Trends in Technology

The Top 6 IT Outsourcing Trends for Businesses

May 27, 2020 by Bobby J Davidson
Read similar articles in: Uncategorized

IT Outsourcing TrendsAccording to a Statista report, the spending on IT services is expected to reach a whopping $1.1 trillion in 2020, which clearly shows a preference for IT outsourcing. With reduced development costs, assembling a professional team, and improved time-to-market, companies have started delegating software-related tasks to third-party contractors, and this approach has gained popularity as it offers several advantages to businesses. Statista has forecasted that the IT-application outsourcing market throughout the world will grow to $96.7 billion by 2021. Technical analysts have already revealed that one of the main reasons for such rapid growth in the market is mainly because of the business optimization process.

Why do businesses outsource software development tasks?

Clutch, a leading B2B ratings and reviews platform, managed to survey over 500 small business owners in the United States to learn why they were choosing to outsource and found the following reasons:

  • Firms that employ 50 or fewer specialists were less willing to outsource, compared to businesses with over 50 specialists.
  • Reducing operating costs was the 6th reason for hiring a third-party IT service vendor.
  • The main reasons to outsource are to achieve better efficiency, raise flexibility, increase expertise, and relieve employees’ time for other activities while growing available resources.
  • Companies generally delegate more technical operations that involve accounting, IT-related services, digital marketing, and development tasks.

An IT outsourcing (ITO) market involves different regions; you can find talents in different fields and technologies. There are fewer limitations to regions, and it’s easier to find a custom software development agency that perfectly fits the project, including experience, technology stack, culture, time zone, and costs.

The Top 6 IT Outsourcing Trends for Businesses in 2020

Now that you know why businesses are choosing to outsource their IT operations, let’s take an in-depth look at the top 6 IT outsourcing trends for businesses in 2020:

1.      Value Is Considered Now Over Price

Previously businesses were choosing to outsource software engineering mainly to lower costs, but now they are looking at optimized processes, improved efficiency, and working with highly qualified professionals. As long as the competition remains between IT service vendors from different regions, most businesses are choosing to outsource to deliver quality solutions.

2.      Eastern Europe is the Hub of IT Outsourcing

The report “Software Development in Ukraine, Poland, Belarus, and Romania in 2019”, revealed that 70% of the demand for IT outsourcing services comes from the United States and Western Europe. On the other hand, China, India, Brazil, South Africa, and Eastern Europe remain the top 5 regions that are fulfilling this demand. Eastern Europe, in particular, has become a popular destination by offering deep knowledge and high expertise. Analysts also found that the market growth here is 4 to 5 times faster than around the world, with the main customers being the USA and the EU. One of the main reasons for that is the European countries provide favorable conditions for the IT industry, and the government here strongly supports them.

3.      More Small Businesses Are Outsourcing

IT outsourcing allows for reduced costs, as you get to work with a professional team without worrying about the hassle of recruitment. That’s why most startups and small businesses are now cooperating more with third-party contractors. That may be the case for small businesses, but even large corporations are following that trend now and have begun delegating their projects to outside IT service providers. The growing need for complex, innovative solutions that are associated with blockchain, AI, and IoT has fueled this option, which is why it has become the preferred choice for organizations all over the world.

4.      Greater Need for Nearshore Outsourcing

Nowadays, more clients are delegating software-related tasks to IT service vendors that are located near their company. For instance, a digital marketing company based in the UK chooses to hire experts from Belarus. The time difference between the two countries is only 2 to 3 hours, and both sides are taking advantage of more convenient workflow and smoother communication. In Australia and the United States, offshore software development outsourcing remains popular, and the cooperation between onshore housing is decreasing. Apart from that, businesses in these countries are selecting Eastern Europe more frequently as the specialists here have higher expertise, speak English well, and have deeper technical knowledge. Apart from that, most of them are ready to adhere to the working schedule of the customer.

5.      Shared Responsibility and Newer Contract Models

Analysts from the National Outsourcing Association have found that creating new contract models is the leading trends for ITO from 2020 to 2021. Agreements made between customers and software development companies this year are going to focus mainly on project outputs. All the KPIs are going to be discussed, written in a contract, and approved. Apart from that, the notice periods will be expected to be shorter, and sharing responsibility for product success means that IT service providers are going to be realistic strategic partners. The clients can also choose the vendor offering with the best results or undertake more risks, and it may fuel competition between IT companies as well.

6.      Increased Outsourced AI, IoT, and Blockchain Projects

Businesses of all sizes are investing in AI, IoT, and blockchain projects today, and analysts at Statista have forecasted that the market revenue of IoT from all over the world will stand around $1.6 trillion by 2025. MarketsandMarkets also anticipates that the global Artificial Intelligence market is going to increase to $190 billion by 2025, and IDC predicts that blockchain spending will increase to $12.4 billion by 2025 as well. All that suggests that demand for AI, IoT, and blockchain projects is going to go through the roof in the next 5 years and will result in businesses hiring third-party contractors to meet and address the challenges presented in these projects.

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