Global outsourcing is predicted to grow by 8.1 per cent this year as companies turn towards smaller contracts.
Analyst house Gartner forecasts healthy growth rates worldwide in the IT outsourcing (ITO) and business process outsourcing (BPO) markets.
More companies are favouring smaller deals and splitting services between several providers and countries, the Gartner report found.
This shift away from large high-value deals is partly responsible for the fact that publicly reported BPO and ITO contract values fell by 50 per cent in 2007.
But organisations are also still failing in their IT sourcing strategies and governance structures when drawing up outsourcing agreements, Gartner said.
Kurt Potter, research director at Gartner, said in a statement: "Because these organisations lack the basic building blocks for successful vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain."
Spending on offshore services is three times higher in North America than in Western Europe but the gap is closing, with Indian providers becoming more popular in 2007, growing 40 per cent in the US and 60 per cent in Europe.
Research VP at Gartner, Ian Marriott, said other countries will continue to emerge as challengers to India, and added that strong demand is putting a strain on the Indian labour force, with staff attrition and cost increases remaining high.
There is an increasing move towards lower-cost, offshore delivery centres but companies with a history of outsourcing services are also seeking providers that better support business needs.
Software as a service (SaaS) is emerging as a viable alternative to traditional outsourcing for user organisations, with vendors including Amazon, Google, Microsoft and SAP making announcements about new SaaS offerings and mass-customised software platforms, Gartner said.