IT Outsourcing Trends 2024: The Impact on Business Processes

As we advance further into 2024, the relevance of IT outsourcing services continues to surge, especially amidst the ongoing digital transformation. Following a remarkable trajectory, the global IT outsourcing market generated approximately USD $430.50 billion in 2023 and is projected to escalate to USD $500 billion in 2024, according to recent industry reports. (Source: Statista)

The fast-paced evolution of technology compels software development companies to remain vigilant about market dynamics associated with the IT outsourcing trends. But what is IT outsourcing? It involves delegating various IT functions to third-party providers, which allows organizations to focus on core business operations while leveraging specialized expertise.

1. What Is IT Outsourcing? 

IT outsourcing services involve companies delegating various IT functions to third-party providers. Common tasks outsourced include software development, application maintenance, web hosting, and IT support. The advantages encompass cost savings, access to specialized expertise, and enhanced operational efficiency.

Outsourcing can occur domestically or internationally and is categorized based on the service provider’s location:

• Onshore: Engaging professionals from the same country for better control and communication.
• Nearshore: Collaborating with firms in neighboring countries to capitalize on close time zones while enabling smoother communication.
• Offshore: Partnering with providers in distant countries, often resulting in substantial cost reductions.

2. IT Outsourcing Trends 2024

2022 was a leap for the IT outsourcing industry, with over $4.4 trillion spent on this industry, according to Gartner. Cloud computing, blockchain technology, artificial intelligence, and other similar technologies were some of the IT Outsourcing Trends in 2022.

Let’s take a look at IT Outsourcing Trends 2024 to see which ones will stick around and what will be new in the IT Outsourcing Industry next year.

2.1. Cloud Computing

The IT outsourcing trend towards cloud computing outsourcing remains at the forefront, facilitating access to advanced technologies like AI, RPA, and machine learning. As organizations plan their digital strategies, they increasingly seek cloud providers with specialized skills to navigate complexities. By early 2024, an estimated 70% of enterprise data is projected to reside in the cloud. (Source: Gartner)

2.2. Big Data Analysis

With the big data analytics market poised to reach USD $125 billion by 2024, organizations are leveraging extensive customer data for tailored experiences and optimized operations. (Source: Statista) This trend emphasizes the growing necessity for businesses to harness insights from varied sources, aligning with the broader IT outsourcing trend.

2.3. Automation

The automation IT outsourcing trend has become essential, streamlining operations and freeing human resources for more strategic tasks. According to a McKinsey report, 60% of jobs could see 30% or more of their tasks automated by 2030, indicating a pressing need for businesses to engage IT outsourcing companies who can help implement these automated processes effectively. (Source: McKinsey & Company)

2.4. Cybersecurity

In light of increasing cyber threats, cybersecurity outsourcing has never been more critical in the IT outsourcing trend landscape. Reports indicate that cybercrime damage costs are expected to reach USD $10.5 trillion annually by 2025. (Source: Cybersecurity Ventures) This alarming statistic is prompting companies to engage third-party security specialists. The reliance on managed security services and compliance assurance is projected to increase significantly in 2024.

2.5. Artificial Intelligence (AI)

With AI’s role expanding in optimizing operations and user experiences, many organizations are outsourcing their AI needs to specialized vendors. The IT outsourcing trend in AI investments is expected to rise prominently, and the AI outsourcing market is projected to reach USD $733.7 billion by 2027. (Source: Fortune Business Insights)

2.6. Internet of Things (IoT)

The IoT landscape is set to explode, with an anticipated increase in connected devices reaching 30 billion by 2025. (Source: Statista) This growth will necessitate outsourcing partnerships with IoT-focused companies, further emphasizing the IT outsourcing trend, enabling businesses to manage a multitude of connected products and data streams conveniently.

2.7. Remote Work Infrastructure

Post-pandemic work dynamics demand robust remote work infrastructure. As per recent surveys, around 80% of employees prefer hybrid work models, leading companies to invest in secure remote access solutions and collaboration technologies in line with the IT outsourcing trend and also the IT outsourcing models. (Source: Gallup)

2.8. Sustainable Outsourcing

Sustainable outsourcing is an approach where businesses consider environmental, social, and governance (ESG) factors while choosing their outsourcing partners. This trend is driven by a growing awareness of climate change and the need for sustainable business practices, as well as increasing regulatory pressures and consumer demand for businesses to demonstrate their commitment to sustainability.

In the context of IT outsourcing, sustainable outsourcing could involve choosing providers who use renewable energy in their data centers, who have strong policies for reducing waste and carbon emissions, or who are committed to ethical practices in areas such as labor rights and data privacy. For businesses, sustainable outsourcing is not just about reducing their environmental impact, but also about managing risks, improving their brand reputation, and potentially achieving cost savings through more efficient use of resources.

Statistics and Key Points

• According to a report by the World Economic Forum, 92% of business leaders see ESG factors as important to the future of their business.
  • A study by the Capgemini Research Institute found that sustainability could open up to $1.2 trillion of new opportunities for IT service providers by 2025.

2.9. Digital Transformation Services

Digital transformation is the process of integrating digital technology into all areas of a business, fundamentally changing how organizations operate and deliver value to customers. It’s also a cultural shift that requires organizations to continually challenge the status quo, experiment, and be comfortable with failure. This sometimes means walking away from long-standing business processes that companies were built upon in favor of relatively new practices that are still being defined.

