2010 Global Outsourcing Trends
In 2009, cost cutting was one of the most influential drivers in the outsourcing market. Here we look at the developments likely to shape the outsourcing world in 2010.
Feb 24, 2010
In 2009, cost cutting was one of the most influential drivers in the outsourcing market. Here we look at the developments likely to shape the outsourcing world in 2010.
In the fourth quarter of 2009, the global outsourcing market had its best performance in six quarters. According to sourcing advisory firm TPI last month, "a slow but steady recovery in the industry is underway as businesses commit to long-term strategies to reduce costs and streamline operations."
The latest Global TPI Index showed the outsourcing market's total contract value reached $24.7 billion in Q4 2009, up 8 percent year-over-year and the best quarterly performance since Q2 2008.
As it did throughout year, strong demand for IT outsourcing helped drive the broader market during the fourth quarter. The total contract value in this category increased 54 percent over the prior quarter and 32 percent over a year ago, reaching $19 billion, the highest quarterly total in six years. For the year, the market produced $56 billion in total contract value, flat with 2008.
Meanwhile, the market for business process outsourcing (BPO) continued to struggle in the fourth quarter of 2009. While the total contract value in this segment rose almost 29 percent sequentially — a third consecutive quarterly improvement — it remained 33 percent below the same period in 2008. For 2009, the BPO market's total contract value fell 38 percent to $18.5 billion, its lowest level since 2001.
TPI's findings suggest optimism moving forward. Although the market's total contract value declined last year, "as 2010 begins, industry pipelines are healthier and more stable than a year ago.
"The rate of new transactions added to pipelines, which had slowed in 2009, has apparently stabilized, and the level of contracts coming up for renewal is up 29 percent," TPI said in a statement.
With the economy on the mend and technology spending expected to spike, "Outsourcing is one way for organizations to position themselves to capitalize on the recovery and show that their overall strategy is about value creation, not merely cost containment," according to Morrison & Foerster's latest annual global sourcing report.
Morrison & Foerster's Global Sourcing Group (outsourcing lawyers located in the U.S., Europe and Asia) publishes an annual report on the state of the worldwide outsourcing market and forecasts emerging trends in the coming year.
Among the highlights from Morrison & Foerster's Global Sourcing Trends in 2010 report:
"One of the dominant features of the outsourcing market over the last 12-15 months has been the emphasis on cost above all else," Morrison & Foerster's report explains.
A main risk has been that budgets would be slashed and customers would require immediate cost savings. "If cost reduction were the only criterion, other important drivers of outsourcing best practice — such as quality and service transformation — would suffer."
However, even as budgets and expenditures fell in 2009, "The upside opportunity was that companies would accelerate their outsourcing plans in order to move as much as possible of their cost base from fixed to variable," the authors write.
That has led not only to the implementation of new sourcing packages, but also renegotiation of existing contracts — "the mainstay of the outsourcing market in 2009" — often taking the form of relaxation of volume-commitment service levels, pricing reductions and bringing forward the financial benefits of transformation projects.
This article was originally posted by Thomasnet and is the property of Thomas Publishing Company
In the fourth quarter of 2009, the global outsourcing market had its best performance in six quarters. According to sourcing advisory firm TPI last month, "a slow but steady recovery in the industry is underway as businesses commit to long-term strategies to reduce costs and streamline operations."
The latest Global TPI Index showed the outsourcing market's total contract value reached $24.7 billion in Q4 2009, up 8 percent year-over-year and the best quarterly performance since Q2 2008.
As it did throughout year, strong demand for IT outsourcing helped drive the broader market during the fourth quarter. The total contract value in this category increased 54 percent over the prior quarter and 32 percent over a year ago, reaching $19 billion, the highest quarterly total in six years. For the year, the market produced $56 billion in total contract value, flat with 2008.
Meanwhile, the market for business process outsourcing (BPO) continued to struggle in the fourth quarter of 2009. While the total contract value in this segment rose almost 29 percent sequentially — a third consecutive quarterly improvement — it remained 33 percent below the same period in 2008. For 2009, the BPO market's total contract value fell 38 percent to $18.5 billion, its lowest level since 2001.
TPI's findings suggest optimism moving forward. Although the market's total contract value declined last year, "as 2010 begins, industry pipelines are healthier and more stable than a year ago.
"The rate of new transactions added to pipelines, which had slowed in 2009, has apparently stabilized, and the level of contracts coming up for renewal is up 29 percent," TPI said in a statement.
With the economy on the mend and technology spending expected to spike, "Outsourcing is one way for organizations to position themselves to capitalize on the recovery and show that their overall strategy is about value creation, not merely cost containment," according to Morrison & Foerster's latest annual global sourcing report.
Morrison & Foerster's Global Sourcing Group (outsourcing lawyers located in the U.S., Europe and Asia) publishes an annual report on the state of the worldwide outsourcing market and forecasts emerging trends in the coming year.
Among the highlights from Morrison & Foerster's Global Sourcing Trends in 2010 report:
- Rates of outsourcing pricing declines are expected to slow in the year ahead.
- Sourcing providers are not likely be as accommodating as they were last year.
- Market activity in 2010 should be busier, as many outsourcing projects were put on hold in 2009.
- There is likely to be a continuation of shorter deals, shorter procurement processes and an emphasis on "making things work rather than engaging in complex strategies."
- Do-it-yourself sourcing by internal teams will continue, with less reliance on consultant/advisory firms while favoring incumbent suppliers.
- There will be renewed emphasis on shared services, with competitors cooperating on certain sourcing platforms to reduce costs in shared cost areas, e.g., Pepsi and Anheuser-Busch sharing procurement costs.
"One of the dominant features of the outsourcing market over the last 12-15 months has been the emphasis on cost above all else," Morrison & Foerster's report explains.
A main risk has been that budgets would be slashed and customers would require immediate cost savings. "If cost reduction were the only criterion, other important drivers of outsourcing best practice — such as quality and service transformation — would suffer."
However, even as budgets and expenditures fell in 2009, "The upside opportunity was that companies would accelerate their outsourcing plans in order to move as much as possible of their cost base from fixed to variable," the authors write.
That has led not only to the implementation of new sourcing packages, but also renegotiation of existing contracts — "the mainstay of the outsourcing market in 2009" — often taking the form of relaxation of volume-commitment service levels, pricing reductions and bringing forward the financial benefits of transformation projects.
This article was originally posted by Thomasnet and is the property of Thomas Publishing Company