BY STAFF REPORT
The fourth quarter of 2012 saw a slowdown in the value and number of outsourcing contracts awarded globally, according to the quarterly Global TPI Index of sourcing advisory firm Information Services Group (ISG).
The Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, totaled $4.8 billion in the fourth quarter, a drop of 27 percent from the fourth quarter of 2011 and 11 percent from the third quarter of 2012.
The analyst firm has blamed US presidential election and Superstorm Sandy for the decrease in the number of outsourcing contracts.
Interestingly, Latin American markets heated up in 2012 as the number of outsourcing contracts in Brazil and other countries in the region nearly doubled from 2011, the research firm noted.
For the full year, the global market’s ACV totaled $21.2 billion, a decline of just 3 percent from its record performance in 2011.
Interestingly, ISG noted, there were many contracts worth more than $100 million, and, in 2012, the BPO sector grew considerably in Asia Pacific region.
In total, the market awarded 1,006 contracts during 2012, down 13 percent from the previous year but still above the five-year average for awards.
“Fourth-quarter results typically improve on those for third quarters, but this one did not, mainly because it followed such a substantial third quarter,” said John Keppel, CMO and President, ISG. “Distractions from elections in the U.S. as well as Superstorm Sandy could partially explain this quarterly drop, as October and November were the lightest months of the year. Still, the market’s full-year performance nearly met the record it set in 2011.”
The global commercial market awarded eight mega-relationships in the fourth quarter and 34 for all of 2012, the largest full-year total since 2006. For the second straight year, one-quarter of all mega-relationships were awarded in emerging markets. The ACV of mega-relationships fell 50 percent from the fourth quarter of 2011 and 24 percent from the third quarter of 2012. However, mega-relationship ACV for all of 2012 rose 7 percent from the year before.
By scope, the market awarded $1.9 billion in BPO contracts during the fourth quarter, down 1 percent year-over-year but up 5 percent sequentially. Full-year BPO ACV reached $7.9 billion, an increase of 14 percent over 2011.
The ACV of contracts for IT outsourcing (ITO) dropped to $2.9 billion, a decline of 37 percent from a year ago and 18 percent from the prior quarter. For the full year, ITO ACV totaled $13.3 billion, a decline of 11 percent. The segment suffered from a difficult comparison with 2011, which included the $1 billion Siemens-Atos mega-relationship. However, the 650 ITO contracts signed during 2012 marked the second-best annual total on record.
By region, the Americas awarded $1.7 billion in ACV during the fourth quarter, a drop of 28 percent year-over-year and 9 percent sequentially. However, the $7.9 billion in ACV signed in the Americas during all of 2012 represented just a 3 percent drop from 2011, despite significant political and economic uncertainty in the region’s largest market, the United States.
In Europe, the Middle East & Africa (EMEA), fourth-quarter ACV of $2.6 billion was down 29 percent from the year before and 6 percent from the prior quarter. For the year, ACV in the region dropped 12 percent to $10.2 billion but remained within its five-year average. Notably, while the ITO segment in EMEA took a substantial downward turn in 2012, the BPO segment continued a steady climb begun in 2010.
In Asia Pacific, the $500 million in fourth-quarter ACV was flat year-over-year but declined 34 percent sequentially. However, the region tallied a record $3.1 billion in full-year ACV, up 55 percent over 2011 despite significant volatility in the market. While Australia and New Zealand experienced a reversal of recent growth trends, outsourcing by companies in India, China and Southeast Asia reached all-time highs, benefitting from increasing contract values and volume.
“The sustained BPO performance is encouraging, and renewed positivity in the U.S. market as well as underlying structural trends in the Americas give us added cause for optimism going forward,” Keppel said.