Record Number of Outsourcing Contracts Signed in 2006, TPI Index Reveals
TPI, the world’s leading advisor to global corporations on all facets of their service-delivery strategies for business support operations, today announced the developments of 2006 in the global outsourcing industry through the TPI Index report.
Jan 11, 2007
The contracts awarded in 2006 represented the single-greatest number of such agreements in any year, up 3 percent from 2005’s previous high. After an exceptional first quarter, the year concluded with a total contract value (TCV) of $78 billion, amounting to an 8 percent decline from the prior year. Annualized contract value (ACV) — an estimate of the average yearly revenue potential that may be derived from the 2006 contract awards — reflects roughly a 7 percent year-over-year decline in ACV.
"The 2006 numbers were down due in part to shorter contracts as well as those with smaller dollar values," said Peter Allen, partner and managing director for Market Development at TPI. "However, the market is growing. The ACV signed for 2006 was the second strongest year ever for annual value coming online, and the industry also had a record year in contracts with annual average spend of $100 million. The year-over-year comparisons are down due to an exceptionally strong 2005, rather than a weak 2006."
The number of "mega deals" — those with contract values above $1 billion – was unchanged from 2005 but off $5 billion in TCV from the prior year. Elsewhere, the total number of transactions completed as the result of a restructuring of a prior contract was a record at 72, but the TCV of just over $20 billion was not a record.
Outsourcing continues to grow abroad, with markets in Asia and Europe maturing. Asia-Pacific experienced a five-year high in both volume and value of contracts signed. Europe recorded the greatest number of contracts ever, but not the largest TCV. Most of the new contracts signed in Europe were smaller in contract value than in previous years.
"This past year actually showed the second straight year of double-digit TCV decline in the business process outsourcing (BPO) industry, a 15 percent fall from 2005, and this was a significant reason why 2006 numbers were down from 2005," added Mr. Allen. "This decline was the result of fewer multi-process BPO contracts, or those arrangements in which an organization opts to source out more than one support process at a time. Instead, companies and organizations sought more single-function solutions. In fact, fewer multi-process contracts were signed in 2006 than in each of the previous four years."
While fewer multi-process deals were completed, single-process contracts tended to grow both in volume and value, particularly within Financial Services Operations outsourcing (FSO), which nearly doubled in TCV from 2005. Yet even among single-process deals, not all sectors experienced growth. For example, there was a drop off in new sourcing contracts for Customer Relationship Management (CRM) operations such as customer call centers, as organizations instead sought best-in-class solutions for those processes.
Finally, more service providers are competing for and winning market transactions. Ninety providers won some new business in the year. India-based providers, operating from a smaller base, are consistently gaining relative TCV market share. They are especially strong in Applications Development and Maintenance (ADM) deals, for which their 2006 share almost matched that of the Big Six providers.
To view past and current TPI Index presentations, and to order the Q4 2006 TPI Index Insider, please visit http://www.tpi.net/knowledgecenter/tpiindex/.
"The 2006 numbers were down due in part to shorter contracts as well as those with smaller dollar values," said Peter Allen, partner and managing director for Market Development at TPI. "However, the market is growing. The ACV signed for 2006 was the second strongest year ever for annual value coming online, and the industry also had a record year in contracts with annual average spend of $100 million. The year-over-year comparisons are down due to an exceptionally strong 2005, rather than a weak 2006."
The number of "mega deals" — those with contract values above $1 billion – was unchanged from 2005 but off $5 billion in TCV from the prior year. Elsewhere, the total number of transactions completed as the result of a restructuring of a prior contract was a record at 72, but the TCV of just over $20 billion was not a record.
Outsourcing continues to grow abroad, with markets in Asia and Europe maturing. Asia-Pacific experienced a five-year high in both volume and value of contracts signed. Europe recorded the greatest number of contracts ever, but not the largest TCV. Most of the new contracts signed in Europe were smaller in contract value than in previous years.
"This past year actually showed the second straight year of double-digit TCV decline in the business process outsourcing (BPO) industry, a 15 percent fall from 2005, and this was a significant reason why 2006 numbers were down from 2005," added Mr. Allen. "This decline was the result of fewer multi-process BPO contracts, or those arrangements in which an organization opts to source out more than one support process at a time. Instead, companies and organizations sought more single-function solutions. In fact, fewer multi-process contracts were signed in 2006 than in each of the previous four years."
While fewer multi-process deals were completed, single-process contracts tended to grow both in volume and value, particularly within Financial Services Operations outsourcing (FSO), which nearly doubled in TCV from 2005. Yet even among single-process deals, not all sectors experienced growth. For example, there was a drop off in new sourcing contracts for Customer Relationship Management (CRM) operations such as customer call centers, as organizations instead sought best-in-class solutions for those processes.
Finally, more service providers are competing for and winning market transactions. Ninety providers won some new business in the year. India-based providers, operating from a smaller base, are consistently gaining relative TCV market share. They are especially strong in Applications Development and Maintenance (ADM) deals, for which their 2006 share almost matched that of the Big Six providers.
To view past and current TPI Index presentations, and to order the Q4 2006 TPI Index Insider, please visit http://www.tpi.net/knowledgecenter/tpiindex/.