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Offshore and cloud service providers upset IT outsourcing’s top tier

Stephanie Overby | July 13, 2016
While IBM and Accenture still command a majority of the IT services markets, the combination of offshore-centric and as-a-service competition has proven to be an ‘all-out assault’ on traditional providers.

The most recent top 25 list of IT service providers from outsourcing analyst firm HfS Research leads with a couple of the usual suspects, with IBM and Accenture in the No. 1 and 2 spots, with 7.8 percent and 5.1 percent market shares, respectively.

But not far behind are India’s Tata Consultancy Services (TCS), at No. 5, offshore-centric Cognizant in 8th, and as-a-service Amazon Web Services (AWS) already in the No. 12 spot. HfS is calling it a “full-scale assault” on the traditional providers.

The 2016 list reveals the formation of what HfS Research says is now a three-tiered outsourcing market, made up of traditional IT services providers (like Big Blue), offshore centric firms, and IT-as-a-service providers (like Google and AWS).

Top 25 High Value IT Professional & Managed Services Providers

1. IBM                             

2. Accenture

3. Fujitsu                        

4. HP

5. TCS

6. Capgemini

7. NTT

8. Cognizant

9. Atos

10. CSC

11. CGI

12. AWS

13. Infosys

14. NEC

15. T-Systems

16. Wipro

17. Deloitte

18. Lockheed Martin

19. HCL

20. Samsung SDS

21. Dell

22. SAP

23. Hitachi

24. BT

25. SAIC

HfS Research, May 2016

The IBMs and Accentures have been losing market share. The offshore suppliers have been gaining. And the cloud providers have been doubling their small slice of the market.

“The traditional players have been struggling for a while. The outsourcing business—particularly any application heavy work, but increasingly infrastructure management has been under attack from the offshore providers for a long time,” says Jamie Snowden, executive vice president of research operation for HfS Research.

The offshore providers swooped in to provide the same or similar services cheaper with traditional provider expanding their own overseas operations to close the pricing gap. “The evolution of these firms will be to concentrate on what they do best: invest in technology itself, so devise or buy [into] better automation and cognitive computing technology,” says Snowden. “Most of these providers sell services primarily to large enterprises, so it seems likely that a big chunk of enterprise IT spend will stay with them or with the offshore providers.”

Many large customers are pursuing cloud deals for of their infrastructure or commoditized application services. But, as Snowden points out, the Googles and AWS’s can’t orchestrate the kind of complex application delivery many of these customers require for mission critical systems.

While many offshore firms have continued to grow at double-digit rates, that arbitrage-fueled expansion is likely to slow as the relative importance of labor costs decreases. “The mid-tier of offshore firms will start to compete more aggressively on price and the larger firms will have to become more like traditional firms — firstly by changing the mix of skills they have and also leveraging technology they have built or invested in,” Snowden says. “The business model will be based more on IP they own and less reliant on lots of cheap labor.”


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