Big is not always beautiful

Big is not always beautiful

Smaller IT outsourcing providers will have a good year, according to a new report published by Gartner.

The report claims that, while other service segments remain flat or are shrinking, the external services provider (ESP) market continues to grow.

This is due to enterprises attempting to reduce the cost of delivering IT services during the economic downturn.

Although the economy looks to be improving, Gartner said this would not affect ESPs, as once an enterprise outsourced, it rarely took operations back inhouse.

The firm predicted that the number of enterprises entering into new outsourcing relationships in 2004 would increase by 30 per cent.

The report suggested that this would open up new opportunities for smaller vendors to compete in specialised niche markets.

“The opportunities are out there,” Gartner analyst, Rolf Jester, said. “But the Australian and Asia-Pacific market has always been a selective out-sourcing market.” The smaller, more selective deals had always been where the bulk of the business was, he said.

“We all hear about the big deals, the multi-million dollar corporations,” Jester said. “In reality, smaller deals have been going on, both with larger enterprises and small-to-medium business; they just don’t get reported.”

Jester also points to a change in the way some larger enterprises, especially government, would be doing business.

“These enterprises will quite likely be looking to select multiple service providers, rather than just one,” he said. “This is a trend that is growing. A lot of businesses have learnt a lesson from round one, and are looking for more specific external services.”

However, Jester said that smaller businesses still needed to be careful, as a counter-trend was also appearing.

“Buyers are becoming more conservative, less willing to take risks,” he said. “They may prefer to deal with a known company, whether this is a company known to the buyer, or a big brand name.

“This does not necessarily bode well for smaller outsourcers.”

Jester also claimed that there would be more acquisitions of both large and small-to medium service companies, such as the acquisition of Ipex by Volante earlier this year.

“There’s not sufficient space for so many undifferentiated providers,” he said.

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