What’s Next
Will 2024 growth come from mid-size industries again? Here’s what we’re seeing in the data and on the ground with clients:
The second half of 2023 was exceptionally strong for the
healthcare and pharma sector, with two consecutive billion dollar quarters. In the U.S., we continue to see a strong focus on cost optimization from the large healthcare payers, with more mid-tier payers starting to execute first-generation outsourcing deals. And, on the provider side, we’re starting to see a shift toward
clinical process automation, which means more demand for industry-specific BPO.
Energy, on the other hand, may be starting to pull back. As mentioned above, most of the strength in this sector came in the first half of 2023, then started to slow in the second half. We continue to see strong demand to reduce costs in operations and maintenance as regulators push to minimize
decarbonization cost impacts on end-consumers. We also see very strong activity around SAP upgrades, especially within chemical companies.
And while the
media and telecom sector had its best year ever in 2023, it also may be set for a pullback in the first half of 2024. There were 13% fewer media and telecom awards last year as compared to 2022. This means a small number of large deals drove the double-digit growth last year. So, while demand still feels strong on the ground, it will continue to be dependent on large deals to sustain growth.
That leaves BFSI and manufacturing, the two biggest sectors in our industry.
BFSI was flat last year with $11.3 billion ACV. And the second half of the year was down 15% compared to the first half, so bookings momentum is slowing. Cost optimization will
remain the top priority in 2024 as banks look to break down organizational silos and put in place better cost governance. Technology spending in this industry is heavily influenced by monetary policy, so we’re waiting to see the effect of any changes in 2024.
And finally, in
manufacturing, ACV was also flat year over year. The great news is that according to the S&P Global Manufacturing PMI, the manufacturing sector appears to be recovering after many months of contraction. Even if performance continues to improve in this sector, we expect to see continued demand for cost optimization-focused outsourcing in the aerospace and defense subsectors and increased levels of outsourcing activity at mid-market industrial and process manufacturing firms.
Our forecast for
managed services growth of 4.25% in 2024 is lower than the 5% growth forecast at the start of the 2023. Much of this is due to the industry-specific factors we mention above. Add to this the continuing headwinds from the macro environment and the tight control on discretionary spending, and it means that most industry growth will likely occur in the back half of 2024.