IDC's latest ITSM report, which includes outsourcing, shows a decreased growth in dollar terms in 2013, totalling $4 721.71 million. However, Lise Hagen, research manager for software and IT services in sub-Saharan Africa at IDC, says when measured in the local currency, the market, in fact, increased in value from 2012.
"The outsourcing services macro-market remains the largest macro-market in SA, with 45% share of IT services spend," she says. Overall, the local outsourcing services market's total value for 2013 is $2 122.48 million.
Although the value of the IT services market increased in rand terms in 2013 and 2014, the South African overall economy underperformed against expectations. "This slowdown can be attributed to a variety of systemic structural restrictions such as labour disputes, skills shortages, a high unemployment rate, crime, corruption, and inefficient ICT parastatals in the field of IT services, as well as the prolonged impact of the global economic instability," Hagen says. As a result, enterprises remain cautious about investments.
"ICT buyers remain financially conservative and cost-oriented, and buying cycles are extended," she says.
A dynamic market
However, organisations also want to bolster and invigorate their talent pools, management capabilities, operating models, IT infrastructure, and business processes. "The focus on cost reduction favours outsourcing engagements, and organisations are becoming more comfortable with outsourcing," Hagen says. "New delivery methods, such as cloud, are the drivers for this market."
Hagen says IDC expects the outsourcing market to have a CAGR of 9.1% until 2018. "The local market is doing very well and has a strong M&A model. The growing requirements for business technology in this space make outsourcing a very interesting and dynamic market. Currently, the majority of outsourcing uptake is for short-term contracts (one to two years) as the market is demanding flexible services."
Dimension Data was the leading IT services provider in SA in 2013 and Business Connexion placed second. EOH ranked third, with T-Systems and Bytes Technology Group rounding out the top five IT services providers in the country in 2013.
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