Market Overview

The market for public sector outsourcing services (total of three categories) reached 5,064,550 million yen in FY2023, based on service provider revenue. The CAGR from FY2023 to FY2027 is 2.1%, and the market size is forecast to be 5,501,500 million yen by FY2027.

Many local governments are finding it difficult to handle diversified work with only civil servants due to labor shortage. As a result, the demand for contracting out of municipal work to private companies has been increasing. On the other hand, in the aging society with a decreasing number of children, labor shortage is not only a problem for local governments, but also for private companies or even outsourcing service providers. In such a situation, outsourcing service providers address this issue by building an efficient system for a small number of employees to cope with the work, such as by concentrating labor in a business process outsourcing center or by promoting digital transformation.  

Noteworthy Topics

Trend of Public Sector Outsourcing Services by Category

In this research, public sector outsourcing services are categorized into back office service, facility operation service, and social infrastructure work service. The CAGR by category from FY2023 to FY2027 is forecast to be 2.7% for the facility operation service, 1.5% for the social infrastructure work service, and 1.4% for the back office service.

The facility operation service has the highest CAGR among the three categories because of the private funds are needed against the deterioration of facilities due to aging, with the tendency to be used for concentration of multiple facilities or for integration into a complex facility.

Among the social infrastructure work service, the water supply business suffers from declining revenues due to a shrinking population demanding water supply and a decreasing number of workers, which increases the challenges for many local governments to upgrade infrastructure and service provision. As a result, long-term concessions are being granted to private companies to operate the business.

As for back-office services, many local governments are relying on private companies to manage diversified services and increasing workloads despite limited numbers of municipal employees. This trend is likely to continue.

Future Outlook

Japan will continue to experience declining tax revenues due to a shrinking population. At the same time, social welfare costs are expected to rise due to an aging society, which will increase the number of local governments facing financial difficulties. Above all, it will be difficult for local governments to finance the cost of upgrading aging and deteriorating public facilities and social infrastructure, and for a limited number of local government employees to cope with diversifying work. Therefore, financial assistance and expertise from the private sector will be increasingly needed, and the public sector will continue to outsource services.

Research Outline