Nearshore Americas

TPI: Overall Outsourcing is Flat, But Cloud is Hot

HOUSTON, July 20 /PRNewswire/ — TPI, the largest sourcing data and advisory firm in the world and a unit of Information Services Group, Inc. (ISG) (Nasdaq: III), an industry-leading information-based services company, released data today showing that the global outsourcing market is not yet bouncing back as economic uncertainty continues to weigh on corporations around the world.

The 2Q10 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, recorded total contract value (TCV) of $18.1 billion in the second quarter of 2010, down about 13 percent both sequentially and year-over-year. The market in the second quarter exhibited particular softness in Europe, the Middle East and Africa (EMEA), Asia Pacific and IT outsourcing (ITO).

For the first half of 2010, global market TCV of $38.9 billion remained flat with a year ago following the unprecedented surge in contract restructurings during the first quarter. In the second quarter, restructurings accounted for 20 percent of TCV, in line with historical trends.

Despite the sluggish market, innovations such as Cloud Computing are beginning to influence the approach companies take to their service-delivery strategy. TPI Research released today finds that 78 percent of the firm’s clients have had internal discussions about Cloud Computing.

“The global outsourcing market continued to recover slowly and quite unevenly in the second quarter,” said Mark Mayo, Partner and President, TPI Global Operations. “At the same time, we see corporations continuing to look to outsourcing to improve their critical business operations and enable important innovations such as Cloud Computing.”

The TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. Now in its 31st consecutive quarter, it is the industry’s authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.

In keeping with the uneven recovery, the 2Q10 Global TPI Index found significant variation across the market.

By region, the Americas saw second-quarter TCV decline 9 percent over the first quarter of 2010 but increase 21 percent over the second quarter of 2009. In EMEA, however, quarterly TCV fell both sequentially and year-over-year, 21 percent and 14 percent, respectively. In Asia Pacific, TCV increased 5 percent sequentially in the second quarter but dropped 73 percent year-over-year.

Regional results for the first half of 2010 tell a different story. In the Americas, the one region showing some strength in 2010, TCV was up nearly 30 percent, spurred mainly by growth in the United States. EMEA was down 6 percent in the first half and Asia Pacific 59 percent.

By scope, ITO TCV during the second quarter fell nearly 30 percent sequentially and 23 percent year-over-year. First-half ITO TCV of $29 billion, fueled by the large contract restructurings of the first quarter more than by second-quarter performance, rose 5 percent over the year before.

The quarterly TCV of contracts for business process outsourcing (BPO) rose 60 percent over the first quarter of 2010, which was one of the worst on record in this segment, and 20 percent over the second quarter of 2009. But overall BPO activity remained weak by historical standards, with the greatest growth in contracts valued at between $10 million and $25 million.

Finally, by industry, the Global TPI Index found declining activity in Financial Services, Manufacturing and Telecom & Media, even in the more robust Americas region. These three sectors are as critical as ever to the outsourcing market, and their relative sluggishness restrained overall market growth in both the second quarter and the first half of the year.

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In contrast, the Travel, Transportation and Hospitality industry saw impressive gains for the second straight quarter, and the Retail sector, with four successive halves of growth off a small base, remained another industry to watch, as retailers continue to experience top-line revenue pressure and pursue cost reductions from sourcing.

“Our outlook for the remainder of the year remains cautious,” Mayo said. “We know that third quarters are historically weak and we believe the upcoming third quarter will follow that pattern. The market should continue the slow and uneven recovery it began last year.”

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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