IT Services Outsourcing Market

Market Overview

The global IT services outsourcing market size was valued at USD 261.9 billion in 2022. It is estimated to reach USD 587.88 billion by 2031, growing at a CAGR of 9.4% during the forecast period (2023–2031). The pressure to reduce cost, business risk and the rising adoption of automated systems and embedded technology stimulate market growth.

Information technology (IT) services outsourcing is entrusting operations and projects related to information technology (IT) to outside service providers. Working with specialized businesses or service providers is necessary to handle various information technology requirements for organizations. This tactical choice enables companies to capitalize on outsourcing partners' knowledge, resources, and capabilities while focusing on their core competencies. The duties that come along with outsourcing information technology services include software development, application management, infrastructure management, data center operations, technical support, and cybersecurity, to name just a few. When companies outsource their information technology services, they can access a global talent pool, access specialized skills and technologies, lower operational costs, increase scalability and flexibility, improve service quality, and stay current with the most recent trends in their respective industries.

Outsourcing information technology services enables firms to get a competitive advantage by streamlining operations, boosting efficiency, and achieving a streamlined competitive advantage in today's fast-paced and technologically driven corporate world. Getting a more streamlined competitive advantage allows for this.

Market Dynamics

Global IT Services Outsourcing Market Drivers:

Pressure to Reduce Cost and Business Risk

Due to the demand for cost reduction brought on by increased global competitiveness, businesses are now looking at external engineering services. Providers can improve capabilities and reduce infrastructure and training expenses by working with IT services providers specializing in technological operations. Companies can concentrate on important business processes like management and decision-making by outsourcing their IT services.

Additionally, this assists businesses in reducing training expenses, which might be prohibitive. IT services are provided by reputable and knowledgeable vendors, reducing the expense of IT professionals' training. This gives companies access to their resources, knowledge, and skills as well as to better people, cutting-edge software, and hardware solutions. IT service providers who can develop proficiency and market value may manage challenging IT operations. IT operations can be imitated by non-IT organizations with less skill and less qualified personnel. However, complex IT operations demand higher technical expertise and rigorous project planning, design, and execution. Costs are decreased, efficiency is increased, and risk is reduced when IT services are outsourced to a service provider.

Rising Adoption of Automated Systems and Embedded Technology

The demand for automated systems, equipment, processes, and devices is driving growth in the market for IT services outsourcing. Customized IT services are being outsourced by businesses to cut down on labor costs and boost productivity. The management of network security, software installation, and file backup is done by external managed service providers (MSPs). The usage of DXC Bionix, thanks to partnerships between organizations like DXC Technology Company and Trade Shift, has transformed processes for accounts payable and procurement.

Automation of manufacturing processes has been made possible by technological breakthroughs like digitization and artificial intelligence, and efficiency has been improved by using basic control systems like Programmable Logic Controllers (PLCs), the Internet of Things (IoT), and Programmable Automatic Controllers (PACs). Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS), and Infrastructure-as-a-Service (IaaS) models have emerged as a result of cloud migration, which has also contributed to market growth.

Global IT Services Outsourcing Market Restraint:

Threat To Intellectual Property (IP) And Confidentiality

Digitization increases the threat of cyber-attacks in the IT services industry, as end-use participants exchange private data on specifications, technology, and performance of services or equipment. This data is valuable for cyber attackers who can replicate products and cut prices to outdo the competition. IT service vendors with access to classified or sensitive information are easy targets for hacks, both on-shore and off-shore. Smaller and medium-sized suppliers are less likely to have advanced IT security protocols, making them more vulnerable to hackers.

Compromised data poses a significant threat to IT companies and outsourcing providers, potentially leading to catastrophic consequences. To subcontract services to IT providers, companies must protect critical data with access codes, examine network functioning, and maintain source code or design copies. Vigilance is crucial to avoid IP theft, as lawful enforcement, particularly in offshore sites, makes it difficult to prosecute firms that misuse confidential data. This confidentiality and security threat is expected to hinder the growth of the IT services outsourcing market.

Global IT Services Outsourcing Market Opportunities:

Cybersecurity as well as the Privacy of Personal Data

As data leaks and hacking attempts increased, businesses shifted their attention to strengthening their cybersecurity defenses and assuring compliance with all existing data privacy legislation. Consequently, possibilities presented themselves for providers of information technology outsourcing services specializing in cybersecurity solutions. These solutions include threat detection and response, vulnerability assessments, data protection, and security governance. These are the kinds of solutions that contain them and other areas as well. These kinds of remedies include them, in addition to other parts of the problem.

Regional Analysis

North America Dominates the Global Market

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

North America is the most significant global IT services outsourcing market shareholder and is estimated to exhibit a CAGR of 6.6% over the forecast period. North America has emerged as a leading market for outsourcing services linked to information technology due to many technology companies and a continuing emphasis on innovation. The area is home to many well-trained IT professionals, an advanced physical infrastructure, and well-established companies that provide outsourcing services. The United States of America, Canada, and Mexico are three of the most important countries in North America for outsourcing corporate processes. The numerous information technology (IT) services, including software development, IT infrastructure management, cloud computing, cybersecurity, and data analytics, are where most of the market's attention is currently focused.

