Computer outsourcing boom rolls on

Computer services consultancies have enjoyed strong growth over the past five years, and the boom is set to continue. By ROBERT BRYANT of IBISWorld.

By Robert Bryant

Computer services industry trend

IT and computer services is riding the online revolution, and will enjoy a key and growing role in the foreseeable future.

Computer services consultancies have enjoyed strong growth over the past five years, and the boom is set to continue with growth of 5.4% a year predicted for $26 billion industry over the next five years.

The state of play

Industry concentration is low and there are few barriers to entry. Computer consultancy is still considered a growth product with medium levels of volatility. Competition is quite strong. Imports are rising and exports are falling.

Key statistics

Value

Industry revenue

$25.909 billion

Revenue growth (2006 to 2007)

4.2%

Number of enterprises

38,222

Employment

116,731

Exports

$266.5 million

Imports

$259.2 million

2007 IBISWorld estimates

Major players within computer consultancy services include;

Company

Market share

IBM Australia

8.70% to 8.80% (2006)

EDS (Australia)

4.80% to 5.00% (2006)

CSC Computer Sciences Australia Holdings

2.80% to 2.90% (2007)

IBISWorld estimates

Industry segmentation

 

Recent industry performance

IBISWorld estimates that the computer consultancy service industry has grown 6.8% in the five year period to 2007-08. In 2005-06, revenue growth was boosted marginally with new project growth reported in the education and training, transport, and health segments. The industry saw moderate revenue growth in 2006-07 despite some previously outsourced contracts being taken back inhouse.

In the year 2007-08, industry revenue growth is expected to show solid growth due in part to the renewal of major contracts. Industry employment is set to increase over the current performance period, as is the number of establishments. A potential threat to the industry’s local revenue and employment growth is the continuing trend for clients to outsource major contracts to companies in India and China.

Year

Revenue ($ millions)

Growth

2003

$19,622

2004

$22,099

12.6%

2005

$23,401

5.90%

2006

$24,864

6.30%

2007

$25,909

4.20%

IBISWorld estimates

Industry outlook

IBISWorld forecasts that the computer consulting industry will grow by an average of 5.4% per year in the period to 2012-13.

In 2008, industry revenue should experience strong growth with the prospective upgrade of Telstra’s network to broadband.

There will be renewed demand for computer services, from a range of industries, and for the provision of products and services to counter spyware, adware and spam – all will have positive effects on revenue growth. Other growth areas are likely to include network management, e-commerce, internet site development and voice over internet.

Industry consolidation is forecast to continue, with some closures and many mergers, leading to slow establishment growth.

Industry employment is expected to show slow growth over the outlook period, and although skilled IT staff shortages will emerge, these will partly be offset by increases in working visas. Some contract elements are expected to be taken overseas to highly-skilled, low labour cost countries.

Year

Revenue ($ millions)

Growth

2008

$27,282

5.30%

2009

$28,646

5.00%

2010

$30,336

5.90%

2011

$31,671

4.40%

2012

$33,476

5.70%

2013

$35,518

6.10%

IBISWorld estimates

Key sensitivities and risks

  • Private capital expenditure – equipment and software: Business spending on computer software services is a key driver of industry demand.
  • Downstream demand trends: Demand for IT and communication services from sectors such as finance, banking, insurance and telecommunications, which are key clients for computer consultancy services. For example rollout of digital and broadband services creates demand for a host of software.
  • Real GDP growth: The economic climate and changes to business confidence will drive the level of investment in new software and systems, and upgrades of existing systems by both the business and government sectors.
  • Technology adoption: The degree and extent of technology adoption and expansion by industry and government is a key driver of demand – for example internet connections.

Key determinants of success

  • Marketing expertise. Good management and marketing skills to tender for IT projects and achieve outcomes within budget.
  • New products. On-going research and development, access to new products.
  • Access to funding. Strong financial backing and cash flow, especially for project work and R&D.
  • Trained workforce. A good supply of highly trained IT staff. Increasingly, access to qualified IT staff in low wage countries is vital to remain competitive.
  • Technical research and development. Undertaking on-going R&D of existing and new products and access to new products under licence.

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