Interestingly, the latest report on the APAC (except for Japan) outsourcing market by global analyst firm IDC paints a picture of a once-buoyant industry in decline since last year – and follows Prime Malcom Turnbull’s comments on Monday night, as reported by iTWire, indicating that he wants to see very large IT services contracts in the future delivered from within government, and not outsourced to private companies.
IDC’s report covering 2015, and continuing into this year, shows a decline in regional revenues for traditional outsourcers in 2015 of US$23.1 billion – a 3.7% decline year-on-year (YoY).
And, the analyst firm says that the outsourcing service providers across the region continue to struggle around redefining their value proposition in the so-called “age of greater automation, standardisation, and adoption of cloud services".
While IDC says that IBM, Hewlett Packard Enterprise (HPE), and Samsung SDS continue to be the top three service providers in the ITO market in 2015 — with Accenture and Telstra enjoying the top 4 and 5 positions respectively and both gaining market share over CSC — outsourcers such as IBM and HPE, with significant product-centric businesses, are “struggling to compete more effectively due to the decline in their attach services”.
And, IDC also says traditional outsourcers are being challenged by pure-play cloud providers such as Amazon and Google, and local vendors such as TCS, Samsung SDS, and 21Vianet.
“The pressure on service providers' revenues is opening the market to consolidation, and the emerging outsourcers that have developed technology or industry-specific expertise are attractive targets for potential acquisitions," Roche says.
There’s some blue sky, however, in IDC’s outsourcing forecasts for the region.
IDC is now expecting a compound annual growth rate (CAGR) of 6.9% by 2020 on the back of emerging outsourcing markets such as China, India, and Southeast Asian countries, which, it notes, continue to win outsourcing deals in the current market.
According to Roche, in the coming years, outsourcing and managed services will pick up pace as enterprises are “transitioning from a capex to opex model by reducing investments in infrastructure”.
And, in addition, she says, the increasing data centre footprint in the region, due to the growing demand for data localisation arising from regulated industries, “will boost the ITO market”.
IDC concludes its report with recommendations for outsourcers to enhance their services portfolio to include cloud-based services and the need to highlight the major cloud-based outsourcing deals that they have won “to create awareness of their ability to provide cloud-based outsourcing services”.