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TPI, an outsourcing data and advisory firm, has come out with its quarterly look at the outsourcing industry for clients, service providers, analysts, and the media, and the results show that the global outsourc-ing industry is still in an uncertain state as a result of the continuing global economic recession.
The study, which looks at outsourcing contracts worth $25 million or more, shows that for the second quarter of 2010, TCV (total contract value) was $18.1 billion, down 13% sequentially and year over year; additionally, the TCV for the first half of 2010 remained flat year over year at $38.9 billion. The EMEA (Europe, Middle East, and Africa), Asia Pacific, and IT outsourcing markets showed particular weakness.
According to analysts, the economy is clearly the biggest culprit behind the outsourcing slowdown. “The relationship between the overall economic downturn and a downturn in outsourcing is the most critical relationship,” says Mark Mayo, partner and president of TPI Global Operations. “It was not so much that companies stopped outsourcing during the downturn, but that their outsourcing initiatives were delayed during the recession for financial reasons or for lack of management focus.”
Euro concerns and debt crises within the European Union caused particular problems in the hard-hit EMEA market. It is these factors, Mayo says, that “inhibit some of the recent outsourcing initiatives underway or under construction.” The Asia Pacific market, which dropped 73% year over year, was hit hard because it is “measured off a smaller base” than the Americas and EMEA, Mayo says, explaining that big contracts make bigger impacts, and losing one can make a big difference.
The Road To Recovery
Mayo expects to see circumstances slowly begin to change for the remainder of 2010, with more large opportunities presenting themselves in sluggish markets. For the remainder of this year and through the next year, Mayo says, “we anticipate a modest third quarter in keeping with the historical profile for third quarters.” A strong fourth quarter will often follow a weak third quarter, Mayo says, although he predicts the market will recover “slowly and unevenly.”