Demand for outsourcing services is expected to cool a little in 2008, according to analyst company Gartner, with the market growth slowing to 8.1% from 10.2% in 2007.

This deceleration comes in spite of the finding that cost-cutting is, for many organisations, no longer the principal attraction of outsourcing.

Several years’ experience in outsourcing has still to turn into good management, says Gartner research director Kurt Potter. He suggests that few organisations have yet developed the expertise to effectively manage their portfolio of outsourcing contracts.

“IT sourcing strategies and governance structures are still immature, lacking altogether or misaligned with enterprise objectives,” he says. “In extreme cases, the lack of trust and control needed to optimise the outsourcing relationship results in deal failure.”

Offshoring continues as a popular strategy, especially in Europe. Although the US stills spends three times as much as Europe on offshore services, that gap is closing. Indian offshore outsourcing providers saw their revenues grow by 60% in

Europe in 2007, compared with 40% in the US, Gartner found.

However, wage and currency inflation threaten India’s cost advantage. According to Gartner research VP Ian Marriott, “More-sophisticated buyers are seeking a multi-country strategy to minimise risk and align near-shore and offshore delivery centres with their primary time zones.”

Other countries – from Eastern Europe to South America – are making major inroads into India’s dominance of the offshore market, says Gartner. “Although India’s offshore revenue will continue to grow, the country’s share of total offshore spending ill decline slightly in 2008,” Marriott adds.