News @ TPI

EUROPE TAKES THE LEAD IN OUTSOURCING ACTIVITY

2007 is the first year ever that both the number of contracts and the total contract value (TCV) in EMEA exceeded those measures in the Americas
Average contract value in EMEA increased due to greater new scope added and increased average BPO value
Europe, the Middle East and Africa (EMEA) also saw increased mega-relationship activity in 2007
India-heritage providers matched the market share of the Big Five Europe providers
On a global level, the fourth quarter was the best quarter on an annual contract value (ACV) basis in eleven years
High value of TCV globally awarded in the final quarter, but low number of contracts

According to the latest TPI Index from sourcing advisory firm TPI, 2007 witnessed a landmark regional shift with Europe, the Middle East and Africa (EMEA) taking the lead in outsourcing activity. 2007 was the first year ever that both the number of contracts and the total contract value (TCV) in EMEA exceeded those measures in the Americas. Although the final quarter of 2007 had the lowest quarterly number of contracts awarded in EMEA that year (51), it yielded the highest quarterly TCV – up nearly 43 percent quarter-over-quarter and 18 percent year-on- year. And despite the award of fewer contracts in 2007, EMEA accounted for €6.4B more in TCV year-over-year a 24 percent increase on 2006.

The average contract value in EMEA increased year-over-year from €112M to €149M due largely to greater new scope added and increased average BPO value. The average contract value for new scope added in EMEA increased by 40 percent. 187 contracts valued at €27B in TCV and €4.7B in an Annualised Contract Value (ACV) were incremental to the market last year. Incremental new scope ACV was up almost 31 percent year-over-year in EMEA, compared to an increase of 13 percent globally.

In addition, BPO performance in EMEA was particularly strong in 2007. The average BPO contract value jumped 82 percent, driven by an exceptionally strong fourth quarter performance. With €10B in TCV, the region accounts for more than half of all global BPO TCV in the Broader Market for the first time ever. Several large BPO contracts awarded in the fourth quarter, like those with Nielsen and Prudential, boosted the 2007 TCV results. In this sector, especially Financial Services Outsourcing (FSO) saw strong TCV gains in 2007, increasing by 56 percent year-over-year.

“Enterprises in Continental Europe are now outsourcing in greater numbers,” said Bernd Schaefer, partner and managing director, TPI Germany. “We have seen increased year-over-year activity in EMEA, mainly in Germany, The Netherlands, Sweden, Switzerland and France.”

EMEA also saw increased mega-relationship activity in 2007, particularly in the last quarter of the year. The 18 mega relationships valued at €2.7B signed in EMEA in 2007 represented a year-over-year increase of 63 percent by number and 50 percent by value. And in comparison to the Americas, where average contract sizes for the year decreased by about 17percent they surged by 33 percent in EMEA.

The India-based providers’ share of global contracts continued to expand in 2007, up by 42 percent on last year’s share and 114 percent on the three-year average 2004-2006. By contrast, despite Europe’s overall growth as an outsourcing market, the European Big Five (Atos Origin, BT, Capgemini, Siemens and T-Systems) saw their collective share of outsourcing contracts signed globally decline by 17 percent since last year, and by over 50 percent over the previous three years. Indeed, the India-based providers have, for the first time, equalised their share with the European Big Five.

Other major findings of the latest TPI Quarterly Index include:

On a global level the fourth quarter was the best quarter on an ACV basis in eleven years

On the basis of Annualised Contract Value the more than €12B of ACV awarded in 2007 matched the five-year average. New scope ACV was actually up globally year-over-year by a healthy 13 percent. The fourth quarter was actually the best quarter on an ACV basis in eleven years.

High value of TCV awardedin the final quarter, but low number of contracts

The full-year global performance was materially influenced by the fourth quarter because of the notably high value of TCV awarded in that quarter. Compared with the previous three quarters the fourth quarter TCV lifted the annual totals to more than €64B. However, it is almost the same number and €6.4B more in contract value than the five-year average. Despite the strong 4th quarter TCV, the full-year global TCV represents the smallest award value in the past five years and a year-over-year decline of about 5 percent.

In addition, the fourth quarter showed a relatively low number of contracts. The 108 contracts awarded globally in the fourth quarter of 2007 represented the lowest number awarded in any quarter since the third quarter of 2005 but the largest value €21.5B in TCV and €4.3B in ACV.

Mega-Relationships revived globally in the fourth quarter

The fourth quarter TCV was fuelled by some mega-relationship strength, those transactions with an ACV, or an average annual value, of €80M or greater. The fourth quarter witnessed the greatest number and value of mega-relationships signed than any quarter in recent years. Despite this, globally there were fewer mega-relationships in 2007 than in 2006, and their yearly value was down slightly.

Large BPO contract awards

Additionally, the fourth quarter included some large BPO contract awards, which elevated the 2007 BPO TCV to the same level seen in 2006, despite fewer BPO contract awards. In 2007, 171 BPO contracts worth €18.5B were awarded globally. The awards in the fourth quarter represent 23 percent of the year’s total number but 40 percent of the year’s TCV. The fourth quarter performance of 2007 represented the best quarter for BPO on a TCV basis in two years and the best in ACV in more than three years. Nevertheless 2007 saw a shift in relative share of BPO contracts from the Americas to EMEA and Asia-Pacific by both number of contracts and their TCV.

India-heritage providers experienced notable year-over-year share growth off a small base

While there was still a significant number of service providers participating in this industry, 12 percent fewer service providers won contracts in 2007 than in 2006 this after four successive years of increasing numbers of providers.

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About TPI
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.

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