U.S. State, Local Outsourcing Market to Exceed $20 Billion

The total state and local outsourcing market in the U.S. will go beyond $20 billion in 2011 with a CAGR of 10.6%, says a recent report by INPUT, the Virginia-based authority on government business (See Chart 1).

Factors that will drive outsourcing will be the need for governments to outsource technical applications and engagements to ensure continuity of operations. The political factor will be overridden in cases where governments find it necessary to outsource technical applications due to smaller workforce and the non replacement of legacy systems.

The study predicts that areas such as data-center and application management, desktop services

and hosting would bag a big chunk of the burgeoning market.

The study also says that, in the near future, BPO will not play a large role as formerly projected. It also suggested avoiding the usage of terminologies like “Comprehensive Departmental Outsourcing” or “Business Process Outsourcing,” because of political pressure on such deals.

The study points out that public indignation at outsourcing was based on misunderstanding that outsourcing automatically meant offshoring. The reality is that the U.S. Government Accountability Report is much under-reported which explicitly states that only a meager three percent of state outsourcing is being performed outside the U.S.

Over the past year many outsourcing initiatives have been taken in states like Virginia, Texas, Indiana and San Diego. These outsourcing initiatives are expected to re-invigorate the state outsourcing marketplace, albeit a few disruptions along the way.