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06/23/2003

Offshore Labor Supply Edges Economic Conditions as Top Driver of IT Services Pricing, According to IDC-TPI Survey

FRAMINGHAM, MA AND HOUSTON, JUNE 23, 2003 -Improvements in the global economy will not diminish the downward pricing pressure on IT services brought about by the embrace of offshore outsourcing. Instead, offshore outsourcing will continue to spread to new segments and deepen its hold on the industry, according to a new study from IDC and TPI.


Offshore outsourcing has become a dominant trend in the IT services industry. According to the IDC-TPI survey, 42% of all active outsourcing engagements now have an offshore component. In addition, 63% of the sourcing advisors surveyed identified "offshore labor supply," as the top driver of IT services pricing, edging out "economic conditions" by 1%.

"The increased use of offshore services will continue to put considerable downward pressure on prices throughout the next several years," said Traci Gere, group vice president of IDC's U.S. Services Research Group. "Although this trend is better understood, and is thus more predictable now, our research indicates that this trend has only just begun to play out and its impact will both deepen in segments where it is currently seen and broaden to segments where it is not yet felt."

The study, Pricing Trends Across IT Services: What to Expect in the Coming Years (IDC #29461), examines changes in IT services pricing over the last 12 months and draws much of its data from a series of interviews with TPI advisors around the world. It found that price declines, which impacted the IT services market in 2002, were the direct result of the general economic slowdown, an increase in the competitive environment, and heightened awareness and demand for the use of offshore labor.

The IT services pricing study marks the first project in a partnership between IDC and TPI in which the two companies will examine trends and best practices in the global outsourcing marketplace. In addition to ongoing industry surveys, the two companies will cooperate on case studies, jointly publish position papers, and collaborate on speaking events. "TPI sought a partner to help us communicate about outsourcing to the marketplace," said Peter Allen, partner, Market Services for TPI. "We want to reach potential users of outsourcing, service providers, and the financial community with market intelligence that helps them to better understand the status and viability of the outsourcing business."

"Bringing together IDC's research and expertise on the services industry with TPI's detailed knowledge of major outsourcing transactions will bring new insights to the buyers and sellers of IT and business services. It's a winning combination that brings greater value to senior executives in Global 1000 companies faced with critical outsourcing decisions," added Gere.

About TPI

TPI, the world's largest sourcing advisory services firm, has advised on over 550 sourcing transactions with a total contract value of more than $330 billion since its inception in 1989. TPI's primary focus is to assist clients with the evaluation, negotiation, implementation and management of IT and business process sourcing transactions. TPI employs more than 150 advisors averaging more than 21 years of industry experience assisting clients throughout the Americas, Europe and Asia Pacific. For more information on TPI, please go to: www.tpi.net.

About IDC

IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and ebusiness trends to develop sound business strategies. Using a combination of rigorous primary research, in-depth analysis, and client interaction, IDC forecasts worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies, and the financial community. Additional information can be found at www.idc.com.

IDC is a division of IDG, the world's leading IT media, research, and exposition company.

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