IT Sourcing Europe highlights the key findings of the recent Global Sourcing Trends 2010 Report by Morrison & Foerster.

At the beginning of each year, Morrison & Foerster surveys its Global Sourcing Group lawyers in Asia, Europe, and the United States regarding the current state of the world’s outsourcing market and emerging trends likely to shape that market over the next twelve months. In this year’s update, Morrison & Foerster’s lawyers comment on the impact on the global outsourcing market of the recession in 2009 and the anticipated recovery in 2010, and the rise of cloud computing. The Report also highlights the key business factors affecting current outsourcing projects as well as outsourcing-related developments in the key markets across the world.

The Report presents the following key findings:

• In outsourcing terms, the verdict on 2009 was “it could have been so much worse.” Cost cutting was the main driver and re-negotiation the main activity. The key questions for the outsourcing world in 2010 are: What sort of recovery in the world economy will we see? Will the recession return after cost-cutting outsourcing deals have already been done? Will the predictions of different shaped recovery curves in the U.S.A., Europe, and Asia cause splits in global outsourcing deals as economies move out of recession at different rates? Outsourcing is one way for organizations to position themselves to capitalize on the recovery and show that their overall strategy is about value creation, not merely cost containment.

• Cost remains the key for 2010. Outsourcing prices dropped in 2009 and that trend seems likely to continue in 2010, although the rate of decline will slow. Service providers may not be prepared to be as accommodating as they were in 2009. Many outsourcing projects were put on hold in 2009, so market activity in 2010 should be busier overall, which should slowly cause prices to stabilize.

• Financial services companies put more deals on hold in 2009 than other sectors. With many banks and insurance companies feeling more confident about 2010, expect an increase in financial services sector deals, especially offshoring. Also, as a result of the mergers resulting from the financial meltdown, financial institutions will seek to rationalize their sourcing contracts. Other sectors that we expect to see increased activity in 2010 are hospitality and healthcare.

• The Cloud will become more important as companies realize that they can achieve significant cost savings by exploring this option. With major providers like IBM, Google and Microsoft offering desktop deals in the range of $35 - 75 per head, companies will find their existing deals of $300 - 1,000 per head difficult to defend. But the key question is: can anyone clearly define what “the cloud” means and provide a basis for comparison between cloud and traditional service provision routes? Banks may be slow to turn to the cloud until financial services regulators approve cloud-based deals or produce guidance on how to square away the particular risks of cloud computing with the control required of regulated entities’ material outsourcings.

• The flight to quality will continue. Stronger providers are favored and counter-party risk is still an issue. Bigger service providers will continue to buy niche providers. However, that does not necessarily mean that well-structured niche suppliers with good market offerings will suffer, and the flight to quality will mean opportunities for both large and small providers.

• By one key measure - the volume of outsourcing spending by international firms - Europe is now a bigger outsourcing market than North America. But the recession recovery is predicted to be slower in Europe than elsewhere. This may erode Europe’s lead as new outsourcing deal signings are slow to come on-stream.