2 minutes to read by  RBC Emerging Markets Equity team, C.Enemaerke, CFA Feb 12, 2024

The IT Services sector has been evolving for decades, with changes taking place in technological waves, and today it plays an ever-important role for clients in helping them to develop their digital strategies.

The industry is expected to continue to grow strongly, driven by digital transformation, cloud migration and AI. The IT Services sector is a USD1 trillion-plus industry globally and the market is expected to increase at an annualised growth rate of more than 10% from 2023-27¹. Industry growth has been strong in recent years – in particular, it accelerated following the pandemic, which served as a catalyst to put the importance of digital transformation top of mind for many businesses – and we expect this to continue.

In our piece, we look at:

• Industry characteristics: IT Services businesses tend to be asset light and cash generative, and companies in emerging markets (“EM”) have yielded consistently higher economic returns versus the average EM firm.

• Digital transformation: the industry has evolved through four technological waves. The most recent one, the ‘Digital wave’, started around 2014-15 and is still ongoing and relevant, as the world becomes increasingly digitalised.

• Key EM regions: India is a key destination for IT Services, due to its availability of a skilled talent pool available at a significant labour cost arbitrage compared to developed countries. Latin America is another promising region for the sector, with strong growth prospects.

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