Large Contract Restructurings Lifted Outsourcing Market in First Quarter

By Mark Mayo, Partner & President, TPI Global Operations, TPI

In last quarter’s TPI Index, I was happy to report that the market which had bottomed in the first half of 2009 had made a turn in the second half, signaling the beginning of a gradual recovery in the outsourcing industry. In today’s 1Q10 Global TPI Index, we reported that total contract value (TCV) rose 25 percent from the first quarter of 2009, but the underlying market is recovering slowly and unevenly.

Contract restructurings, in which clients renewed, renegotiated or expanded existing contracts, were the real reason for the growth in the first quarter of 2010. Restructurings accounted for 42 percent of TCV, far surpassing the previous record of 29 percent set in 2006, and greatly impacted Americas and Europe, Middle East & Africa regional performance.

Restructurings also fueled the growth in IT outsourcing (ITO), which expanded 46 percent, with particular strength in Application Development & Maintenance (ADM) and ADM-plus-Infrastructure contracts. In addition, three of the four mega-deals awarded in the quarter were ITO restructurings.

Looking ahead, TPI anticipates that contract restructurings will continue to have an impact on the outsourcing market. Between $10 billion and $12 billion in annual contract value due to expire in 2010 will be renegotiated, up 20% to 25% from where the industry stood last year.

We don’t expect a huge rush of new-scope contracting. Instead, we foresee a steady flow of new opportunities as the recovery continues at a slow pace.

Check out the full 1Q10 Global TPI Index presentation or listen to the replay at 800-332-6854 (Replay Conference ID: 231877).

Comments

[call centers philippines]

"We don’t expect a huge rush of new-scope contracting. Instead, we foresee a steady flow of new opportunities as the recovery continues at a slow pace." -That's a good news. Outsourcing is really a good business strategy.

[suvie]

Internal IT organizations choose to outsource for any number of reasons: to cut costs,
improve service, increase efficiency. Increasingly, they're seeking innovation from their
IT outsourcing partners, even though many don't have a clear picture of what innovation
means in the context of outsourcing. Thanks for the post.

[philippine call center]

In today's economy, outsourcing functions and systems can be beneficial if the demand for IT projects has increased, while the availability of additional human resources has vanished. Outsourcing can be used as a supplement to staff, thus freeing up staff to work on the workload demand of projects.

[philippine contact center]

Outsourcing industry is rapidly booming in the past few years. More and more companies are entering the outsourcing industry. There are now several companies that provide this kind of service.

[Resume Writing Services]

Although I do agree with your post, I have my own reservations.

[Gersis_Software]

This post really reflects the current situation on the ITO market. Based on our company experience I can say that the trend to contracts renegotiating (namely expanding) continues.