As various US state governments crank up their machinery to mitigate the political impact of job loss due to BPO , the government sector continues to be a key driver of outsourcing spends in 2003.

According to research by independent market analysts, Datamonitor, the Year 2003 has seen $119 billion worth of major IT services contracts given out globally, an increase of 44 per cent over 2002. Out of these, global contracts with an offshore delivery element totaled $1.66 billion.

The number of deals with a value greater than $100 million in 2003 increased by 49 per cent to 244 while those in excess of $1 billion has more than doubled to 29.

As per Datamonitor research the biggest spending sector was the central government sector which accounted for $18.5 billion worth of contracts - more than double the level in the previous year. The defence sector was the second biggest investor in the outsourcing business with $18.2 billion in deals during 2003.

According to Datamonitor, the increase has largely been driven by new contract awards by public sector organizations such as the UK National Health Service and the US Department of Defence, which brought in private sector specialists to upgrade their existing technology infrastructure.

Though the offshore delivery model where clients source application development and management skills from low-cost countries such as India and China has gathered steam in 2003, Datamonitor?s research found that only 1.4 per cent of deals in 2003 involved offshore delivery. Datamonitor tracked $1.66bn of contracts with an offshore delivery element in 2003 that represented an 890 per cent increase over 2002.

Nick Mayes, Managing Analyst for Global Computing Services at Datamonitor, notes that there has been a big surge in the number of mega-deals in 2003. ?But the majority of them will not be as profitable for the services providers as those long-term contracts that they signed in the 1990s, as it has become a buyer’s market,” Mayes said.

“Clients have been able to squeeze some big cost reductions out of their incumbent suppliers, which are also being held to increasingly tight performance targets,” he added.

Source : The Economic Times