News @ TPI
Asia Pacific Outsourcing Market Slowed Significantly in First Half of 2010
- TPI Index shows clients deferred large transactions during first six months of year, but annualized revenue, business process outsourcing activity still growing
- Clients still looking to outsourcing to improve operations, enable innovations such as Cloud Computing
SYDNEY, July 30, 2010 ― 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, today released data showing that the commercial outsourcing market in Asia Pacific slowed significantly as clients deferred decision-making on mega-deals and other large transactions during the first six months of the year.
The 1H10 Asia Pacific TPI Index found that the total contract value (TCV) awarded in the region in the first half of 2010 dropped 58 percent sequentially to $2.3 billion, the lowest first-half total since 2005. After outperforming the rest of the world in the second half of 2009, Asia Pacific experienced the sharpest decline among the three major regions: TCV fell 36 percent in Europe, the Middle East and Africa but rose 17 percent in the Americas.
There were no mega-deals or mega-relationships awarded in Asia Pacific during the first half of 2010 and just a single contract signed valued at $200 million or more – compared to 12 in 2009 across those two categories. This drop in large deal activity had a direct impact on average contract size, which fell to its lowest levels since 2006.
By other measures, however, the Asia Pacific market is still growing, albeit at a slower rate. In the 12 months that ended June 30, annualized revenues, which include revenue associated with prior awards as well as new contract-award value, rose for the fifth consecutive such period. In addition, the total number of contracts awarded in the region held steady from a year ago, business process outsourcing (BPO) activity increased significantly, and Telco-to-Telco awards continued to drive emerging markets.
“This slowing in the rate of outsourcing growth was due to a lack of large-deal activity in the region as clients deferred decision-making in the first half of the year,” said Sid Pai, Partner & Managing Director, TPI India. “But with some larger transactions likely to close before year-end, we expect TCV to rise during the second half.”
By scope, IT outsourcing (ITO) accounted for $1.4 billion of market TCV, a drop of 48 percent sequentially. BPO accounted for just under $1 billion in TCV, but the number of BPO contracts signed increased 13 percent. It would take just 10 additional contracts through the rest of the year to set a new yearly record for BPO awards in Asia Pacific.
Meanwhile, Telco-to-Telco awards, those contracts in which one telecommunications provider outsources network operations to another, and which the TPI Index measures separately, totaled $4.6 billion in the region out of a global total of $6.9 billion, with particular Telco-to-Telco strength seen in China and India.
Despite the sluggish market and continued focus on outsourcing as a route to cost reduction, innovations such as Cloud Computing are beginning to influence the approach companies take to their service-delivery strategy. The TPI Research study “Cloud Computing 2010 Hype vs. Reality,” released last week found that almost 20 percent of clients surveyed have already engaged service providers on Cloud solutions while an additional 45 percent plan to do so within the next six months.
“Following the traditional rollercoaster pattern that we often see in the region, outsourcing in Asia Pacific has been relatively soft in 2010,” Pai said. “However, the market remains both steady and healthy, and the industry pipeline is quite strong. We expect to see an increase in activity in the second half of 2010 as corporations continue to look to outsourcing to improve critical business operations and enable important innovations such as Cloud Computing.”
About the TPI Index
The TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, 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 authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
About TPI
TPI, a unit of Information Services Group, Inc. (ISG) (NASDAQ:III), is the founder and innovator of the sourcing advisory industry, and the largest sourcing data and 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, our accomplished industry experts collaborate with organizations to help them advance their business operations through the best combination of business process improvement, shared services, outsourcing and offshoring. In 2010, TPI was ranked no. 1 by the International Association of Outsourcing Professionals Global Outsourcing 100: World’s Best Outsourcing Advisors. For additional information, visit www.tpi.net.
About Information Services Group, Inc.
Information Services Group, Inc. (ISG) (NASDAQ:III) was founded in 2006 to build an industry-leading, high-growth, information-based services company by acquiring and growing businesses in advisory services, including strategy, implementation and management, and market information, including market measurement, analytics and related product and services. In November 2007, the company acquired TPI, the largest sourcing data and 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.