21 January 2004 The IT industry is facing a decade of intense competition, low growth and low margins, analyst and industry guru Richard Holway has warned, with outsourcing the only sector that will enjoy substantial growth.
However, even in the outsourcing sector, competition will remain tough and clients are not simply looking to save money when they outsource for the first time, he said, but are also looking to make typical savings of about 20% when they re-negotiate contracts as well.
One of the factors behind Holway’s pessimism is the growth of offshore outsourcing. In the past, as economic recoveries have gathered pace, IT suppliers have been able to raise prices as shortages have taken hold, particularly in the services sector.
However, the opening up of low-cost offshore centres, particularly in India and China, means that there will be a “virtually limitless supply” of talented IT staff for the services sector to tap, limiting the scope for price rises.
Holway was speaking at accountant Deloitte’s 2004 Outlook for the Technology Sector. Reiterating a warning he first issued in November 2003, he said that the IT industry would have to be satisfied with growth that was more or less in line with most other industries.
Even in outsourcing, much of the growth in the UK has been driven by increased spending in the public sector, rather than a resurgence of confidence in the private sector. The figures are stark: From a low of 19% in 1997, the public sector will account for about 29% of outsourcing revenues in the UK by 2006, said Holway.
Telecoms giant BT, he said, had been the surprise winner in the recent round of contract awards. But added that winning the contracts was one thing, turning a profit from them was quite another. “I really hope they know what they are doing,” said Holway.