IT outsourcing deals value down by 33% in Q3 2012: Ovum

U.K. based research firm, Ovum, has found out that the IT services sales has reached an all-time low in the third quarter of 2012. This has been the lowest it has reached in nine years. The IT outsourcing deals value decreased to an all-time low of $18.9 million in the third quarter which is a 33% decrease from the value the previous year, during the same period. The deal volume significantly decreased by 24 percent year over year with only 332 deals signed.

Second quarter had seen an improvement in things. However, the weak economy plunged the performance of the industry in the third quarter. Two multi-billion dollar deals obtained by CSC and IBM saved the third quarter from an even more dismal performance.

IT outsourcing in house. Image source

IT outsourcing decreases due to high costs and U.S. elections

Outsourcing is usually adopted by companies to get low-cost work. However, due to the economic gloom companies do not take up new tech projects which might have outsourcing elements. According to Ovum, the deal volume of private sector was the lowest in nine years while that of public sector was the lowest in three years. North American market proved to be the weakest.

IT outsourcing decreases due to a number of concerns that companies have about outsourcing in this financial scenario:

  • A majority of the North American companies claim that they do not have the need for outsourcing services.
  • High costs figure next, with companies reluctant to spend for outsourcing amidst the economic crisis.
  • Unforeseen costs, management time and communication problems are some other factors which discourage the companies from outsourcing.
  • There is the possibility that US companies might have refrained from outsourcing because of the presidential elections to avoid any political tangles. Obama and Romney had on occasion exchanged heated responses regarding outsourcing.
  • Some of the companies are also moving to an in-house trend to conduct all their activities in-house itself.

Companies are moving their IT operations in-house

In a move to bring more tech jobs to US, some companies are beginning to bring in most of their work in-house.

  • General Motors has plans of making all its IT operation in-house during the next 3 years. 90 percent of the company’s work had been outsourced to third-party providers until July. The company hopes to make this transition to reduce bureaucracy as well.
  • Apple has claimed that one model of Mac, at the very least, would be manufactured by the company within U.S. If this happens, around 200 jobs will be generated.
  • China’s Lenovo said that a manufacturing plant will be opened by the company in North Carolina. Lenovo had acquired the personal computer business of IBM in 2005 for $1.75 billion.

The IT outsourcing deals value decreased due to all these reasons. That being said, in order to pick up the numbers during the fourth quarter, a significant increase in deal volume and total contract value is necessary. Only then, can the industry hope to match the performance during the previous year.


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