Small outsourcing firms squeezed out of UK market

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Businesses are increasingly outsourcing their IT projects to big players, leaving niche outsourcing firms struggling, according to an analyst.

The top 10 outsourcing firms in the UK have increased the worth of contracts they’ve signed by 31 per cent in the first half of this year, Ovum research has shown.

The gains are largely from recent 'megadeals,' many of which are in the public sector. These include a £500 million NHS IT contract for BT and two £300 million ID card deals going to IBM and CSC.

“The UK public sector in particular continues to let significant contracts such as for ID cards, with others such as the Environment Agency still to come,” said John O’Brien, senior analyst and author of the report, in a statement.

But he warned “this is more a culmination of existing procurements than new initiatives.”

“The UK IT [outsourcing] market has some residual opportunities that are reaching sign-off in 2009 – hence the continued buoyant demand in the first half of the year,” he added. “But beyond that demand is holding up well as outsourcing becomes a top priority for many end users grappling with the impact of recession.”

While big outsourcing firms are doing well, Ovum said second and third tier firms are struggling – not helped by the increasing consolidation in the sector. As more firms join up, they have deeper pockets to reach out to customers and to fund new technology, making it harder for smaller firms, Ovum said.

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