U.S. companies signed fewer outsourcing contracts in 2007 and committed less time and money to those they did purchase, according to the most recent TPI data.
TPI recently released findings from its study of the first three quarters this year. And the industry organization found that the number of outsourcing contracts awarded globally declined 16% when compared to the same period in 2006. The total contract value of deals worth more than $50 million awarded in the past nine months reached about $48 billion, which is 17% less than the comparable period in 2006. And annualized contract value -- contracts valued at $50 million or greater -- also decreased by 18% over the same time last year. And 'new scope' transactions were down roughly 43% in the Americas in comparison to the same time last year.
TPI executives attributed the findings to date in part to a shift in the Americas "toward small contract values and shorter durations."
"The essential reason for the lower global transaction performance is the Americas," said Peter Allen, partner and managing director of market development at TPI, on a conference call detailing the index. "The Americas have seen a shift toward smaller deal values and multi-sourcing strategies are being preferred over big deals with a single provider. The strongest demand for outsourcing today is coming from Europe."
For instance, in the first three quarters of 2007 Europe saw a 36% increase in new scope contracts in 2007 compared to 2006. And new scope contracts in Asia Pacific increased in value 72% from last year.
Despite the shrinking of outsourcing contracts in the Americas, the TPI Index revealed that India-based providers have seen their Americas-derived revenue grow by 37% on average on a year-over-year basis. TPI says that is because India-based service providers are picking up those contracts of lower values.
"Those with a strong offshore footprint and niche expertise are capitalizing on the Americas’ current lean towards smaller-sized contracts,” Allen noted. "Forty-two percent of the transactions we supported for our clients so far this year are less than $25 million compared to only 9% five years ago."
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