"Consolidation is expected to continue, leaving behind but a handful of large global players that have a global outsourcing model and which can provide a full breadth of business services," said David Tapper, program manager, infrastructure management research, for International Data Corp (IDC).

He said the global market for outsourcing would grow at an annual rate of seven percent to 1.2 trillion dollars by 2007.

"There is consolidation occuring across the industry. The future trend is all about on-demand utility computing," Tapper told an outsourcing conference in India's technology hub of Bangalore.

Utility computing refers to the ability of companies to access computing services, business processes and applications over a network so that the company pays only for what it uses.

"This trend will create a major restructuring of IT outsourcing and service models," Tapper said.

Existing offshore firms will migrate from consultancy to utility computing, driving down costs as there is a shift towards on-demand services, he said.

"Offshore providers such as Infosys, Wipro and TCS will also have to increase their presence in the United Sates to get more projects," Tapper said.

India, the "back office" of the world, has been riding on a wave of outsourcing and last year the sector accounted for about one-fourth of India's total software export revenues of 9.5 billion dollars.

Tapper warned, however, of increased pricing pressures as global players moved offshore.

"For offshore firms to compete successfully in the US they need to build scale through acquisitions or consider being acquired," he said.

Applications around electronic commerce, data warehousing, web hosting and storage management are future opportunities for outsourcing firmsm, he added.

Traci Gere, Group Vice President Services, IDC, said corporations worldwide were looking at outsourcing firms which had a track record of implementing similar projects that they were outsourcing.

"Technical expertise, financial stability and price competitiveness of the firms are other factors they consider," Gere said.

She said in the United States significant outsourcing activity would move out of the country.

"About 12 percent of US IT outsourcing will go offshore and about 30 percent and 50 percent of applications will be outsourced by the US in the next five years," Gere said.

SPACE.WIRE