The impact of coronavirus on IT outsourcing
The pandemic year 2020 was extremely hard due to quarantine measures, border closures, and the economic downturn. As a result, not all companies managed to withstand this trying ordeal. For example, about 80 large American enterprises went bankrupt. Hundreds of thousands of restaurants, shops, gyms, and other businesses around the world closed. At the beginning of the pandemic, the IT outsourcing market also suffered certain hardships. Many companies cut the development budget or completely froze their projects. But over time, the situation has changed, and IT outsourcing has revived. We will tell you why the pandemic gave momentum to global digitalization.
The state of IT outsourcing at the beginning of the pandemic
The COVID-19 pandemic was shocking. Almost every industry experienced huge financial losses. Initially, UN experts predicted global economic growth from 1.8% to 2.5% in 2020. With the outbreak of coronavirus, economists predicted a significant drop to -3.2%. According to experts from the International Monetary Fund, this is the sharpest decline since the Great Depression. Even the consequences of the 2008-2009 recession seem ridiculous compared to what society has faced during and after lockdowns.
The pandemic affected the IT outsourcing market as well. Many companies cut spending on custom software development and consulting services. Gartner found that in 2020, IT spending was 7.3% lower than a year earlier, and custom software development services were 6.8% down. Nevertheless, experts predicted their smooth recovery in the post-COVID epoch.
Gradually, companies moved into the second phase of coping with the pandemic (recovery) to gain revenue confidence and resume IT spending.
From downtime to growth: accelerating digital transformation
After initial shock, companies realized that they should fight the consequences of the crisis. With social distancing and quarantine measures, businesses knew they had to go online, opt for remote work, and embrace nanotechnology. The pandemic pushed organizations to an accelerated digital transformation (according to some estimates, it was 6 years ahead of its time).
Statista Technology Market Outlook researchers found that despite a short pause, the pandemic gave impetus to the digital development of organizations. IT outsourcing grew by 13% within one year. By 2025, the industry’s revenue will have exceeded $500 billion.
What is the reason for this?
A need to satisfy online customers’ requests
To serve customers remotely, businesses had to learn new technologies thanks to custom software development companies, such as Andersen. There was a significant trend: certain projects bound to be implemented within a couple of years were cut to several months to speed up delivery.
Enterprises were looking to get solutions faster to keep their businesses afloat. This tactic led to increased interest in IT outsourcing services. According to the NTT report, more than 48% of organizations are interested in outsourcing tasks to a third-party partner.
Changing attitude to remote work
The large-scale transfer of employees to remote work resulted in less skepticism about remote partnerships. Many studies confirm that the productivity of virtual teams does not suffer from this. According to a Gallup poll, in the spring of 2020, 62% of Americans were working remotely. In 2021, the global telecommuting workforce continued to grow. Most employees are also working remotely in 2022.
It is vital to find an experienced IT company that will complete a project on time. This is especially attractive when the prices for custom software development in one’s country are much higher. Therefore, many business owners have shifted their focus to IT professionals from Eastern Europe, with the best value for money.
Outsourcing companies help reduce costs
IT outsourcing companies help businesses to significantly cut costs. By hiring freelance software developers and other IT professionals, organizations can reduce office spending (rent, cleaning, maintenance, utilities, and so on). No need to find, hire and train employees. Outsourcing provides an opportunity to quickly attract experts, which will cost less than employing them.
In the face of rapid pandemic-driven changes, IT outsourcing is becoming an integral part of business stability.
A post-COVID world: the future of IT outsourcing
Technavio predicts that the global engineering outsourcing market will grow at a CAGR of almost 23% over the next four years.
For example, Forbes highlights several trends in the third-party services market: orders have peaked, the number of transactions is increasing, the consulting market is recovering, and the need for cloud technologies is growing rapidly.
Furthermore, certain experts notice the following post-COVID changes that will affect the relationship between a customer and an IT service provider.
Emphasis on deep cooperation with the client
IT companies will have to work harder to plan custom software development and guarantee their clients better products in a shorter time. More than ever, business owners are interested in the success and profitability of products and minimizing costs.
Leading programming teams working with continuous delivery platforms, optimal development tools, and new methodologies (Agile, DevOps, and so on) can achieve such results.
IT outsourcing services will continue to grow
The Technavio study we have mentioned above confirms this fact. Moreover, not only large enterprises will resort to IT outsourcing. Small and medium-sized businesses and start-ups will also benefit from it.
Organizations see economic value in reliable, professional, and affordable partners whom they can find anywhere in the world. This will also increase interest in dedicated development teams with outsourcing specialists able to support IT operations, from app development to system management.
Interest in cloud technologies and AI
Being a forced response to COVID-19, remote work and cut hardware costs are driving the transition of business operations to the cloud. In 2021, the market for cloud hosting, storage, and computing services grew to $172 billion. Businesses were shifting to remote work, so they needed more cloud services and apps.
According to Burning Glass Technologies, quantum computing, connected technologies, AI, and machine learning have become the most demanded professional skills (see the infographic below). Cybersecurity has come to the fore because most businesses have migrated to the cloud: it is vitally important to implement powerful protection against cybercriminals. The pandemic created a favorable environment for them as more people stayed at home and relied on the Internet.
Companies are looking for outsourcing professionals who have the above skills.
Eastern Europe: a popular destination for IT outsourcing
There is one more marked trend in IT outsourcing: business owners are choosing service providers from Eastern Europe as their partners. Recently, Poland, Romania, and Ukraine have become strong competitors to India and China.
The latest report on software development in Eastern Europe showed that outsourcing is growing here 4-5 times faster than in other regions. A similar trend continues in 2022 because the US and EU countries highly appreciate the level of knowledge, the quality of work, and the best price ratio of Eastern European programmers.
Finding a trusted IT service provider and building fruitful relationships with dedicated teams is not easy. Instead of managing multiple vendors or searching for new ones for the next project, business owners focus on building long-term strategic relationships with one custom software development company. By using innovative technologies and adopting the corporate ethics of a business, such a partner solves any problems and thus helps the client succeed in the market.
Business agility and operational stability that IT outsourcing offers are essential during unstable times. Thanks to them, companies are looking to reduce risks. Ordering IT services is the fundamental survival strategy of many enterprises that have got through the COVID-19 pandemic.
Focus on safety
During the outbreak of coronavirus, UN experts reported that the number of malicious emails increased by about 6 times. Add this to the fact that every 39 seconds there are cyber-attacks in the world, and you’ll see why business owners are paying special attention to cybersecurity that is especially relevant during the pandemic. Companies must comply with the GDPR, and outsourcers help with this.
To keep afloat and profit during these challenging times, enterprises need to be open to new technology-driven ways of doing business and digital transformation. The crisis isn’t over yet, and its consequences may drag on for many years. Therefore, companies need to learn to live by the new rules and increase their efficiency and productivity by outsourcing IT services.
IT outsourcing enhances the capabilities of enterprises and the scale of their services, increases their resilience to the pandemic, and reduces costs when working remotely. Therefore, about 45% of organizations have realized the benefits of custom software development and started outsourcing most tasks. IT outsourcing is becoming an important strategy for companies around the world. Even though coronavirus is still unbeaten, it helps to overcome the economic crisis and continue to grow even with COVID-19.