IT outsourcing in the time of the coming recession

The global recession is coming and hard times for many industries, in which in the field of IT in many places we have seen large and sometimes even spectacular increases in the last 5 years. What will the IT outsourcing market look like in the next 12-18 months? Łukasz Kośnik, CEO and Managing Partner of RITS, shares his perspective.

How do enterprises react to the worsening economic conditions in terms of their resources of IT specialists?

In the macro scale and in the short term, i.e. the next 6-12 months, many companies decide to freeze the processes of permanent recruitment of IT specialists, which is already a visible trend on the market today. What’s more, you can also see a certain project restructuring and regrouping of the demand for IT competences. Companies shift from looking for IT specialists for new development projects to optimizing the maintenance of current environments and looking for cost optimization.

On the other hand, in the medium term (as in the second half of 2020 and the entire 2021), there will be a noticeable increased demand for IT outsourcing (in various forms of settlement and project management) versus the stagnation of organic growth in the employment of in-house specialists. This is mainly related to greater design flexibility, but also the fast pace at which resources will have to be replenished for new, changed IT priorities.

But there are no concerns about abandoning digitization processes in enterprises?

Historically, and here you can refer to reports from research companies, you can see very specific purchasing trends in enterprises. Looking at the last five global recessions, an increasing number of management boards of large and medium-sized enterprises decided to cut their budgets less and less frequently. This is obviously due to the increasing digitization and dependence on the technology of any selected sector of the economy on the market. Moreover, an increasing number of companies see opportunities to build a competitive advantage through technological innovation not only to weather the recession, but also to become more competitive. This trend has been significantly accelerated in the last two years by the Covid-19 pandemic.

The market will be absorbent but less risk-prone. Demanding a greater pace of changes and flexibility, which will translate into increased purchasing preferences in the area of IT outsourcing.

Are there any threats to the domestic IT outsourcing market on the horizon related to other major markets providing resources in a similar operating model?

Our main competitor in the region in this area until 2021 was Ukraine, as well as Russia. Due to the current political situation, there is a very clear trend redirecting the huge demand for IT outsourcing services from eastern markets to the Polish market. Today, Romania remains our main competitor, with a slightly lower growth dynamics.

Interesting times are also ahead of India, which is the world leader in the IT outsourcing market. Due to the low level of specialization and education, they are a market much more threatened than Poland by a decrease in the number of orders and cost optimization. This is also shown by various types of IT competitions, mathematics competitions and programmers’ rankings, where Poland traditionally ranks in the top 3, and India is above 30 positions in the world rankings.

Due to both of the above aspects, I do not have many concerns about reducing the demand for IT outsourcing on the domestic market.

Read also the text by Magdalena Gryn “IT Services. For digital troubles: outsourcing” with Łukasz Kośnik’s statement in the latest issue of the Forbes monthly.