GOVERNMENT

IDC forecasts that companies and government agencies will spend more than $746 billion on external services in 2008, representing a growth rate of 6.8% over 2007. Despite – and in some cases because of – a weak U.S. economy, there are many market forces driving enterprises to continue to turn to service vendors for assistance. Additionally, increased customer use of new and often disruptive delivery options (e.g., hosting, SaaS, and utility computing) will encourage service provides, especially outsourcers, to focus their investments in these areas. "In these tough economic times, service vendors are faced with both new and old challenges. The worldwide services competitive landscape keeps intensifying with many new entrants with new business and pricing models as well as the strengthened capabilities of up-and-coming players that are extending their reach into new markets. This is a time for service vendors to aggressively review their portfolio of offerings, account targets, investment strategies, business processes, and delivery practices," said Marianne Hedin, program manager for Worldwide Services and SOA: The Services Opportunity research services. Additional key trends examined in this IDC report include:

• Though representing the smallest outsourcing market, the hosted application management (AM) is expected to grow the fastest at a five-year compound annual growth rate (CAGR) of 15.9%, followed by business outsourcing services at 10.4%.
• In 2007, IT services continued to represent the lion's share (74%) of the overall services market. But the business services market that IDC tracks is slowly catching up, with a much faster CAGR of 9.6% compared with the IT services market's CAGR of 5.6%.
• Service providers continue to aggressively pursue a geographic expansion strategy to increase their footprint across the globe. While service vendors based in the United States and Western Europe are focusing on building their presence in the emerging markets, service companies based in those geographies are expanding into Europe and the United States.
• The growth of outsourcing of non-core processes and the adoption of service-oriented architecture (SOA) are prompting enterprises to shift toward tighter alignment of business and technology. Although such an alignment is critical, it is still not enough. Ultimately, organizations will seek to eradicate any distinction or separation between IT and business in order to obtain convergence between them.
• IDC expects that new types of partnerships along with an expanded ecosystem will increase in importance as service vendors seek to deliver best-of-breed offerings and full-service capability at the lowest cost.
• Vendors need to take active steps to provide higher-value-added services and innovation to their clients.

The IDC study, Worldwide Services 2008–2012 Forecast: Finding Opportunities in a Challenging Time (IDC #211462), presents a five-year forecast for the worldwide services industry from 2008 through 2012. The main purpose of this study is to identify current trends that are influencing the worldwide services opportunities and challenges and to discuss their effects on the worldwide services five-year forecast. This document presents worldwide market sizing and five-year growth forecasts for 14 discrete service engagement types and high-level segmentation by geography.