Worldwide revenues rose steadily for IT services and business services totalling US$506 billion in the first half of 2018 (1H18), an increase of four per cent year over year according to IDC.
"Steady growth in the services market is being driven by continued demand for digital solutions across the regions," said Lisa Nagamine, research manager of IDC.
"But during 2018, as well as most of 2017, it is really the Americas and cloud-related services that are having the largest impact on revenue worldwide."
Regionally speaking, Asia Pacific (APAC) placed second behind the Americas with 4.2 per cent growth (behind 4.6 per cent), with EMEA placing last with 3.1 per cent growth over 1H18 compared to 1H17.
"For IT services, 2018 has so far been more stabilising than it seems," said Xiao-Fei Zhang, program director at IDC.
"Corporate America has been able to shake off geopolitical risks and trade tensions and continue to invest in new tools to reduce cost and add new capabilities."
This growth reflects a relatively sanguine economic outlook during the first half of this year with accelerated digital transformation and, in some pockets, new digital services offsetting the cannibalisation of traditional services.
During the period, it was a mixed picture for tier-one global outsourcers and integrators, which are ranked as companies with full service offerings and more than US$10 billion in services revenue, with most remaining flat or declined slightly.
But this was partially offset by stronger performances by two large global vendors, who returned to double-digit growth in the teens.
While most Indian services providers still outpace their U.S. and European counterparts, their growth scaled back slightly from a year ago, continuing their 2H17 deceleration.
Growth paths continued to widen between vendors: while most large Indian vendors continued to grow at rates in the low single digits to high teens, it was offset by a few vendors' sharp slowdown.
This is partially attributed to restructuring leadership teams and divesting business units to improve margins. It should also be noted that foreign exchange fluctuations in 2018 have complicated the constant currency calculations somewhat.
Looking at the different services markets, project-oriented revenues grew by 5.2 per cent in 1H18 to US$191 billion, followed by 3.6 per cent growth for managed services and 2.7 per cent for support services.
The above-the-market growth in project-oriented markets was mostly led by business consulting and application development markets with growth rates of 7.5 per cent and 6.5 per cent, respectively.
Most major management consulting firms still posted strong earnings in 2018, although growth rates cooled slightly: business consultants still extract more value in digital transformation.
But the market movement belies enterprise buyers going from ‘thinking digital’ to ‘doing digital.’
For example, the heavy lifting of digital is ultimately reflected in application projects, and the application development market showed faster growth in 2018 than both 1H17 and 2H17.
As services vendors are making agile and cloud the central themes in their app businesses, it has helped them to shorten sales cycles and ramp up new app work.
In outsourcing, revenues grew 3.6 per cent to US$238 million in 1H18. Application-related managed services revenues (hosted and on-premise application management) outpaced infrastructure and business process outsourcing.
Organisations rely largely on outsourcers to supply new app skills at scale. Large outsourcing contracts also served as the best vehicle to standardise and modernise existing application assets.
Therefore, IDC expects application-related managed services markets to continue outgrowing other outsourcing markets in the coming years.
On the infrastructure side, while hosting infrastructure services revenue accelerated to 7.2 per cent growth in 1H18, mostly due to cloud adoption, IT outsourcing (ITO) – still almost twice as large a market and mostly big buyers and vendors – declined by 1.5 per cent, largely chipped away by cloud cannibalisation across all regions.
In APeJ, the second largest IT services market, Australia saw its growth scaled back slightly to 3.8 per cent in 1H18, from 4.3 per cent in 1H17.
The largest market, China, trimmed its growth rate to just 7.2 per cent, down from the eight per cent to nine per cent during the last two or three years, due to slower GDP growth, curbing debts, and pulling back on infrastructure spending, among other factors.
Given its ongoing trade war with the US and currency depreciation, we expect China's market growth will continue to flag, although gradually, in the coming years, which inevitably will have a spillover effect on Australia.
So far in 2018, the weaker growth in China and Australia was partially offset by faster growth from other emerging markets in APeJ (i.e. India, the Philippines, Indonesia, Vietnam, etc.).