| | Advisory firm TPI
released fourth-quarter
and full-year 2009 data
showing that the global
outsourcing market had
its best performance in
six quarters and that a
slow but steady recovery
in the industry is
underway as businesses
commit to long-term
strategies to reduce
costs and streamline
operations.
The 4Q09 Global TPI
Index, which measured
commercial outsourcing
contracts valued at
greater than $25
million, showed the
market’s total contract
value (TCV) reached
$24.7 billion, an
increase of 47 percent
sequentially and 8
percent year-over-year
and the best quarterly
performance since the
second quarter of 2008.
Driving the market were
strong demand for IT
outsourcing (ITO), a
regional surge in
Europe, the Middle East
and Africa (EMEA), and a
continuation of the
rebound in mega-deals
and mega-relationships
that began in the third
quarter.
Full-year 2009
results could not
overcome the market’s
weak showing during
first two quarters. TCV
for the year declined 13
percent to $74.5
billion, its lowest
point since 2001.
However, as 2010 begins,
industry pipelines are
healthier and more
stable than a year ago.
“As we anticipated,
2009 marked a low point
in outsourcing because
of the recession in the
general economy and its
impact on commercial
buyers,” said Mark Mayo,
Partner and President,
Global Operations, TPI.
“The global market
bottomed in the first
half of the year and
turned in the second
half. It now shows signs
of recovering slowly and
steadily, rather than
bouncing back to
pre-recession levels,
but the outlook for
building on its
second-half momentum is
positive.”
Market overview
The Global TPI Index
provides a quarterly
snapshot of the sourcing
industry for clients,
service providers,
analysts and the media.
Now in its 29th
consecutive quarter, it
is the authoritative
source for marketplace
intelligence related to
outsourcing transaction
structures and terms,
industry adoption,
geographic prevalence | |
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| | and service provider
metrics.
During the fourth
quarter of 2009, ITO
activity continued to
drive the broader
market, as it has all
year. TCV in this
category increased 54
percent over the prior
quarter and 32 percent
over a year ago to $19
billion, the highest
quarterly total in six
years. For the year, the
market produced $56
billion in TCV, flat
with 2008. The Network
Services and Application
Development &
Maintenance towers both
experienced declines for
the year, but
Infrastructure, the
largest tower within
ITO, grew modestly.
Meanwhile, the market
for business process
outsourcing (BPO)
continued to struggle in
the fourth quarter.
While TCV in this
segment increased almost
29 percent sequentially,
a third consecutive
quarterly improvement,
it remained 33 percent
below the same period in
2008. For 2009, BPO TCV
declined 38 percent to
$18.5 billion, its
lowest level since 2001,
and the Finance &
Accounting, Financial
Services Operations and
Human Resources
Outsourcing categories
remained stalled at a
fraction of totals
reached in prior years.
Regions and
industries
Once again, the
Global TPI Index showed
vastly different results
among the three major
geographic regions of
the world. In the
Americas, TCV rose just
over 4 percent over the
prior quarter but
remained off by 17
percent year-over-year.
Despite growth in Latin
America, full-year TCV
in the region declined 6
percent to $27 billion,
the lowest level of the
decade. The service
provider landscape
continued to shift in
the region due to
significant
consolidation and gains
by India-heritage firms,
which now make up nearly
one-third of the top
players.
In EMEA, several
large transactions
boosted fourth-quarter
TCV 135 percent
sequentially and 60
percent year-over-year
to $15.4 billion, its
best performance since
the second quarter of
2008. However, full-year
TCV in the region fell
21 percent to $36.7
billion despite only a | |
|
| | slight decline in the
number of contracts, an
indication that EMEA is
experiencing the same
shrinking transaction
sizes that have slowed
growth in the United
States.
Asia Pacific
fourth-quarter TCV fell
37 percent sequentially
and 56 percent
year-over-year to $2.1
billion. But for the
year, the region’s $10.5
billion in TCV
represented
stabilization with 2008
after several volatile
years. While China and
India have yet to reach
their full potential as
outsourcing markets,
Australia continued its
solid track record of
late, doubling its share
of the region’s TCV.
Among industries, the
three verticals with the
largest footprint in the
outsourcing market –
Financial Services,
Manufacturing and
Telecom & Media –
experienced significant
increases in demand
during the second half
of 2009. Manufacturing,
where softening consumer
demand is necessitating
investments in reducing
operational costs, TCV
rose 76 percent over the
first two quarters of
the year. In financial
services, TCV was up 33
percent in the second
half. And in Telecom &
Media, a mature vertical
that is nonetheless
seeing contract renewals
and renegotiations, TCV
was up 24 percent. These
three verticals will
need to continue their
positive momentum if the
broader market is to
maintain its gradual
recovery.
Outlook
Looking ahead,
industry pipeline
metrics monitored by TPI
have strengthened over a
year ago, as have
anecdotal descriptions
of the health of service
provider pipelines. The
rate of new transactions
added to pipelines,
which had slowed in
2009, has apparently
stabilized, and the
level of contracts
coming up for renewal is
up 29 percent.
“As businesses
becoming more confident
in making strategic
decisions, we are seeing
promising signs for the
global outsourcing
market,” Mayo said. “All
in all, we sense that
the worst is behind us
and expect a return to
growth in 2010.”
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