Irish IT services market growth beats Euro average

7 May 2004

Ireland’s IT services market is predicted to grow by 17pc overall this year, according to new research from IDC. This compares with overall average growth of 3pc in western Europe.

The latest news marks an improvement on last year, which saw scant growth throughout Europe, IDC said. Two of the other leading performers in western Europe are the UK market, which is expected to grow by 4pc this year, and the Spanish market which is forecast to increase by 7pc. Markets in France and Germany are due to remain flat however, with expected spending growth in the 1.5-2pc range.

IDC found that growth varies from country to country as well as by service type. Spending is up for outsourcing and application management, but the consulting and systems integration markets remain depressed.

The impact of last year’s outsourcing deal between Bank of Ireland and HP continues to be felt in the indigenous market, with technology services growing by 17pc in Ireland. The contract – worth an estimated €600m over seven years – was single-handedly responsible for a 12pc increase in the size of the IT services market, with the remaining growth coming from other deals.

Explaining this increase, John Gilsenan, a consultant with IDC Ireland said: “All organisations’ IT spending is split between internal, mostly on IT staff, as well as external expenses with IT vendors whether this be on hardware, software and services. IDC defines the IT services market in Ireland (as in every country) as the amount of external expenditure with vendors. The HP contract means a reduction in Bank of Ireland’s ‘internal’ expenditure, as its IT staff will mostly transfer to HP. It will also be subject to an increase in its external expenditure as it is now paying HP to fulfil the role previously serviced by internal personnel. Bank of Ireland will have made this decision in part to ensure IT spend remains at the flat or is reduced to a lower level. The 12pc growth, therefore, is attributable to the move from internal to external expenditure.”

This movement in expenditure helps to explain the popularity of outsourcing among technology suppliers, according to IDC. It enables them to tap into the internal spending that currently averages more than 40pc of total IT spend among Irish organisations.

Putting the Irish figures into a wider European context, IDC said the Bank of Ireland contract is reminiscent of outsourcing agreements that have had a similar effect on the IT services markets in other countries, such as in Italy when Fiat outsourced its IT, and in the UK when the Inland Revenue outsourced to EDS.

By Gordon Smith