Europe is anticipated to exhibit a CAGR of 7.1% over the forecast period. Europe is another significant region for the outsourcing of information technology services since it contains a large number of mature markets as well as growing destinations for outsourcing. Countries like the United Kingdom, Germany, France, and Ireland all have well-established industries in this field, and as a result, outsourcing is a widespread practice in these countries. Several nations in Eastern Europe, including Poland, Romania, and Ukraine, have been recognized for their skill in information technology outsourcing. This region offers a comprehensive selection of services, including application development, maintenance, and support; testing and quality assurance; testing and quality assurance; IT consultancy; and enterprise resource planning (ERP) implementation.

The Asia-Pacific area has emerged as a central hub for outsourcing information technology services in a relatively short time. This rapid growth can be attributed to the region's vast pool of highly qualified IT professionals, practical cost advantages, and supportive government laws. Because India is so well-known for its software development, application maintenance, and support expertise, it has traditionally been the most preferred site for firms to outsource their work. In the international market for outsourcing information technology services, significant roles are also played by several other countries, including China, the Philippines, Vietnam, and Malaysia, amongst others. This region offers a vast selection of services, including business process outsourcing (BPO), application development, administration of information technology infrastructure, customer assistance, data analytics, and more.

Latin America has had consistent growth in the market for outsourcing information technology services in recent years. An increase in demand has been the main driver of this growth. In recent years, many nations in the area, notably Brazil, Mexico, Argentina, and Colombia, have solidified themselves as top outsourcing destinations. Colombia is one of these countries. Due to its proximity to Latin America, the United States of America benefits from several of these advantages, including a sizeable bilingual workforce and a more hospitable economic environment. A wide range of information technology services are offered in the region, some of which include software and mobile application development, IT support, software testing, and infrastructure administration.

In the Middle East and Africa, there is a rising need for outsourcing services linked to information and communication technology. Most of this growth can be attributed to fundamental factors, such as infrastructure development and investments in digital transformation. Among the area's most popular nations and tourism destinations are Egypt, South Africa, Morocco, and the United Arab Emirates. The United Arab Emirates and Morocco are a couple of other well-liked vacation spots. Other popular nations and tourist destinations include Morocco and the United Arab Emirates. The Middle East and Africa's information technology industry offers various services, including software development, IT consulting, system integration, support and advising, and data center services. Data center services are among the other services. All of these things are found in the realm of information technology.

Segmental Analysis

The global IT services outsourcing market is bifurcated into service, location, and end-user.

Based on the service, the global IT services outsourcing market is bifurcated into application services, emerging technology services, data center operations, helpdesk services, infrastructure capacity services, managed security operations, network operations, and others. 

The application services segment dominates the global market and is projected to exhibit a CAGR of 6.8% over the forecast period. It is anticipated that the application services category will maintain its dominance in the market throughout the projected period, which is why it held the greatest market share of 20.5%. As a result of the fact that application development, deployment, and maintenance have become the most outsourced services within the context of the trends in information technology outsourcing, this is anticipated to be the case. Because it enables businesses to simplify and automate the apps and processes that make up their operations, the growth of cloud computing has also contributed to accelerating market expansion. This is one of the reasons why the market is expanding so quickly.

Based on location, the global IT services outsourcing market is segmented into on-shore and off-shore. 

The Off-shore segment dominates the global market and is predicted to exhibit a CAGR of 7.5% during the forecast period. The offshore sector held the biggest market share, with a percentage of 50.8%, and is anticipated to show a significant increase throughout the projection period. The offshoring of information technology operations to developing countries to gain access to skilled professionals at cost-effective rates, cost savings in infrastructure, and a liberal compliance and business-friendly regulatory environment at these locations are the primary reasons for the offshore location's pre-eminence.

Companies have decided to outsource their work to Asia-Pacific countries like the Philippines, India, and Malaysia since these nations offer a large supply of skilled experts and labor at a lower cost. It is expected that the market will experience a shift in this trend throughout the projection period, with onshoring becoming more prevalent.

Based on end-users, the global IT services outsourcing market is divided into aerospace and defense, BFSI, healthcare, retail and e-commerce, telecom and media, and others. 

The BFSI segment is the most significant contributor to the market and is estimated to exhibit a CAGR of 7.6% over the forecast period. It was revealed that the BFSI category had a larger revenue share, and it is anticipated to maintain its dominance over the expected period. It is projected that the BFSI sector will keep its position as the market leader because of the considerable expenditures made by the BFSI sector in automation, artificial intelligence-based conversational systems, and cybersecurity. These investments were made to maintain the sector's position as the market leader.

Recent Developments

• January 2023 - Accenture has planned to buy SKS Group. This consultancy company uses SAP S/4HANA solutions to assist banks in Germany, Austria, and Switzerland in modernizing their technological infrastructure and satisfying regulatory requirements. The acquisition would increase Accenture's capacity to provide specialized banks with technology, consulting, and regulatory services.
• December 2022 - NN Life Insurance Company, a leading player in Japan for the SME segment, which provides innovative Insurance solutions, has partnered with Infosys for its Cloud and Agile Transformation. The company would leverage the Infosys Modernization Platform, part of the Infosys Cobalt suite, for end-to-end transformation to Azure Cloud, deploy agile processes, and introduce cloud-native capabilities for NN Life Insurance.