Report: IT Outsourcing Bookings Decline 70% in North America

IT outsourcing bookings declined 25% globally in the second quarter of this year, with cloud computing continuing to outshine the outsourcing sector. This is the second straight quarter of declining growth, according to research firm NelsonHall’s quarterly ITO index.

The worst-hit region was North America, where ITO bookings saw a 70% decline. Yet the research firm says it believes that several large deal signings will become public in the third quarter of this year.

“As always with IT outsourcing, bookings have strong quarterly variations, due to the timing of very large deal signings,” stated NelsonHall in a press release.

Very few contracts valued over $100 million were signed in the quarter. “This is abnormal and reflects dynamics of a renewal-led market in North America. Client demand in the region has evolved from large single-supplier ITO contracts to having relationships with multiple suppliers, hence relatively smaller engagements than in the past,” the research firm noted.

Adoption of Indian offshoring in the commercial sector is driving down total contract values, besides the cloud computing, which has long been denting the luster of IT outsourcing globally.

Bookings were up by about 60% in the commercial sectors, while the public sector continued to see a decline in ITO awards. According to the report, IT outsourcing activity in emerging regions’ high growth countries was “limited” in Q2 2014.

The research firm forecasts that the low levels of bookings will continue to impact ITO spending worldwide. But the better economic conditions are driving additional project services related to ITO relationships.

Overall, cloud computing, decreasing contracts in government sectors and an increasingly saturated North American market are affecting ITO bookings. In total, NelsonHall expects flat ITO growth in 2014, with IT services growing by 2% over the year.