TECHNOLOGY outsourcing services in the Philippines are expected to attract spending of over $500 million by 2021, International Data Corp. (IDC) said in a report.
According to the IDC APeJ Semiannual Services Tracker, digital transformation (DX) initiatives of enterprises, as well as changing patterns of information technology (IT) procurement and rapidly-evolving service delivery models, will push the Philippine technology outsourcing market to continued growth.
Technology outsourcing includes outsourcing of both core and non-core functions.
The report also said digitalization has created opportunities for new areas of business and organizational structures. As companies increasingly engage in DX efforts, outsourcing has been viewed a way to address business challenges, such as the growing complexity of information and communications technology (ICT), lack of ICT budget, and the need for proper governance.
“The Philippine outsourcing market is undergoing a dramatic transformation propelled by the increasing adoption of disruptive technologies. CIOs and technology leaders tap external capabilities to support their DX initiatives, meet ever-changing customer demand, implement solutions faster, and reduce cost,” said Alon Anthony Rejano, market analyst for services, IDC Philippines.
“In the age of greater automation, standardization, and modernization, external providers need to keep up and redefine their value proposition, offering new delivery and consumption models,” Mr. Rejano added.
Mr. Rejano also told BusinessWorld in an e-mail that the outsourcing market in 2016 and 2017 was $283 million and $313 million, respectively, showing a 10.5% growth rate year over year. The compound annual growth rate by 2021 is projected at 12.33%.
The report also said that multiyear and multimillion-peso outsourcing deals are decreasing as end-users look at lowering costs and shift to the cloud. This then adds price pressure on providers, which drives vendor consolidation. IDC recommends that end-users study where each outsourcing deal fits in the sourcing scale so that appropriate governance mechanisms can be put in place.
“The outsourcing market will remain a tough market for competition in the coming years. Local customers want to see vision and a strong offering, and while they want a partner for the long term, they are also willing to consider new partners that offer innovation,” Rejano added. “Providers need to demonstrate thought leadership throughout the lifetime of the contract and provide high-quality service to help transform customers with DX agenda.”
Mr. Rejano told BusinessWorld that the future is positive for the Philippine market despite being behind the more advanced markets in the Southeast Asian region.
“The future looks bright for the local outsourcing market because of the increasing demand for data center services and usage of cloud and security. As a developing nation, we’re a bit behind more advanced markets such as Singapore, Indonesia, and Malaysia in terms of technology outsourcing. Local organizations are in wait-and-see mode on IT outsourcing, since they really want to assess the capabilities of the providers and get an assurance that everything will work fine from the provider’s end.”
Mr. Rejano also said that the complexity of the changes occurring in the IT industry give the market new opportunities: “Outsourcing and managed services will continue to present market opportunities due to the lack of skills and the rising complexities of enterprise IT environment.
Key industries like banking, financial services and insurance and the public sector have shown a significant change on the adoption of outsourcing. IT outsourcing has grown beyond data center hosting to include cloud, application development and management, and back-office functions, he said. — Patrizia Paola C. Marcelo
