Market outlook for 2012

The macroeconomic outlook in Europe worsened during the second half of 2011, but the impacts on the IT services market have been minor so far. There are some signs of reduced IT spending and postponements of new projects, but for the most part the impacts are expected to be felt later in 2012. Industry analysts estimate that the IT services market in Western Europe will grow by 0–2% in 2012.

Demand for new development projects aiming at enhanced customer services and better management of sales channels has remained fairly good, but the market for renovating existing solutions is gaining a stronger foothold. Growing use of IT is currently driven by cloud computing and new ways of consuming IT via mobile devices and applications as customers are transforming their businesses operations by adopting digitalized processes and mobile environments. 

Companies are still actively developing their ICT infrastructure and application environments. Applications and ICT infrastructure are increasingly moving towards web-based scalable delivery models. Many businesses are taking a hybrid approach to cloud services, i.e. combining cloud services with a variety of legacy systems that continue to support mission-critical processes. As reducing the cost of IT is still on customers’ agendas, the outsourcing of ICT infrastructure, application management and business processes is expected to remain the strongest area.

Nordic customers have become more receptive to the use of offshore resources due to the pressure to cut costs. Since local European IT service providers still enjoy the benefits of having greater customer closeness as well as language and cultural affinity, their volumes are expected to see further growth. However, offshore competition has led to continued price pressure in basic services, keeping margins at a low level. Prices of high value added services are stable or slightly rising. As a result, IT service vendors are seeking to improve margins by increasing offshoring, industrializing their service provision and selling more high value added services.

Business intelligence, unified communications and both cloud and mobility solutions are key themes driving demand for IT services. In the manufacturing sector, demand is expected to grow, although at a slower pace than in 2011. Demand is based on the need to cut costs and improve business processes and service deliveries. In the healthcare sector, there is a need to renew service production models to reconcile increasing service demand with the declining workforce but at the same time, some projects might be postponed due to budget cuts in the public sector. The Norwegian energy sector is strong due to the start of the procurement process for advanced metering infrastructure.

In the finance sector, cautiousness has increased on the heels of the weaker economic outlook. Customers are focusing only on their ongoing and most important projects and tend to revamp existing applications instead of replacing them. On the other hand, the need to cut spending and to harmonize existing IT systems maintains high interest in outsourcing. Growth in this sector is also driven by the need for regulatory compliance and transparency across processes as well as the launch of new services supporting digital customership.

Telecom equipment-related investments will be the strongest-growing area of IT spending. In telecom R&D, demand has picked up in the network equipment manufacturers segment, thanks to increasing traffic in the wireless network. The market for mobile devices is turbulent due to fierce competition between device manufacturers seeking to gain market share and launch attractive new products with the latest technology platforms. Innovativeness and productivity combined with cost efficiency have remained two of the key drivers for telecom R&D. Some R&D service providers are currently pricing their services aggressively to defend their position.

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