Features

Business Process Outsourcing (BPO) Contracts Up 58% Y-o-Y in 2006

By Sophia Mayengbam

A record-breaking 92 Business Process Outsourcing (BPO) contracts have been signed during the first half of 2006, taking the global outsourcing market slightly ahead of this time last year in terms of awarded total contract value (TCV). This marks an increase of 58 percent year-on-year. The survey conducted by outsourcing advisory firm said that the value of the contract is now at a total value of USD 11 billion, representing a 20 percent growth in BPO TCV over this time a year ago.

Among industry sectors adopting BPO strategies, Financial Services leads the way with 27 contracts worth just over USD 4 billion in TCV.

"Financial Services ranks Number One in BPO adoption so far in 2006, representing almost 40 percent of the total BPO market share," said Peter Allen, partner and managing director for Market Development at TPI.

Manufacturing comprised about 31 percent of total BPO TCV market share this period. In this sector, one of the largest BPO contracts to-date this year was in Human Resources Outsourcing (HRO). HRO led the BPO market in 2005, but this year’s performance is not as robust: The total value for HRO across industry-wide BPO contracts represents only 22 percent, compared with last year’s 27 percent at this time.

"Although the pace of HRO awards has slowed in the industry, we still see incredible demand," said Scott Gildner, partner and managing director of TPI’s Global HR practice. "I attribute the slower activity to the general choppiness of the market. We saw the same trend in 2003 and 2004 at the first half-year mark, and we do expect a healthy number of HRO transactions to sign during the next half of this year."

In addition, BPO is expanding its reach and repertoire to include more processes now coming across TPI’s threshold of USD 25 million or greater values, including Financial Services Operations, Document Management and Procurement.

Looking across the service provider landscape, the India-based service providers are gaining significant market share, albeit starting from a relatively small base compared with the Big Six and Big Five Europe. India-based provider TCV share so far represents 5.2 percent of the total broader market TCV, up from less than 3.5 percent for entire year in 2005. This group is now signing larger-valued deals than in the past. Of the 11 contracts valued at USD 50 million or greater awarded to India-based providers this year, the majority had software applications development and maintenance (ADM) and finance and accounting (F&A) in scope. TPI sees more of this group also considered for remote IT infrastructure work.

In the broader market, including both BPO and information technology outsourcing (ITO) contracts each worth at least USD 50 million, the first half of the year saw 150 transactions valued at approximately USD 38 billion, up by three percent in TCV year-on-year, but down in number by the same percent. Despite a strong first-half for the broader market, the second quarter was much weaker in outsourcing contract volume and value than this year’s first quarter. In total, the first half of 2006 is consistent with last year’s first half, yet indicators that were in play at this time a year ago are not present this year.

"Slowing mega deal activity, shorter contract durations and our data showing traditionally weak months in the third quarter, all point to an uphill road to reach the value and volumes we’ve come to expect in the outsourcing market in the past few years," said Peter Allen. "In conclusion, it will take a strong second half in 2006 to match or exceed 2005 outsourcing levels."

The second quarter was much weaker in outsourcing contract volume compared wto strong first half of the broader market. The first half of 2006 is consistent with the year-ago period, however the scenario of the market has changed from last year.


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