STAMFORD, Conn. — TPI, an Information Services Group company (ISG) and independent sourcing data and advisory firm, just released outsourcing market data showing growth in two of the world’s three major regions as well as in restructurings.
The 2Q11 Global TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, recorded year-over-year growth in total contract value (TCV) of 13 percent in Europe, the Middle East and Africa (EMEA) and 55 percent in Asia Pacific. Restructurings – defined as contracts that are renewed, restructured or renegotiated –saw TCV growth of 30 percent over the same quarter a year ago.
Overall, TCV fell to $16.4 billion, a decline of 18 percent over the second quarter of 2010 and 21 percent over the first quarter of 2011. The results were driven by weakness in the Americas region and an overall drop in the number of large contracts awarded. However, current contract pipelines suggest an improvement in global TCV for the remainder of the year.
“The second quarter offered some welcome year-over-year TCV lift in several metrics, but a poor showing in Americas TCV and fewer large contracts drove down the overall global sourcing market,” said John Keppel, Partner & President, Information Services, ISG. “Despite this weakness in the big picture, we anticipate stepped-up second-half results that will find the market finishing the year near its 2010 levels.”
Now in its 35th consecutive quarter, the TPI Index provides a quarterly snapshot of the sourcing industry for clients, service providers, analysts and the media. 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.
At the halfway point of 2011, global TCV is down about 20 percent from last year, the Index found. However, the number of contracts awarded has dropped just 1 percent, a sign of the market’s continued movement away from large awards due to the increased use of multi-sourcing by corporations as well as their general reluctance to commit to large investments.
Through the first six months of this year, clients have signed just four mega-deals, those awards with a TCV of $1 billion or more. The $6 billion in mega-deal TCV in the first half of 2011 is down 40 percent from the first half of 2010 and is its smallest six-month contribution ever to overall TCV. The annualized contract value(ACV) of mega-relationships – those transactions with an average annual value of $100 million or more – fell by 62 percent.
The shift away from large contracts has had its biggest impact on the Americas, where the $5.2 billion in TCV was down 51 percent during the second quarter.
By contrast, EMEA has seen increased demand in the United Kingdom and The Netherlands, a mega-deal in Finland and the continuing expansion of outsourcing adoption in France. The region recorded $9.5 billion in TCV for the quarter.
In Asia Pacific, growth has been driven by the continued expansion of outsourcing adoption, mounting interest in multi-sourcing, and the inroads made by India-heritage service providers. The region finished with $1.7 billion in second-quarter TCV.
During the second quarter, business process outsourcing (BPO) awards did not add to the surge they began in the first quarter, dropping 18 percent to $4.9. billion. In IT outsourcing (ITO), the traditional foundation of the market, TCV fell 18 percent, but a mega-deal in the segment signed after the quarter ended gives reason for optimism for the second half.
Among major industry sectors, Telecom & Media has nearly doubled its TCV year-to-date to about $7 billion, and Manufacturing, with about $8 billion so far in 2011, has awarded several substantial contracts and is expected to strengthen over the next two quarters. Financial Services recorded $9 billion in TCV, its worst half-year since 2007.
“While the market did not have a banner first half, we expect it to rally in the second half and end the year within the historical norm,” said Keppel.