Market Shifting to Smaller IT Outsourcing Deals

The year 2011 saw a record global information technology outsourcing contracts. A total of 870 deals, above the average of the five prior years of 690, were awarded to global companies, including Indian services providers such as Tata Consultancy Services, Infosys, Wipro and HCL Technologies. The increase was mainly due to tripling in number of deals that were less than $100 million, according to a report.

The total contact value (TCV) or the global outsourcing deals reached $95 billion, an increase of 3 per cent over the prior year, and the highest annual result since 2005, says TPI Index by the Information Services Group of the US.

Shift to smaller contracts

The report found that when compared to last year there was a broad market shift towards smaller contracts of $25 million to $99 million band. On the other hand, it was flat in both $100-999 million and over $1 billion deal range. In fact, the number of smaller deals doubled the five years it has been a flat scenario in the mid-range.

Deals of over $1 billion have been gradually coming down, from 16 in 2002 to 10 in 2011, the report said.
EMEA

Boosted by mega-deals of around $1 billion in value, the Europe, Middle East and Africa (EMEA) region recorded the best performance among global regions with a 27 per cent increase in deal value to a record $55 billion. In other words, over half of total global outsourcing deals came from this region.

For the first time, significant outsourcing activity in EMEA was not limited to the established markets of the UK, Germany and Scandinavia, with momentum seen in France, Southern Europe and the Middle East.
US leads

Although in US, the TCV was down in 2011, it was still the predominant Americas market. However, Canada and Latin America experienced strong 2011 contracting, beating their prior five-year average results.

“The outsourcing market finished 2011 within historical norms, slightly outpacing our prediction for TCV, growth,”

said Mr John Keppel, Partner & President, Research and Managed Services, ISG.

“Our prediction for the outsourcing marketplace in 2012 is continued growth in contracting activity of between 5 and 7 per cent, led by Asia Pacific and BPO, with overall market TCV holding firm for the year.”

BPO record increase

By scope, BPO continued its strong 2011 performance was up 32 per cent to $29 billion. The 336 BPO contracts signed in the year were more than in any previous year, with much of the activity coming from the financial services sector.

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