State and Local Outsourcing to Grow, Says Report
The state and local outsourcing market will grow from nearly $12 billion in 2006 to approximately $20 billion in 2011, according to a report released by INPUT, an authority on government business. After suffering a period of political turbulence brought on by a backlash to off-shoring and high-profile welfare outsourcing controversies, the state and local outsourcing market will regain its footing and is poised for dramatic growth over the forecasted period.
INPUT projects that the state and local outsourcing market will continue to experience steady growth through 2007. But starting in 2008, vendors will see a marked increase as several forces converge to drive growth. Growing economic pressures as state budgets are squeezed by programs such as Medicaid, combined with new innovative approaches to outsourcing deals by the states that call for substantial capital investments and job creation in the community by vendors, will motivate leaders to explore more outsourcing initiatives in the coming years.
“Outsourcing remains a political hot button at the state and local level,” said Michelle Miller, senior analyst at INPUT. “In recent years savvy leaders have found ways to sell outsourcing plans to state legislators by focusing on an approach that strikes a balance between cost savings and keeping jobs and government revenues instate. As result we have seen notable outsourcing awards in Virginia and San Diego over the past 15 months. Right now everyone is in a “wait-and-see” mode, but once one of these projects is deemed a success, I believe we will see the market take off.”
According to the report, increased demand in the areas of data center management, application management, desktop services, and hosting will propel this growth. Business Process Outsourcing (BPO) will not play as large a role as previously projected in this market. The vast majority of elected officials remain uncomfortable with the political risks of relinquishing control of government business processes to a contractor.
For more information about INPUT, visit www.input.com or call 703-707-3500.