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Gartner Says Worldwide IT Services Revenue Grew 6.2 Percent in 2003; Revenue of India-Based Vendors Grew 29 Percent, to 1.4 Percent of Total Market

    Online News published in DMReview.com
July 2, 2004

The market for worldwide IT services grew 6.2 percent to $569 billion in 2003, up from $536 billion in 2002, according to preliminary results from Gartner, Inc. Accelerating activity in offshore outsourcing, in which companies shift jobs across national borders, contributed modestly to the overall growth.

U.S.-based vendors continued to lead the worldwide IT services market, attracting 59 percent of total spending. IBM remained the largest competitor, with revenue rising 6.2 percent to $42.6 billion, and its market share unchanged at 7.5 percent.

India-based vendors represented a small segment of the worldwide market, with 1.4 percent of total revenues. However, their revenues collectively increased 29 percent, compared with only 4 percent growth among U.S.-based vendors. India-based vendors depended almost entirely on exports, with 92 percent of their revenues coming from customers outside India and only 8 percent within India.

"Vendors based in the United States and India have been most successful at driving sales outside their native regions of North America and Asia/Pacific," said Kathryn Hale, principal analyst for Gartner's worldwide IT services group, based in San Jose, California. "Vendors based in other countries tend to sell primarily in their own country, then expand within their local region. As a result, vendors based in the United States and India are more experienced in global sourcing and best positioned for global expansion." Global sourcing is another term for offshore outsourcing.

The strengthening of many international currencies against the U.S. dollar had a significant impact on revenue results in 2003. "Although the growth of the services industry improved compared with the decline of 0.3 percent in 2002, growth rates were inflated by changes in the exchange rate of the U.S. dollar," Hale said. "Vendors operating extensively outside the United States reported inflated growth after converting local currencies into dollars."

The effect of the weak dollar is evident in the growth rates of different regions in 2003. North America grew only 1.1 percent, while Western Europe reported the highest growth at 11.8 percent. However, measured in local currencies, IT services spending in many Western European countries actually declined, affecting the growth rate of the overall Europe, Middle East and Africa (EMEA) region. Based on euros, the EMEA IT services market declined 4.8 percent in 2003.

"Annuity-based services, primarily IT management and process management, continued to drive the EMEA IT services market, while project-based work (consulting and systems integration) recorded the slowest growth in the market as discretionary budgets continued to be cut," said Robert De Souza, principal analyst for Gartner's IT services research in Europe, based outside London in Egham.

On a worldwide basis, IT management services and process management services remained the IT services industry's best-performing segments in 2003, with growth rates of 10 percent and 9.3 percent, respectively. Gartner analysts attributed the relatively strong growth in these segments to the continuing appeal among companies buying IT services to control costs. Vendors offering consulting services had another tough year, growing only 0.1 percent, as customers continued to rule out large or technically difficult projects.

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