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Asia Pacific Sees Record Outsourcing Contract Award Volume In 2008

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Fuseworks Media
Fuseworks Media
Asia Pacific Sees Record Outsourcing Contract Award Volume In 2008

Region experiences 40 percent increase in the number of outsourcing

contracts during second half of 2008 according to the TPI Index

TPI, the largest sourcing data and advisory firm in the world and a unit of Information Services Group, Inc. (ISG) (Nasdaq: III), a leader in the information-based services industry, revealed that Asia Pacific had record outsourcing contract awards in 2008, with 88 contracts valued at US$12.3B. Despite a slowdown in the number of outsourcing contracts awarded during the second half of 2008 globally, Asia Pacific experienced a nearly 40 percent increase during this period.

Arno Franz, Partner and Regional President, TPI stated, "with a greater number of providers that have deeper capabilities than ever before, we expect 2009 to be a defining year for outsourcing as the industry steps up to help clients find near-term cost-realignment opportunities. To be clear, the fundamental business case and return on investment from outsourcing remain solid."

ASIA-PACIFIC INDEX HIGHLIGHTS

Despite strength in the number of Asia Pacific outsourcing contracts awarded during the year, total contract value (TCV) declined 6 percent from 2007's TCV. Annualized contract value (ACV) - the TCV divided by the duration of the contract - also declined 14 percent from the previous year to $140 million. Although Asia Pacific average contract values are down on 2007, they are significantly ahead of average contract values of $114 million in the Americas.

Two of the three mega deals - contracts valued at or greater than US$1 billion signed globally in the second half of 2008 were in Asia Pacific. While the number of mega deals in Asia Pacific remained steady in 2008, their total value increased by 40 percent over the previous year, representing the third consecutive year of mega deal TCV growth in the region. In contrast, the number of mega relationships in the region, compared to 2007 levels, declined significantly - down nearly 50 percent.

Smaller contract awards in Asia Pacific showed a markedly different pattern. In contrast to the Americas and Europe, Middle East and Africa (EMEA), Asia Pacific saw the number of smaller contracts rise by nearly 40 percent and TCV by 66 percent in the second half of 2008, on the back of a very soft performance during the first half of the year. Outsourcing activity reached an all-time high in the region with more small contracts signed than ever before.

"It is still too early to say for certain whether the reason for this pattern in Asia Pacific is a result of a return to the rollercoaster nature of the market in the region, or whether it is a result of the wave of economic uncertainly spreading around the world," continued Franz. "What is certain is that companies are looking hard at ways to reduce their operating expenses quickly - and outsourcing can be a valuable tool for achieving that goal."

REGIONAL PATTERNS

In Asia Pacific, year-over-year TCV gains in India helped offset losses in Australia and Japan but were not enough to prevent the region's slight decrease in total TCV for 2008 in comparison with 2007. More than 50 percent of Asia Pacific's outsourcing TCV for 2008 was in India. Two captive center acquisition mega deals in the financial services industry helped fuel India's share in 2008. However, even with mega deals excluded, India's share of the regional market grew compared to 2004-2007 historic levels. In contrast, Japan's and Australia's share of the regional TCV awarded declined.

Despite India's leadership position in the outsourcing industry, recent events, including the Satyam situation and recent terrorist attacks in Mumbai, are challenging this state of affairs. Geo-political risks are included among the factors that many companies consider when locating operations and these factors have introduced headwinds for India-heritage providers.

SUMMARY

"Looking forward, TPI anticipates that new contract awards during the first half of 2009 will continue to be shaped by the recession and lingering effects of challenges facing the Indian market," continued Franz.

To learn more about upcoming trends and topics for 2009 visit TPI's blog (www.considerthesourceblog.com).

Access the slides from the Asia Pacific TPI Index presentation at www.tpi.net.

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