT outsourcing means that a company provides part of its software development outside the internal structure in order to reduce costs and control all processes. IT outsourcing services include application development, infrastructure and software support and maintenance, data center management, and other processes. 

IT has become a competitive advantage for most businesses. IT outsourcing is a technique for cost reduction with the cloud migrations and options of cloud services. Several studies have suggested that Application Development and Maintenance have become the most commonly outsourced functions amidst the partial IT outsourcing market trends. Additionally, distinction in offerings amid the presence of multiple players has led to the development of specialized teams. New contract models transform IT outsourcing into value-driven and interpersonal value, as well as the development of technical teams.

Market Dynamics

Market Drivers

Need for Efficient and Scalable IT Infrastructure Boosting Global Market

The future technology adoption plans hover around the adoption of newly emerging technologies that are predicted to grow significantly since many businesses have replaced outdated infrastructure. Public cloud giants like Google and AW; entail on-demand, dynamic, enormous scalability needs. The adoption of 5G is anticipated to lead to the need for efficient and alterable network infrastructure in the near future. The crush of the fifth generation networks is causing existing IT infrastructure to change across automotive, AR/VR, mobile connectivity, and telecommunications. Also, AI, IoT, and robotic process automation are changing the customer experience across fintech sectors, which enables the inclination for scalable IT infrastructure in the rouse of increased P2P transfers and global payments use of no-contact bank cards and management of cryptocurrency via digital channels.

Large enterprises have placed a priority on IT by adopting emerging technologies up to 5 times faster than small businesses. For example, according to SpiceWorks, 31% of large enterprises (companies with more than 5,000 employees) have chosen blockchain technology compared to 6% of small businesses. This adoption of software development outsourcing and cloud services has emerged as a viable option for small-scale organizations that want to scale by adding newer customers.

Reliance on Outsourced Vendors for Differentiation Surging Market Growth

For small or medium-sized businesses, the availability of highly trained technicians is easier with IT operations outsourcing. By employing multiple dedicated IT professionals, the larger companies cannot always find technology generalists to leverage upgraded network maintenance and security. From being a cost reduction tool to a key strategic player, digital transformations and organizations opting for AI, RPA, Cloud, and IoT have opened up the role of IT outsourcing. Security risks have increased with the software giants moving to the software-as-a-service (SaaS) model. Outsourcing security IT provides the benefit of 24/7 monitoring, with professional technicians who work to prevent and patch security breaches.

As a result, enterprises have started to focus on central competencies and influence IT as a competitive boundary. Managed IT service providers having large teams with trained specialists usually address the impossible situations. Outsourcing software applications has fastened the time-to-market for organizations that do not have a tech background as a core capability. IT outsourcing market companies are witnessing forming partnerships with vendors that have the expertise of working in specific areas, thus indicating a focused and narrower specialization in the future. The preference for a trusted service provider will increase because customers are increasingly concentrated on the place where their confidential information is hosted.

Market Restraints

Fragmented Market and Data Breaches Resisting Global Market

Many established and technologically driven players are available worldwide. The development of specializations is seen to fragment the market with the vendors being studied. The rivalry is expected to be high as multiple strategies have been adopted to enter into new emerging markets and acquire/partner with allied technology-driven companies. This has led to the development of incompatible technology stacks, forcing prospective buyers to remain with a vendor choice to obtain products and services. Such challenges to outsourcing are leading to companies being prone to multiple challenges like operational issues pertaining to communication challenges, scope understanding, ambiguous stakeholder views, and code quality lowering.

Regional Analysis

Asia-Pacific to be the Largest Revenue Holder in the Global Market

Based on region, the IT outsourcing market share is segmented into North America, Europe, Asia-Pacific, Latin America, and Middle East Africa.

Asia-Pacific is anticipated to hold the largest market share  by 2031. Cost factors and talented skill pool have played a key role in driving the market in this region. India is the largest contributor to the market compared to other countries in 2023. APAC countries like India, China, and the Philippines offer a vast pool of highly skilled and cost-effective IT professionals. This talent advantage has made APAC a preferred destination for outsourcing, especially in software development, customer support, and IT maintenance.The region's strong focus on technological advancements, including cloud computing, artificial intelligence (AI), and robotic process automation (RPA), has further bolstered the IT outsourcing market. These technologies enhance the efficiency and scalability of outsourced services, attracting businesses from around the world. APAC's time zone advantage allows for 24/7 service availability, making it particularly attractive for businesses requiring continuous IT support. The strategic geographic location of APAC also facilitates closer collaboration with global clients, ensuring effective communication and project management.

