Amidst unprecedented uncertainty, Everest Group predicts 2017 will bring continued market slowdown and technology-led disruption in sourcing
While the global services industry experienced continued growth in 2016, the pace of year-on-year revenue growth1 slowed from 4.5 percent in Q1 to below 3 percent by the end of the year, and the momentum of new activity shifted towards in-house delivery as opposed to outsourcing. In fact, setups of Global In-house Centers (GICs) reached an all-time high in 2016.
Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—predicts a continued decline in the outsourcing growth rate1 over the next one to three years, falling to as little as 1.9 percent by late 2019, as a result of macro uncertainties, technological disruptions and competition.
Sourcing activity in 2016 was marked by increased location activity that was concentrated in the top-10 locations in offshore/nearshore countries. Another prominent trend in 2016 was the growth of digital services; the share of digital services in outsourcing deals as compared to traditional services rose to 35 percent in 2016, with cloud, analytics and mobility services leading the way.
The outsourcing transactions of United Kingdom buyers neared three-year lows in 2016 as UK buyers followed a “wait and watch” approach amidst uncertainty around Brexit. Similarly, buyers in the United States are facing considerable uncertainty in 2017 regarding the Trump Administration’s approach to visa and immigration reform as well as the political climate around offshoring in general.
The sourcing industry is also facing substantial technology-led disruption. The increasing adoption of automation and DevOps; the growing utilization of IoT, machine learning and analytics; and the need for higher-skilled talent with digital expertise will be key drivers, causing enterprises to re-evaluate their location portfolios to address changing service delivery models.
Overall, Everest Group expects the preference for the in-house delivery model to increase, as it offers the potential for better risk management and control over IP, increased productivity, the ability to deliver more specialized or complex work, and other value benefits beyond labor arbitrage.
“We are seeing a definite skew toward in-house models as opposed to outsourcing, but we characterize it as a shift rather than a complete pendulum swing,” said H. Karthik, partner, Global Sourcing, at Everest Group. “Factoring in political uncertainties, the impact of technology, competitive drivers and many other dynamics in the market, we believe that in the coming year enterprises will continue to leverage both in-house delivery and outsourcing, but they will be more intentional about their location strategy and how to optimize their overall sourcing model.”
Everest Group’s latest research on the global services market explores the evolving market drivers and their implications for global services buyers and providers in two recent reports and a webinar deck available for complimentary download:
- Market Vista Q4 2016
- Market Vista Q4 2016 Primer — IT Services Delivery from the US
- Market Vista Q4 2016 Year-in-Review and Outlook for 2017 (Webinar Deck)
About Market Vista™
Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.
1 in organic constant currency terms