- Momentum Insufficient to Overcome Early Year Softness; Fewer Number of Contracts and Lower Total Contract Value in 2007 Compared with 2006
- Fourth Quarter Best Since 2005 for Number and Annualized Contract Value of Mega Relationships
- EMEA Passes the Americas for the First Time in Number and Value of Outsourcing Contracts
TPI today released its quarterly analysis of the global commercial outsourcing industry for the fourth quarter of 2007, as well as the year overall, through its TPI Index report, the source for comprehensive marketplace intelligence on sourcing. The TPI Index revealed a strong increase in total contract value (TCV) and annualized contract value (ACV) in the fourth quarter after a sluggish start to the year, reflecting a strong industry demand profile entering 2008.
Momentum in the fourth quarter was partly driven by the highest level of TCV awarded since the first quarter of 2006, and the best quarter of ACV in 11 years. While TCV for 2007 was the lowest in the past five years, the fourth quarter was a bright spot fueled by an uptick in mega relationships. Annualized Revenue ? an estimate of the revenue potential available to providers ? for the global commercial outsourcing market in 2007 grew by approximately seven percent, confirming an upturn in the market. TPI estimates that there were 2,700 active contracts yielding approximately $79 billion in Annualized Revenue at the end of 2007. An increase in contract value was also seen in new scope deals, which were up 13 percent in 2007, representing truly incremental demand.
"A landmark regional shift also took place in 2007 as Europe, the Middle East and Africa (EMEA) overtook the Americas in outsourcing activity. It marked the first year ever that the number and value of outsourcing contracts awarded in EMEA exceeded those measures in the Americas," said Peter Allen, partner and chief marketing officer, TPI. "Also for the first year ever, EMEA accounted for more than half of all global Business Process Outsourcing (BPO) in the broader market."
In the Asia Pacific region, countries known for providing outsourcing resources are becoming buyers of outsourcing themselves. Companies in India, which nearly doubled the value of their outsourcing work, topped the list of buyers of outsourcing in Asia Pacific in 2007, surpassing companies in Australia and Japan. Companies in China signed several large outsourcing contracts as well in 2007.
The India-heritage service providers also experienced notable growth in market share, up over 40 percent year-over-year. This past year marked the first time that these India-heritage providers matched the share of the Big Five European providers. Overall, the market witnessed a decline of 12 percent in the number of service providers winning at least one of the 487 contracts awarded during the year.
While contract value was strong on both a TCV and ACV basis in the fourth quarter, the number of specific contracts awarded (108) was the smallest since the third quarter of 2005.
"2007 marked the first year in a long time that the absolute number of outsourcing contracts awarded declined year-over-year," stated Allen. "This decrease of 12 percent comes after several successive years of growth in the number of contract awards. Although we saw this trend develop throughout the year, it was atypical to experience it in a fourth quarter which is usually more robust in terms of absolute award volumes."
BPO experienced a resurgence after a lackluster performance in preceding quarters. The fourth quarter saw the highest TCV for BPO contracts since the fourth quarter of 2005 and the highest ACV since the second quarter of 2004. This was due to a number of large contracts awarded. Looking deeper inside the BPO sector, Financial Services Outsourcing (FSO) and multi-process BPO markets were strong. Human Resources Outsourcing (HRO) demand fell by 34 percent (contracts) and more than $2 billion (TCV) in 2007 compared to 2006. Provider capability challenges across the HR spectrum was a reason for the lag, however, providers are continuing to work on the maturity of their service offerings.
The TPI Index tracks and analyzes trends in transactions awarded by industry, geography and service provider through commercial contract awards valued at a total contract value (TCV) of $25 million and greater. Typically evaluating contracts with a TCV of $50 million or greater, TPI expanded its definition of the broader outsourcing market in order to provide better insights into the dynamics of the commercial outsourcing industry ? the most granular view of outsourcing trends available today. To find out more about the emphasis on value over volume in 2007 as well as emerging industry trends for 2008, please visit TPI's blog hosted by Peter Allen (www.considerthesourceblog.com) and join in the discussion.
TPI, a unit of Information Services Group, Inc. (ISG), is the founder and innovator of the sourcing advisory industry, and the largest sourcing advisory firm in the world. We are expert at a broad range of business support functions and related research methodologies. Utilizing deep functional domain expertise and extensive practical experience, TPI's accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of outsourcing, offshoring, shared services and internal service optimization. For additional information, visit www.tpi.net.
About Information Services Group, Inc. Information Services Group, Inc. (ISG) was founded in 2006 to build an industry-leading, high-growth, information-based services company by acquiring and growing businesses in advisory, data, business and media information services. In November 2007, the company acquired TPI, the largest independent sourcing advisory firm in the world. Based in Stamford, Conn., ISG has a proven leadership team with global experience in information-based services and a track record of creating significant value for shareowners, clients and employees. For more, visit www.informationsg.com.