Across the globe, CEOs and their leadership teams continue to seek information and guidance about planned Digital Transformation initiatives and the most effective enterprise organization change management practices.
Worldwide IT and Business Services revenue will grow from $1.13 trillion in 2022 to $1.2 trillion in 2023 -- that's a 5.7 percent year-over-year growth, according to the latest market study by International Data Corporation (IDC).
The mid-term to long-term outlook for the market has also increased -- the five-year CAGR is forecast at 5.2 percent, compared to the previous 4.9 percent.
Digital Sevices & Consulting Market Development
IDC has raised the growth projection despite a weak economic outlook, because of vendor performances across 2022, growth indicators from adjacent markets, increased government funding, and inflation impacts.
The actual 2022 market growth was 6.7 percent (in constant currency), which was 87 basis points higher than forecast last year, although some softness appeared in reported vendor bookings in Q4 2022.
After the recovery in 2021 and 2022, IDC analysts expect the market to cool down moderately at the 5.5 - 5.7 percent range for the next five years, given the current economic outlook (of course, subject to change).
Most of the growth in 2023 will be from Managed Services and project-oriented markets. Professional Services' short-term and long-term growth rates were adjusted upward from the previous forecast of 5.5 - 6 percent range to close to 7 percent.
While the economy will have a direct impact on Professional Services, the strong growth in 2022, including Business Consulting services, suggests that softening demand in 2023 and 2024 will be milder than previously assumed.
The upside opportunities will be enabled by lower customer attrition rates, partial inflation-adjusted price changes, as well as the need for companies and governments to digitize their legacy operations.
Geographically, IDC has raised its outlook for the Asia-Pacific region and the United States while growth was adjusted downward mainly for Europe, the Middle East, and Africa (EMEA).
The U.S. market's actual growth in 2022 was adjusted by almost 1.17 percentage points compared to the previous forecast and is now at 6.2 percent. The U.S. software market forecasted growth and hardware installed base also remain strong.
IDC now forecasts the U.S. market growth at 5.8 percent, 5.7 percent, and 5.2 percent in the next three years, respectively. U.S. buyers' needs to reduce costs, manage risks, meet new digital customer expectations, and access skilled consulting talent will continue to drive growth.
Canada's five-year CAGR is poised at 3.8 percent and LATAM's at 7.3 percent. However, Canada's short-term growth was lowered to reflect a weaker economic outlook and the central bank's interest hikes.
IDC anticipates a quick bounce back in 2025 and 2026. For LATAM, mid- to long-term growth was reduced, but 2022 and 2023 growth rates were raised slightly. This was partially because of the volatility of some local currencies and high inflation.
In terms of real growth, after seeing robust growth in 2022, the region will slow down in the coming years given its economic challenges (i.e., Fed's rate hikes). Overall, LATAM's IT services market still greatly outpaces the region's overall GDP growth.
In EMEA, IDC has reduced the near-term to mid-term growth outlook for both Europe and the Middle East & Africa. 2023 growth rates are now 5.3 percent for Europe and 5 percent for MEA.
Most large markets in Europe saw 2022 market growth that was stronger than expected, but IDC analysts remain cautious about their near-term growth, given inflation and economic or geopolitical instability.
Therefore, IDC now expects Western Europe and Central and Eastern Europe markets to grow only by 5.4 percent and 4.3 percent, respectively. However, IDC is more bullish on certain large Eastern European markets -- such as the Czech Republic, Poland, and Romania.
The growth outlook for the Asia-Pacific region was adjusted upward by around 100 basis points each year for the next four years, largely driven by an improved economic outlook and foreign capital inflow.
The region is expected to grow by 6.1 percent, and 6.4 percent in 2023 and 2024 with a more bullish outlook for key developed markets. Australia and New Zealand's growth prospect was raised from 4-5 percent to 7+ percent, driven by cloud computing adoption and technology lifecycle. Japan's outlook also improved, now to 3.5-4 percent.
Largely due to the government's fast opening up in late 2022, China's economic outlook improved. Therefore, China's services market's near-term growth is now projected to be around 8.5 percent, an increase from the previous forecast of 6.5-7 percent.
Outlook for Emerging Regional Growth Opportunities
Meanwhile, IDC reduced the growth outlook slightly for emerging economies in Southeast Asia. However, given that they are viewed as hyper-growth markets, reaching around 10 percent annual growth, the changes are relatively small. They remain the fastest-growing markets globally.
"The expected slowdown in 2023 and 2024 can be felt in the recent cooling in hiring in global delivery hubs, such as India," said Xiao-Fei Zhang, program director at IDC.
Vendors' reported customer attrition rates are also trending down. But the slowdown in demand will be more measured, and as IDC believes that certain markets may recover in 2025, a major talent crunch may return.
According to the IDC assessment, the Digital Skill gap is structural and demographic. Therefore, IT vendors should remain focused on talent management and re-skilling during the market slowdown.
That said, I'm anticipating we'll soon witness an inflection point where overall enterprise customer expectations for achieving business outcomes will rise for service delivery and consulting advisory investments. Generative artificial intelligence, and other forms of AI, will empower CIOs and CTOs to focus more on mastering Digital Transformation. Consultants must add value to this equation.