North America stands as the second-largest contributor to the IT outsourcing market. North America boasts a robust technological ecosystem with numerous IT companies, startups, and research institutions. The region's focus on emerging technologies like AI, blockchain, and IoT presents lucrative opportunities for IT outsourcing providers. The region is home to a vast pool of highly skilled IT professionals, including software developers, data scientists, and cybersecurity experts. This talent pool is a major attraction for outsourcing clients looking for expertise and quality services. Many North American companies are expanding their global footprint. To achieve this expansion efficiently, they often turn to IT outsourcing partners who can help them establish and manage IT infrastructure in new markets.

Europe's IT outsourcing market is on a steady growth trajectory. The Cost savings, coupled with the desire for business transformation and enhanced service quality, are driving companies to consider outsourcing. The need for digital transformation initiatives has fueled IT outsourcing, with companies seeking expertise in cloud computing, cybersecurity, and data analytics. Notably, the United Kingdom and Germany exhibit higher market revenue compared to Italy and France. European outsourcing providers are emphasizing innovation and value-added services, moving beyond cost reduction.

Latin America and Middle East & Africa have the lowest market. However, LATAM countries like Brazil and Mexico offer competitive IT services, the region faces challenges related to political and economic instability in some areas. Despite these challenges, there are compelling factors driving the LATAM IT outsourcing market.Cost-effectiveness is a significant advantage in LATAM, with competitive labor rates compared to North America and Western Europe. Additionally, proximity to North American markets allows for easier communication and travel, making LATAM a viable outsourcing option for companies in the Americas.Furthermore, LATAM has been making efforts to align with global quality standards and certifications in IT services. This commitment to service quality and compliance has gained the trust of international clients.

Segmental Analysis

The global IT outsourcing market share is categorized by organization size and end-user verticals.

Based on the Size of the Organization

The large enterprise is the major shareholder in the global IT outsourcing market. The market revenue was valued at USD 329 billion in 2021. Reduction in implementation costs, reduction of wait times, and increased productivity are the factors leading the larger enterprise to outsource IT. Increasing cloud adoption trends across large enterprises are driving market revenues. The large enterprise segment is projected to generate USD 488 billion in 2030 and grow at a CAGR of 5% by 2030.

By End-User

BFSI is the largest market holder. It was valued at USD 151 billion in 2021. Media and telecommunications is anticipated to be the second-largest market holder. The packaging industry is driven by the growing demand for personal protective kits, face masks, face shields, and others, along with high consumers in developing economies. By outsourcing IT, banks can cut a lot of expenses, focus more on the core tasks and build user-friendly interfaces for the customers. Personal and streamlined bank services and real-time data collection and analysis are added advantages to the banks. These developments are boosting IT outsourcing market in banks. The BFSI segment is projected to generate USD 226 billion in 2030 and grow at a CAGR of 5% by 2030.

Recent Developments

• In March 2021, Capgemini announced a five-year agreement with the Metropolitan Police Service (MPS), the UK’s largest police service, to become its strategic IT infrastructure services provider.
• In March 2021, SCC AVS partnered with Utelogy to enhance the management, monitoring, and control of video-enabled workplace software solutions. 
• In March 2021, TCS launched a new version of its Data and Analytics Target Operating Model, which allows customers to evaluate the data and analytics and further leverage it to get business transformation outcomes with Microsoft Azure.
• In February 2021, WNS announced that they deployed a custom intelligent automation solution in collaboration with Automation Anywhere to equip Virgin Atlantic to process the sudden spike in COVID-19-related refund requests with speed and efficiency while maintaining customer service standards. 
• In November 2022, Cognizant has been selected by VodafoneZiggo, a leading provider of communication and entertainment services in the Netherlands, as its managed services partner. This partnership aims to consolidate and support VodafoneZiggo's IT and virtualized mobile network infrastructure operations. The goal is to improve the reliability and availability of communication services through proactive infrastructure monitoring, more precise planning, and expedited deployment of new services to their extensive customer base of over five million consumers and businesses in the Netherlands.