By Nick Heath
Friday, January 11 2008 11:16 AM
URL: http://www.zdnetasia.com/news/business/0,39044229,62036466,00.htm

Global outsourcing is predicted to grow by 8.1 percent this year as companies turn toward smaller contracts.

Analyst house Gartner forecasts healthy growth rates worldwide in the IT outsourcing (ITO) and business process outsourcing (BPO) markets.

More companies are favoring smaller deals and splitting services between several providers and countries, the Gartner report found.

This shift away from large high-value deals is partly responsible for the fact that publicly reported BPO and ITO contract values fell by 50 percent in 2007.

But organizations are also still failing in their IT sourcing strategies and governance structures when drawing up outsourcing agreements, Gartner said.

Kurt Potter, research director at Gartner, said in a statement: "Because these organizations lack the basic building blocks for successful vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain."

Spending on offshore services is three times higher in North America than in Western Europe but the gap is closing, with Indian providers becoming more popular in 2007, growing 40 percent in the United States and 60 percent in Europe.

Research VP at Gartner, Ian Marriott, said other countries will continue to emerge as challengers to India, and added that strong demand is putting a strain on the Indian labour force, with staff attrition and cost increases remaining high.

There is an increasing move toward lower-cost, offshore delivery centers but companies with a history of outsourcing services are also seeking providers that better support business needs.

Software as a service (SaaS) is emerging as a viable alternative to traditional outsourcing for user organizations, with vendors including Amazon, Google, Microsoft and SAP making announcements about new SaaS offerings and mass-customized software platforms, Gartner said.

Nick Heath of Silicon.com reported from London.