A few global players will dominate the outsourcing industry, which will be worth $1.2tn within five years, according to an analyst

The outsourcing market, riding a healthy seven per cent annual growth towards an estimated $1.2tn (£0.72tn) in 2007, will be dominated by a few global players in on-demand computing, an industry watcher said.

"There is consolidation occurring across the industry. The future trend is all about on-demand utility computing," David Tapper, programme manager, infrastructure management research, International Data Corp (IDC), said at an outsourcing conference in Bangalore, according to the news wire AP.

Utility computing, when companies access IT resources over a network and pay only for what they use, and on demand computing, are expected to be major new IT drivers. "This trend will create a major restructuring of IT outsourcing and service models," he predicted.

IT firms like IBM, HP, Sun and storage giant EMC are among those promoting a utility model of payment.

He pointed to IBM and HP as global IT leaders in this segment, the Times of India reported. India has had recent success in outsourcing, with the sector making around a quarter of India's total software revenues of $9.5bn last year.

Tapper believes that Indian and other offshore firms must consolidate to compete. "For offshore firms to compete successfully in the US, they need to build scale through acquisitions or consider being acquired," he told AP.

He also noted future opportunities in e-commerce applications, data warehousing, web hosting and storage management.

Traci Gere, group vice president (services), IDC, estimated that "about 12 per cent of US IT outsourcing will go offshore and about 30 per cent and 50 per cent of applications will be outsourced by the US in the next five years."