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Outsourcing demand: Hot, cooling or just evolving?

July 20, 2009

Given the state of the global economy and especially the economy in developed countries, one would assume that all signs would point to a substantial uptick in outsourcing. However, two recent surveys, one by EquaTerra (dated 2Q2009) and another by TPI (dated 1Q2009), are giving mixed signals regarding the overall strength in the demand for outsourcing.

The latest EquaTerra’s 2Q09 Advisor and Business/IT Service Provider Pulse Survey revealed an increase in demand for outsourcing with the main driver for the majority of buyers shifting from realizing a competitive advantage to simply surviving the current economic downturn through cost savings. In fact, the survey revealed that 46% respondents reported increased demand for outsourcing services while 65% of outsourcing vendors reported continued growth in their new deal pipeline for the quarter with the main reason cited for growth being the current and extremely difficult economic environment.

globalEconomyOnOutsource Outsourcing demand: Hot, cooling or just evolving?

Interestingly enough though, the survey found that while India was cited as the preferred location by 61% of outsourcing advisors and 60% of outsourcing vendors and the country still maintains its lead as the number one choice for IT outsourcing, India’s level of preference has fallen by 20% over the previous two years while new and emerging locations such as China and Latin America is gradually eroding the country’s BPO leadership position.

On the other hand, the latest TPI Index which measures contracts greater than US$25 million, revealed that 141 contracts with a total contract value (TCV) of US$19 billion were signed during the first quarter – down 21% quarter-on-quarter and 22%year-on-year. In addition, Annual contract value (ACV), that is, TCV divided by contract duration, was determined to be US$4 billion for the quarter – down 18% quarter-on-quarter and 27% year-on-year. In fact TCV and CV were found to be the lowest since 1Q2001 and 1Q2003 respectively. TPI also points out that the pace of outsourcing contract awards in the EMEA has returned to normal levels after experiencing a surge last year and concludes that some industries are turning to outsourcing at a more rapid pace while others are not.

In a recent piece for Computer Weekly, Sanjiv Gossain, the UK managing director of Cognizant Technology Solutions, explains these mixed signals by pointing out that in an environment where consumer and business confidence is at its lowest point in decades, all new investments and projects are under the microscope. Moreover, he points out that overall decision making has slowed while some companies have even come to the conclusion that the best course of action to take is to keep projects, at least those that are IT in nature, in-house where they can keep a tighter rein on things.

Thus and for the time being, we can only assume that until the economy bottoms out or stabilizes, outsourcing demand is neither hot nor cooling but merely evolving until the economy once again has a clear footing.

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Written by JohnU · Filed Under Outsource Blogs 

Comments

2 Responses to “Outsourcing demand: Hot, cooling or just evolving?”

  1. Pankaj on July 21st, 2009 3:23 pm

    Several reports that say India is losing market share to other countries. If so how can Inofosys, TCS, etc winning more bigger outsource contracts? Not sure what to believe

  2. Outsourcing demand: Hot, cooling or just evolving? | Outsource … | Latest News on July 21st, 2009 6:28 pm

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