Reduction in mega deals in Europe; demand for IT outsourcing remains stable: Study.
Compared with the first six months (January-June) of 2008, which saw record levels of outsourcing activity, the information technology industry awarded a total contract value (TCV) of just $20.5 billion in the first half of 2009 which is 22 per cent lower, year-on-year (y-o-y).
The decline was primarily due to a reduction in mega-deals in Europe, as well as lower spending globally on business process outsourcing (BPO), states a new report from TPI, a research and advisory firm.
For the calendar year 2008, the industry had signed $90 billion worth of contracts. Moreover, the annualised contract value (ACV) — TCV divided by the duration of the contract — was the largest ever in 2008, at $17 billion. For the first half of 2009, however, the ACV is 28 per cent lower y-o-y.
In TPI’s view, the IT industry will not be able, to match last year’s figures (both TCV and ACV) since its performance during the second half of this year will have to then be phenomenal, unlikely in the current global economic scenario. The full-year TCV could fall below $80 billion this calendar year, states TPI. However, newly-signed commercial outsourcing contracts also suggest the outsourcing market has entered into a period of sustained activity, states the report. The study is based on the TPI index, which measures contracts valued at slightly over $25 million (around Rs 120 crore).
“The first half of 2008 was extremely strong for the outsourcing industry, which makes a year-over-year comparison tough. Nonetheless, recently we have seen some very early signs of stabilisation in ITO (information technology outsourcing) markets, especially in the United States, which gives us some encouragement that we may be seeing a bottom to the current slump,” qualifies Mark Mayo, Partner and President, TPI Global Resources Management.
On the bright side, demand for IT outsourcing (ITO) remained stable, both sequentially and year-over-year, in the Americas and the Asia Pacific. In addition, several industry verticals, including diversified financials, transportation, retail and telecom, increased their adoption of outsourcing during the first half of 2009.
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For instance, the 26 contracts awarded by transportation companies in the first half of 2009, with buyers in Europe, West Asia and Africa leading the way, represented 44 percent year-over-year growth. In telecom, the number of contracts did not change substantially, but TCV and ACV each doubled, year-over-year. Those four sectors together account for 37 percent of the number of contracts and 47 percent of TCV awarded this year.
The ITO market has benefitted from strength in network services, which accounted for half the mega-deals and mega-relationships so far in 2009, as well as in the Americas and Asia Pacific. Compared to the first half of last year, the TCV of ITO awards is up by six per cent in the Americas.
The major Indian service providers like Tata Consultancy Services, Infosys Technologies, Wipro and HCL Technologies continue to figure among the top 10 players in the Application Development and Maintenance (ADM) space.