Business process management strategies for enterprise CIOsExecution: Aligning processes, gaining ROI with BPM <<previous|next>> :BPM takes root, but still an adjustment for many
Outsourcing in Europe, Middle East, Africa vs. Americas rising
By Linda Tucci, Senior News Writer
22 Jan 2008 | SearchCIO.com
Indeed, for the first time, Europe, the Middle East and Africa countries account for more than half the global outsourcing contract value tracked by TPI.
The firm's latest numbers are based on contracts of $25 million or more, as opposed to its previous cutoff of $50 million. The move reflects the growing number of contracts falling in the $25 million to $49 million range.
Despite a strong fourth quarter, the total value of outsourcing contracts in 2007 dropped 5% year over year, to $80.4 billion in 2007 from $84.7 billion in 2006.
TPI President Scott Gildner said that for the "first time in a long time," the absolute number of contracts awarded also declined year over year, from 556 contracts in 2006 to 487 contracts in 2007 -- a 12.4% drop.
The firm, however, cautioned market watchers not to read too much into the lower numbers.
On the basis of annualized revenue, 2007 "fared all right," said Peter Allen, chief marketing officer at TPI. Annualized revenue, as measured by TPI, represents the dollars that go into the pockets of service providers from all active contracts, factoring in prior awards and any known terminations of contracts. At the end of 2007, TPI identified about 2,700 active contracts in the marketplace delivering almost $79 billion in revenue to providers. That marked a growth rate of about 7%, "well above" the five-year compound annual growth rate of 5.3%, said Allen, who gave his take on the numbers in his blog.
Moreover, the strong fourth quarter showed a revival in megadeals -- or contracts of $100 million or greater, suggesting some forward momentum. "The fourth quarter registered the greatest number and value of large-scale deals in recent years," Allen said.
Bottom line: TPI is predicting that a 7% growth rate in outsourcing will continue throughout 2008.
BPO up, IT flat
Another headliner of note: Business process outsourcing (BPO) contracts mounted a comeback in the fourth quarter after several lackluster quarters, elevating the 2007 BPO contracts to the same level seen in 2006, despite a drop-off in the actual number of contracts awarded.
In fact, the fourth quarter saw the highest level of BPO contracts in three years. With $12.5 billion in total contract value, EMEA countries accounted for more than half of all global BPO business for the first time. Large IT and BPO deals by The Nielsen Co. and Prudential UK in the fourth quarter boosted the results. The average BPO contracts were also longer in duration. That was in contrast to IT contracts, which remained stable and were shorter in duration. TPI also sees a continuing trend among companies of splitting their application-related contracts from their infrastructure work.
The strong BPO numbers were driven by that old warhorse of BPO outsourcing: the financial services sector. On the other hand, human resources outsourcing demand fell 34%, a decline TPI chalked up to the current immaturity of service offerings.
Indian heritage providers
On the provider side, while the number of service providers continued to grow, 12% fewer providers won contracts in 2007 than in 2006 -- this after four years of increases in the number of providers winning business. But the established Indian providers continued to enjoy healthy growth.
Indeed, offshore work appears to be recession-proof -- for the moment. While there is a growing consensus among analyst firms, such as Gartner Inc., that IT investment and spending will be lower than anticipated in 2008, offshoring is not an area where companies are cutting back -- yet.
During a Forrester Research Inc. conference call in December warning of lower-than-anticipated IT growth rates for 2008, analyst Andrew Bartels also pointed to the resiliency of the offshore market, for now.
"If you look at the IT outsourcing market, the offshore portion certainly has seen the strongest growth. Vendors like Wipro, Tata and Infosys have been growing at far stronger growth rates than a lot of North American vendors," said Bartels, vice president of research at Cambridge, Mass.-based Forrester.
Both Forrester and Gartner said they will be watching the offshore markets closely in coming weeks, when many U.S. corporations renew contracts.
Let us know what you think about the story; email: Linda Tucci, Senior News Writer