In the context of IT outsourcing, digital transformation services can involve a wide range of activities, from implementing cloud services and data analytics capabilities to automating processes and integrating new software systems. Service providers can also offer consulting services to help businesses create a digital transformation strategy, manage the change process, and train employees in new ways of working.

Statistics and Key Points

• According to a report by IDC, global spending on digital transformation technologies and services was expected to reach $2.3 trillion in 2023, growing at a compound annual growth rate (CAGR) of 17.1% from 2019 to 2023.
• A report by Deloitte suggests that 70% of digital transformations fail, primarily due to resistance from employees. This underscores the need for effective change management and training as part of the digital transformation process.

2.10. Distributed Cloud

A distributed cloud is the application of cloud computing technologies to interconnect data and applications served from multiple geographic locations. In a distributed cloud, data hosting and data processing happen in multiple small data centers, usually located at the network’s edge rather than one centralized node. This architecture allows for data and applications to be accessed more quickly and reliably from numerous endpoints, which is particularly important for businesses that require real-time or near-real-time data analysis.

In the context of IT outsourcing, businesses may seek the services of providers who specialize in setting up and managing distributed cloud systems. These providers can help businesses move their data and applications to the distributed cloud, manage the security and compliance of the system, and provide ongoing support and optimization.

Statistics and Key Points

• According to Gartner’s prediction, by 2024, most cloud service platforms will provide at least some distributed cloud services that execute at the point of need.
• A report by MarketsandMarkets estimates that the edge computing market will grow from $3.6 billion in 2020 to $15.7 billion by 2025, at a Compound Annual Growth Rate (CAGR) of 34.1% during the forecast period. This growth is likely to drive the adoption of distributed cloud architectures.

3. The Impact Of IT Outsourcing Trends 2024 On Business Processes

IT service management, a crucial aspect of the IT outsourcing trend, profoundly impacts business functionality. The advantages include:

• Cost Reduction: Significant savings on IT staffing and infrastructure lead to increased investment in core business operations.
• Focus on Core Competencies: By outsourcing IT functions, companies can dedicate resources to their primary business goals, elevating productivity.
• Access to Specialized Expertise: Outsourcing equips businesses with advanced skills that are unaffordable to develop internally.
• Enhanced Flexibility and Scalability: Businesses can adjust their operations dynamically without the upheaval of workforce changes.
• Mitigated Risks: Third-party IT providers typically have robust security and compliance measures in place, reducing operational risks.
• Fostered Innovation: Businesses can leverage industry-leading innovations from service providers to stay competitive.

For small businesses, there are specific options available for outsourced IT services for small business that cater to their unique needs, enabling them to thrive with expert support without the burden of maintaining a full-time in-house IT team.

4. IT Outsourcing In Vietnam, Why Not?

On the list of the “Best countries to outsource to in the World in 2019,” Vietnam came 5th, according to MarketInsider. The hourly rates for developers in Vietnam range anywhere from $20 to $40, depending on the developer’s specific set of skills. This results in significant cost savings for companies in the United States and Western Europe when compared to the hourly rate of $100 which is common in developed countries.

TopDev estimates that each year Vietnam produces 400,000 IT Engineers and 50,000 IT graduates from the country’s 153 IT institutions.

• According to 2018 data from the Developer Skills Chart of Skill Value Report, Vietnam is the 29th best place in the world in terms of skills.
• Topcoder’s 2016 Developer Skills Report featured the top 6 developer skill sets in the world.
• Positioned #23 on Hackerrank’s 2016 Global Developer Skills Charts.

In addition, many Vietnamese solution providers are now open to the possibilities presented by emerging technologies like artificial intelligence (AI), machine learning, blockchain, etc. As a result, Vietnam is the perfect location for businesses that are looking for solutions that are not only technologically advanced but also economical.

5. Conclusion

As we move through 2024, the IT outsourcing industry is poised for substantial growth as businesses increasingly rely on external partners for their IT needs. By embracing the IT outsourcing trend and the developments discussed, organizations can harness the benefits of IT outsourcing—enhanced efficiency, scalability, and access to cutting-edge expertise. Keeping an eye on IT outsourcing costs will also be crucial for companies aiming to maximize the return on their investments. Staying ahead of these IT outsourcing trends and implementing them effectively will be essential for companies aiming to thrive in today’s fast-evolving technological landscape.

What is IT Outsourcing?

Outsourcing information technology (IT) refers to the practice of utilizing third-party service providers in order to more efficiently deliver IT-enabled business process, application service, and infrastructure solutions for the purpose of achieving business outcomes.

Why do businesses IT Outsource?

More and more businesses nowadays are IT Outsourcing for these several reasons:

• Cut down on and keep costs in check (this usually the main reason).
• Improve the organization's focus.
• Make inner resources available for new uses.
• Increase the speed of some tasks that take a lot of time and where the company may need more resources.

What are the IT Outsourcing Trends in 2023?

As technology evolves continuously, it is expected that some new trends are going to emerge this year, these are:

1. Cloud Computing
2. Big Data Analysis
3. Automation
4. Cybersecurity
5. Artificial Intelligence (AI)
6. Internet of Things

When should businesses IT Outsource?

Businesses rely on technology to keep things running smoothly, and in the ever-changing IT world of today, it's important to stay ahead of the game. IT Outsourcing can help you achieve that. So here are some signs showing that your company should IT Outsource:

• If you are Spending too much on the in-house IT team.
• If your system cannot work properly anymore, or is outdated.

• If your system is vulnerable to cyber threats.

• If you are taking so much time operating and maintaining your IT system.