PracticeConsultingOutsourcing values shrink in 2005

Outsourcing values shrink in 2005

Increased use of offshore locations and more specialist providers sees average outsourcing contract values reduce

Price competition due to the increasing use of offshoring and a preference
towards more specialist providers has slashed the average value of outsourcing
contracts in Europe by 37% in the last year, according to sourcing advisory
company TPI.

However, the number of outsourcing contracts continues to rise, with 11% more
deals signed in 2004. TPI managing director Duncan Aitchison said that increased
competition among a number of smaller providers was good news for outsourcing
purchasers.

The average value of larger contracts signed worldwide to date in 2005 is
€183m (£124m), down by almost a quarter (24%) from €240m in 2004.

Aitchison said: ‘Contracts are becoming increasingly specialised, with many
companies choosing to outsource single functions, such as accounts payable or
desktop support, selecting a best-of-breed provider for each. This trend to a
larger number of smaller contracts is creating opportunities for a wider range
of providers and driving increased competition to the benefit of outsourcing
purchasers.’

He said Indian providers in particular are enjoying growing success. ‘As the
recent ABN Amro deal demonstrates, Indian providers can also now compete for and
win the biggest application development and maintenance (ADM) contracts’, he
said.

TPI said the trend for smaller average contract values was further evidenced
by only eight mega deals – deals valued at over €800m – having been signed this
year compared with 13 at the same time in 2004.

A growing proportion of these mega deals were also found to be restructurings
rather than entirely new contracts. Some 38% of deals signed so far this year
were restructurings – far more than ever before.

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