Dive Brief:
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On average, the size of IT outsourcing deals have become smaller, according data from IDC, the Wall Street Journal reports.
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The average deal size of the top 100 global outsourcing contracts was $680 million in 2005, according to David Tapper, vice president of outsourcing and offshoring services at IDC. In 2015, the average deal size fell to $392 million.
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IDC analysts said a recent outsourcing deal between BAE Systems and CSC—which is less than one-third the size of a similar deal made in 2005—is typical of the way the market is shifting.
Dive Insight:
IDC has tracked the outsourcing market for over 20 years. "All deal sizes are declining," said Tapper in an interview with the Wall Street Journal .
The decrease is due to increasing competition from global providers, among other things. The United States is currently the largest market for the outsourcing industry, which is dominated by India-based companies Tata Consultancy Services, Infosys and Wipro. But average revenue growth for India’s top outsourcing firms by market value has been slowing dramatically, according to Reuters data.
The slowdown may be partly due to the changing business environment and the growing role of IT. Ever-increasing reliance on technology for a wide array of business functions could mean CIOs are growing less comfortable with offshore outsourcing.
Finally, businesses that outsource projects are typically looking to gain efficiencies and cost savings. But as the middle class in emerging economies like India grows, those low labor rates may disappear, providing less incentive to outsource.
