Outlook 2009
2008 was a year of strong growth for IT service providers. Gartner Group analysts report that the market expanded by almost 8%. However, there is no consensus among experts on the outlook for 2009. In 2008 we extended contracts with existing customers and acquired substantial new business.
Overall economic situation makes forecast difficult for 2009
Development of the overall IT market in Germany has been robust in recent years, as shown by the current figures of industry association BITKOM for 2008. However, following the growth surge in 2006/2007, there has been a slowdown in the last two years. This development was most apparent in IT service, where growth –7.8% in 2006/2007 – fell to 5.7% for 2007/2008. And for 2008/2009, BITKOM is forecasting growth of just 3.7%.
A more pessimistic picture is painted by market researchers from TPI. The TPI index, which is updated quarterly, indicates that the outsourcing market contracted worldwide by one fifth in the last half of 2008, with the shrinkage particularly drastic in EMEA (Europe, Middle East and Africa). According to TPI, outsourcing providers posted a total contract volume (TCV) of €25.9 billion in the first half of 2008. However, in the second half of the year, the volume plummeted to €13.5 billion: a drop of 48%. Despite the secondhalf downturn, overall global sales volumes in 2008 were 5.6% up on 2007.
This is a clear signal that the era of everfaster, ever-more growth has now come to an end in the IT environment also.
Cautiously optimistic
The general wisdom is that trends on the outsourcing market are anti-cyclical to the overall economic climate. Yet even this view is now in question, with analysts from Pierre Audoin Consultants (PAC) voicing the opinion that the German outsourcing market is in no way profiting from the economic downturn. Quite the opposite, in fact, it is struggling along with the rest, albeit cushioned by reasonably high sales volumes. Taken in total, the industry presents a cautiously optimistic forecast for slight growth in 2009. However, there is no widespread agreement when it comes to the exact figures, with forecasts ranging between 1.5% and 5% growth over the year.
In considering these figures, one must bear in mind that new business also has to compensate for shrinkage of existing business volume if it is to deliver genuine market growth. This is particularly true in the IT segment, where permanent advancements in information technology regularly drive down prices. And, with organisations everywhere – particularly those in the financial sector – operating under extreme cost pressure, providers are routinely being forced to renegotiate
their existing contracts.
The crisis has of course also impacted on the consolidation process which was in any case already underway in the IT service segment. We have witnessed some of the largest providers withdrawing from niche markets to refocus on their core business segments. In our view, it will be more important than ever in the coming year for IT service providers to stake out a clear position and differentiate themselves from the competitors. It will also be crucial to offer customers genuine added value.