Outsourcing Growth Forecasted for 2007

Long-term market growth expected to exceed 56 percent by FY2009

Reston, VA - December 28, 2004 - State & local government IT outsourcing expenditures saw little growth in 2004 due to political and media scrutiny during the November elections leaving the market slightly above 2003 spending levels at $11.3 billion, according to a report released by INPUT, the quantifiable leader in government market intelligence. Replacing an aging workforce and outdated legacy equipment will be the major factors forcing the market's pronounced growth starting in 2007, ultimately reaching $17.7 billion in FY 2009.

Confusion between "outsourcing" and "offshore outsourcing" fueled fierce political debate during the November elections. The fear of significant job loss to businesses overseas caused over 30 states to introduce new legislation within the last year to restrict or prohibit state & local government contract work from being performed outside of the United States. Although the elections are over and the economy continues to improve, these political debates are expected to have a lasting effect on market growth over the next one to two years.

"Retiring government employees, as well as archaic government legacy systems, are undeniable factors in the state outsourcing market," said James Krouse, manager of state & local market analysis at INPUT. "The increasing demand for outsourcing in the coming years will be borne out of necessity which politics will be unable to refute."

According to the report, outsourcing sectors such as platform operations, applications services, applications management and desktop services will continue to grow aggressively during the next five years, driving much of the total market growth. Business Process Outsourcing (BPO) will not see the rate of growth originally forecasted due to continued political debate about turning over complete operational control to outside contractors.

"Outsourcing has long spurred political debates because of the fear of job loss and relinquishing control of internal systems," said Krouse. "With the government facing workforce shortage, there isn't as much of a stigma associated with it now. Optimism that government workforces could be repopulated by FY 2008 is unrealistic," he added. "Students entering the workforce now are drawn to the high tech advanced applications and pay scales that the private sector provides."

To download a summary of INPUT's State & Local Outsourcing MarketView, go to: http://stateoutsourcing.input.com

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