TPI Index Cites Record Number of Business Process Outsourcing Contracts in 2006

By: Business News

TPI, the world's leading advisor to global corporations on all facets of their service delivery strategies for business support operations, today announced second-quarter developments in the global sourcing industry through the TPI Index report. Midway into 2006, the global outsourcing market is slightly ahead of this time last year in terms of awarded total contract value (TCV), supported in part by a record-breaking 92 Business Process Outsourcing (BPO) contracts signed during the first half of 2006. This marks an increase of 58 percent year-on-year. The 92 contracts are valued at a total of US$11 billion, a 20 percent gain 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 US$4 billion in TCV," commented Peter Allen, partner and managing director for Market Development at TPI. "Financial Services ranks Number One in BPO adoption so far in 2006, representing almost 40 percent of the total BPO market share."

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 US$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 US$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 US$50 million, the first half of the year saw 150 transactions valued at approximately US$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.

About TPI

TPI offers sourcing advisory solutions that support organizational goals to create enduring value, achieve effective transformation, and meet rapidly changing market demands. Since 2000, TPI has advised on more than 25 percent of total contract value awarded in the broader outsourcing market, which includes commercial contract awards each valued at US$50 million or more. With 350 advisors to help clients find the right balance of value, speed-to-market and risk mitigation, TPI remains the most sought-after advisory firm in the world. TPI operates in locations including Houston, New York, Toronto, London, Paris, Brussels, Frankfurt, Sydney, Bangalore and Singapore. For additional information, visit www.tpi.net.