IDC: IS outsourcing to top $100 billion by 2005

Worldwide spending on IS (information systems) outsourcing will top US$100 billion by 2005, up from $56 billion in 2000, according to a recently released report from market researcher International Data Corp. (IDC).

The United States is the biggest market for IS outsourcing, and will account for 44 per cent of global IS outsourcing spending by 2005, IDC forecast. Western Europe is the second-biggest market, with spending increasing 10.3 per cent annually and expected to reach $26 billion by 2005. Among the fastest-growing regions is Asia-Pacific, with spending predicted to grow 20 percent annually between 2000 and 2005, IDC said.

Analyst Cynthia Doyle attributed the market’s steady expansion outside the United States to both growth in traditional segments and the increasing acceptance of outsourcing in untapped areas of Central and Eastern Europe, Latin America, Asia-Pacific, and Japan. Outsourcing is an increasingly attractive option for companies dealing with the complexities of deregulation, privatization, globalization, resource and personnel shortages, and economic downturns, IDC said.

Japan’s increasing acceptance of outsourcing is an interesting example of how changing perceptions are fueling the outsourcing market’s growth, Doyle said. Cultural obstacles in the country traditionally discouraged outsourcing.

“It was viewed as kind of asking for help. It was looked down on,” Doyle said. “Also, many Japanese companies are opposed to opening up their company secrets and sharing them with another firm, which outsourcing may require.”

Other cultural factors also inhibit the market, and may continue to do so, Doyle said. Many IT managers in Japan prefer to have control of their own systems. Managers also have to balance the effectiveness of outsourcing against loyalty to their own employees. Outsourcing may prompt layoffs or transfers of staffers between a company and its vendors. Such changes are strongly discouraged in Japan, which places a high premium on loyalty between companies and employees.

But practical concerns are catalyzing interest in outsourcing.

“Japanese firms are under many pressures. They’re pushed to reduce costs, to compete better, faster, cheaper,” Doyle said. “As globalization continues to occur, they’re coming in contact with Western businesses, and it’s not as much of a closed environment as it used to be.”

While the traditional reasons for outsourcing – reducing operating costs, improving IS flexibility, and increasing efficiency – still drive the market, other factors are also leading companies to seek outside services, IDC said. Companies are increasingly turning to outsourcing for strategic reasons, including creating partnerships, broadening infrastructure, extending operational reach, and keeping up with current technology.

IDC is a subsidiary of International Data Group Inc., the parent company of IDG News Service.

IDC Corp., in Framingham, Mass., can be reached at