Outsourcing Toolkit

Gartner: Outsourcing prices to fall 10 percent

Colin Barker ZDNet.co.uk

Published: 23 Mar 2009 16:24 GMT

The outsourcing market faces up to two years of falling prices, according to analyst firm Gartner.

Prices in all areas of IT services will fall by between five and 20 percent, Gartner forecasts, with an average fall of 10 percent in the coming year because of the uncertain economic climate and IT budget constraints.

"This fall in prices will occur due to increasing competition in the market between traditional and new providers, as more providers compete aggressively to keep revenue growth on target," Claudio Da Rold, an analyst at Gartner, said in a statement on Monday.

Regardless of the relative strength of outsourcing during a recession, many companies are reporting intense discussions with their vendors, according to Da Rold. "[This includes] renegotiation of contracts for terms and conditions, service-level agreements, fees, volumes and low-cost offshore delivery locations," he said.

Gartner expects a price fall in datacentre services of between five and 15 percent. Prices in desktop and helpdesk services will decline by between five and 10 percent, but the fall in network services prices will be bigger, at between 10 and 15 percent. Charges for application hosting services, until now one of the fastest-growing areas, will drop between 10 and 20 percent, the analyst firm said.

India has been one of the most popular areas for outsourcing operations, but Da Rold believes the country will be hard hit by the price falls. Indian offshore providers "have been coming under significant pressure for pricing reductions due to the Mumbai terrorist attack, the scandal at Satyam, rupee exchange-rate fluctuations, and continued wage inflation and attrition levels", Da Rold said.

Gartner advises businesses not to try and negotiate for the lowest price on new outsourcing contacts, because: "It will not make providers safer, deliver good services or promote a positive relationship".