Fewer outsourcing contracts garner less revenue for IT service providers
TPI reports that fewer IT services contracts were signed in the first half of 2009, resulting in significant revenue declines for outsourcers.
Outsourcers aren’t seeing the gains industry watchers expected during the economic downturn, according to the TPI Index, which shows fewer deals for less value were signed in the first half of 2009 than last year.Despite the proposed cost-saving benefits of outsourcing, this year’s recession continues to chip away at the growth IT service providers experienced in 2007. Sourcing advisory firm TPI this week released its second quarter and first half figures for the outsourcing market in 2009 and revealed that while the market is seeing some activity, it pales in comparison to this time last year.
“Compared to the first six months of 2008, which saw record levels of sourcing activity, the market in the first half of 2009 awarded 11% fewer contracts with 22% lower [total contract value] and 28% lower [annual contract value],” TPI reported in a press statement.
Yet TPI notes that the outsourcing market has achieved a period of sustained activity, albeit at a significantly lower level than 2008. The sourcing advisory firm, which tracks commercial outsourcing contracts valued at $25 million or more, found that the total number of contracts awarded in the second quarter fell 7.5% from the first quarter to 135. The total contract value (TCV) rose 5% in the second quarter to $20.5 billion, but the annualized contract value – which is TCV divided by the duration of the contracts – fell by 5% from the first quarter to $3.6 billion.
“Over the past six months, companies have been more tentative and tactical about making sourcing decisions as they try to navigate these challenging economic times,” said Mark Mayo, partner and president of TPI Global Resources Management. “Recently, we have seen some very early signs of stabilization in [IT outsourcing] markets, especially in the U.S., which gives us some encouragement that we may be seeing a bottom to the current slump.”
For instance, the TCV of IT outsourcing deals has increased by 6% over 2008 in the Americas. Unlike the IT outsourcing market, which TPI says has benefitted from network services accounting for about half of the mega-deals so far in 2009, business process outsourcing is declining faster than expected. According to TPI, the number, TCV and ACV of BPO contracts are all lower than the first halves of the previous five years.
“The decline appears to extend beyond a response to the recession,” TPI said.
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