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IDC sees bright spot in client-facing work

According to two just-released studies from consulting firm IDC, the system integration services market faced a difficult year in 2002. Indeed, for many of the leading systems integrators and custom application developers in the U.S. and worldwide, growth through acquisition appeared to be one of the only ways to keep revenue afloat.

As work moves offshore, client-facing work is a rare bright spot for U.S. IT shops.

Stephanie Torto, program manager for Systems Integration (SI) Services at IDC, indicated that IT customers are finding outsourcing of either technology or business processes to be very attractive, due in part to the economy and the lack of compelling, hot new technologies. It is this, she said, that is to blame for the decline of discrete SI services revenue among the major players.

An examination of the custom application development services market reveals a market that is undergoing a structural shift as more and more work is delivered from overseas locations. IDC research indicates that this trend has had a dramatic impact on prices, which in turn has negatively impacted revenues of the global IT services firms.

Conversely, pure-play Indian firms experienced double digit growth in 2002.

Torto said the bright spot for U.S.-based IT professionals is that skills like project management, which are more client-facing, and jobs requiring specific industry expertise will tend to remain in the U.S. Also relatively safe are positions involving emerging technologies, she noted.

IDC research indicates that the worldwide SI services market is still fairly fragmented, primarily due to its low barriers to entry. In fact, less than half of all worldwide customer spending on SI services went to the top 10 companies. Moreover, almost all of the top 10 vendors experienced a decline in revenue during 2002, except those with a strong focus on the government industry. IBM Global Services, Accenture and Lockheed Martin held the top three spots in both the worldwide and U.S. SI services markets.

Consulting giants IBM Global Services, Accenture and EDS gained the top three spots in the custom development services market in both the worldwide and U.S. But the pure-play Indian firms, namely Tata Consultancy Services and Infosys, were among the top 10 companies in both the worldwide and U.S. markets. Wipro Technologies held a spot on the top 10 list for the U.S.

As the market becomes ever more globalized, will the structure of the market change or will new kinds of SI firms emerge? Probably not, according to Torto. "I think it will continue to be fragmented ... because there are so many different competitive factors involved," she said. For instance, some larger firms may have the kind of support infrastructure some clients want, while smaller firms may have cost or specific expertise on their side.

Torto has indicated that the hype around offshore activity results in a misconception that more work is done overseas than is currently done.

"The offshore trend is here to stay -- it's a natural evolution of the industry," she said.

About the Author

Alan R. Earls is a technology and business writer based near Boston.

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